2011/12 - cse

2011/12A dynamicyear ofachievementCommercial Leasing & Finance Ltd Annual Report 2011/12

Commercial Leasing & Finance Ltd

Commercial Leasing & Finance LtdRegistration No : PQ 131 PB

P.O. BOX 690,No. 68, Bauddhaloka Mawatha,

Bambalapitiya, Colombo 04, Sri Lanka.Phone (Hunting) : (011) 4 526526,

Fax : (011) 2559510, 4526517, 4526559E-mail : [email protected] Web : www.clc.lk

Commercial Leasing & Finance Ltd. is rated A-(lka) by Fitch Ratings Lanka Ltd., licensed by Monetary Board of the Central Bank of Sri Lanka under the Finance Business Act No. 42 of 2011. Date of incorporation 22/04/1988.

23% G

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Through the partnership with

Associated Motorways PLC, executed

over 1,300 leases for Suzuki Maruti

branded vehicles within 5 months.

2.8% NPL Ratio.

Rs. 3.2 Bn Profit Before Tax.

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Rs. 6.6 Bn Shareholders' Funds.

Total foreign funding lines

exceeding Rs. 3 Bn.

54% G

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To soar into the future, giving wings to the dreams, hopes and aspirations of our people and everyone who has a stake in the success of our enterprise.

To forge ahead to reach new frontiers, to touch new horizons, seeking new challenges and exploring new opportunities.

Together with our people with diverse strengths, committed to achieving personnel excellence and the continuous growth of our enterprise.

Vision

Name of the Company


Country of Incorporation

Sri Lanka

Legal Form

A quoted public company with limited liability

Date of Incorporation

22nd April 1988

Company Registration No.

PQ 131 PB

Principal Activities

During the year the principal activities of the

Company comprised provision of leasing, hire

purchase, loans and other lending products,

Having received a finance company license,

the activities expanded to include mobilizing

of fixed and savings deposits.

Company Secretary

Miss Chrishanthi S. Emmanuel, FCIS, FCCS

Auditors

KPMG, Chartered Accountants

Lawyers

Julius & Creasy, Attorneys-at-Law

Nithya Partners

Corporate Information

Registrars

PW Corporate Secretarial (Private) Ltd

Bankers

Bank of Ceylon

Standard Chartered Bank PLC

Citi Bank N A

Hatton National Bank PLC

Hongkong and Shanghai Banking Corporation Ltd

Deutsche Bank

Nation Trust Bank PLC

Commercial Bank of Ceylon

NDB Bank

Seylan Bank PLC

MCB Bank

Pan Asia Bank

Sampath Bank

DFCC Vardhana Bank

Union Bank

People’s Bank

Habib Bank

Registered Office

No. 68, Baudhaloka Mawatha, Colombo 04.

ContentsFinancial Highlights 2

Chairman’s Message 6Director/Chief Executive Officer’s Review 8

Message from the Director 10Board of Directors 12

Board of Directors’ Profiles 13Management Team 17

Management Discussion & Analysis 19Our Outreach 23

Financial Review 24Risk Management 26Corporate Governance Report 30

Financial InformationAudit Committee Report 50Integrated Risk Management Committee 51Remuneration Committee Report 52Directors’ Report 53Directors’ Statement on Internal Controls 58Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 60Independent Auditor’s Report 61Income Statement 62Balance Sheet 63Statement of changes in equity 64Cash Flow Statement 65Accounting Policies 67Notes to the Financial Statements 73

Shareholder Information 88Ten Year Summary 89

Sources and Distribution of Income 90Statement of Value Added 91

Notice of the Meeting 92Notes 93

Form of Proxy 95

Produced by Copyline (Pvt) Ltd Printed by Gunaratne Offset Ltd

1Commercial Leasing & Finance Ltd. Annual Report 2011/12

Commercial Leasing & Finance Limited

Now operates as a fully fledged finance company, offering a range of financial services. Our main services are fixed deposits, savings, leasing, factoring, hire purchase, loans and hiring.

A dynamic year of achievement2011/12 A dynamic year of achievement – what better way to celebrate our momentous progress from leasing to finance than completing a year that showed exceptional & unmatched results. And with the years ahead providing opportunities and challenges that will allow us to grow beyond our limits, we are enthused to carry on this growth and transformation as we serve you, our stakeholders, in more ways than before. Our progress is a testament to our resilient and dynamic nature and we will focus on the future with determination and optimism.

2 Commercial Leasing & Finance Ltd. Annual Report 2011/12

Financial Highlights

For the year ended 2007 2008/09 2010 2011 2012

(31 Dec) (15 months) (31 March) (31 March) (31 March)

Performance indicators (Rs. Mn)

Interest income 1,721 2,824 2,495 3,402 5,245

Interest expense 993 1,640 1,362 1,309 2,167

Profit before tax 405 514 362 741 3,182

Profit after tax 328 415 354 664 2,920

New business incepted 3,086 4,436 5,675 12,926 15,262

(Leasing/ hire purchase/ loans)

Financial position (Rs. Mn)

Total assets 7,976 9,451 12,534 21,409 26,381

Net lending portfolio 7,382 8,332 9,764 18,371 24,104

Outstanding borrowings 5,710 5,821 9,231 15,833 17,649

Deposits from customers - - - - 385

Shareholders funds 1,295 1,675 2,029 3,683 6,603

Key indicators

Earnings per share (Adjusted) (Rs. per share) 0.10 0.13 0.11 0.21 0.91

Net asset value per share (Adjusted) (Rs. per share) 0.40 0.52 0.63 1.15 2.06

Interest cover (Times) 1.41 1.31 1.26 1.57 2.47

Debt to equity ratio (times) 4.41 3.48 4.55 4.30 2.73

Return on capital employed (Percentage) 25.32 27.96 19.12 23.25 56.78

Return on average total assets (Percentage) 4.17 4.77 3.22 3.92 12.22

Non performing ratio - 1.11 0.90 0.76 2.80


2007

0

6,000

5,000

3,000

2,000

4,000

1,000

Rs. Mn

2008

/09

2009

/10

2010

/11

2011

/12

Interest Income to Interest expense

Interest income

Interest expense

2007

0 0

7,000

6,000

60

5,000

50

3,00030

2,00020

4,000

40

1,000 10

Rs. Mn %

2008

/09

2009

/10

2010

/11

2011

/12

Shareholders' Funds and ROCE

Shareholders funds

Return on capital employed

2007

0

20,000

15,000

5,000

10,000

Rs. Mn

2008

/09

2009

/10

2010

/11

2011

/12

New Business Incepted

2007

0

3,500

2,500

3,000

500

1,000

1,500

2,000

Rs. Mn

2008

/09

2009

/10

2010

/11

2011

/12

Net Profit After Tax

Beginning our journey in 1988, we are proud to celebrate the addition of another facet to our gamut of financial solutions.As we progressed from leasing to become a fully fledged financial institution, we look forward to continuing our reputation as a flexible, dynamic entity that is prepared to serve a whole new range of consumers who trust our brand of financing options. 24 years have culminated in this outstanding milestone and we remain hopeful for the years ahead as we expand and grow to accommodate the growing needs of a rapidly developing nation.


Dear Shareholder,It gives me great pleasure to welcome you to the first Annual General Meeting of Commercial Leasing & Finance Ltd as a public listed company, and to share with you the best ever result achieved by the company.

Economic EnvironmentThe buoyancy of Sri Lanka’s post war economy in 2011 provided an ideal environment for the growth achieved by the financial sector. Sri Lanka’s economy sustained its high growth momentum surpassing last year’s record high to grow by 8.3 % in 2011. This was amidst several political and economic challenges in the world economy. Improved consumer and investor confidence in Sri Lanka; favourable macroeconomic conditions, increased capacity utilisation, expansion of infrastructure facilities and renewed economic activity in the Northern and Eastern provinces underpinned this growth. Subdued inflation, at mid single digit levels; and low interest rates, during the year were particularly beneficial to the Licensed Finance Companies (LFC) sector.

Sri Lanka’s Per Capita income increased to US Dollars 2,836 from previous year’s 2,400; whilst a further decline in the unemployment level, to reach the lowest ever rate of 4.2 % was another positive indicator of Sri Lanka’s high growth trajectory. These factors saw Sri Lanka advance from the “low income” category to be placed amongst “middle income economies” in the world.

PerformanceIn such a high growth environment which was most conducive to business, your company achieved a Profit After Tax of Rs. 2.9 Bn, which is a remarkable 339% growth over the previous year; whilst Profit Before Tax reached Rs. 3.2 Bn. This was once again a performance which surpassed that of the industry. The total portfolio grew by 31% to reach Rs. 24 Bn. A strong branch network, a unique operating model, and the dedication and commitment of our entire team of employees were the most significant contributors to this performance.

The company’s Non Performing Loan (NPL) Ratio at 2.8% is amongst the lowest in the industry, facilitated by the collection efficiency of our team. Commercial Leasing Company, became a member of the LOLC Group four years ago, and has since then, evolved from a medium sized leasing company to be amongst the top five players in the industry with results that continue to be above industry performance. Post-acquisition, with the synergies of LOLC, your company grew in leaps and bounds. The disbursements, which we coin as ‘executions’ has grown from Rs. 3 Bn to Rs. 15 Bn within four years and the corresponding asset base has grown from Rs. 8 Bn to Rs. 26.3 Bn making Commercial Leasing one of the rapidly growing, leading leasing player, particularly in the lower end of SME and urban micro sectors. And it is also noteworthy that this level of growth has been achieved organically.

ChairmanCommercial Leasing & Finance Ltd.

Chairman’s Message

PAT of Rs. 2.9 Bn, a remarkable growth of 339%


AchievementsThe year under review also saw your company surpass two other milestones. It broadened its sphere of business to become a Registered Finance Company; and Commercial Leasing Company was hence renamed Commercial Leasing & Finance Ltd (CLC). We now look to the year ahead with added vigour to harness the numerous new opportunities that this progression springs up.

The other landmark reached was the listing of 10% of CLC’s shareholding in the Colombo Stock Exchange, converting it to a Public Listed Company in June 2012. On behalf of the Board of Directors and all our members of staff I would like to take this opportunity to express my sincere appreciation to the Central Bank of Sri Lanka and other regulatory authorities for granting approval for CLC to make the transition, to a public listed company, and to a licensed deposit taking enterprise, - which is also an endorsement of the strength and stability of your company.

These significant strides made by CLC during the past four years in particular, have enabled a performance which better reflects its true potential. These achievements would not have been possible without the dedication, enthusiasm and initiative of the entire team at CLC, which I would like to note with much gratitude.

The year 2009 saw a significant achievement as CLC became one of the few Sri Lankan finance companies to be funded by couple of leading international funding agencies, namely FMO, Triodos and the Asian Development Bank (ADB). This has enabled your company to strike a healthy balance in the funding mix with more than 25% accounting for foreign funding at competitive rates. This is also a valuable recognition of the role we play in Sri Lanka’s economic progress and an endorsement of the high standards of governance and management at CLC. We also appreciate the opportunity these relationships offer us to continuously raise the bar for ourselves- whether it be in technical know how or by being abreast of latest in best practices in corporate governance and risk management.

Strategy and Future DirectionOur core area of business has been in lending to Micro and Small and Medium scale Enterprises (SME sector) of the country. This has given us an opportunity to make a valuable contribution in

achieving some of the nation’s macro economic goals, such as reducing the geographical disparity of income distribution, and empowering those who otherwise have no access to formal channels of credit. This contribution we can make to the country’s economic growth is one which we hold high, and is intrinsic to the long term approach to enterprise that we have adopted. It springs from our belief that sustainability of an entity’s profits ultimately depend on the sustainability of the community and environment that it is part of. Our island wide branch network has also helped in employment generation and enabled us to become an integral part of empowering and enriching many rural communities across the country.

Our strategies for the future will see us intensify our focus on micro finance, rural and agri lending, and thereby play an enhanced role in the country’s high growth trajectory.

A key sector in CLC’s SME portfolio has been the Agricultural sector, a thrust area of economic growth identified by the government. We are also particularly proud to have been an active player in the post war resurgence of the North & East, where by providing credit facilities we have been able to help rebuild lives and livelihoods; and build hitherto dormant skills and the entrepreneurial spirits of a people. CLC will continue to strengthen its presence in the North & East and to contribute to uplift living standards across the country.

CLC’s model of “Business Introducers” is one which is unique, and has been a key element of the company’s rapid growth and remarkable performance. The company will hence expand this island wide network whilst continuing to build on the confidence and commitment of its existing network of over 2,500 “Business Introducers”.

The initiative of opening window offices in the local post office is another which has served the company well in its integration into the rural communities.

Your company will continue to harness the synergies of CLC and LOLC. The customer trust and confidence that the brand CLC has earned over the past 24 years, combined with the operational excellence and the management expertise of LOLC Group, find CLC well poised to capitalize on the many opportunities that I foresee. This is particularly so as the potential in micro and SME sectors of the economy is still largely untapped.

Macro economic imbalances in the economy necessitated several new policy measures by the government at the beginning of year 2012. The resulting environment of a weaker currency, higher interest rates and import taxes and an expected rise in cost of living, has necessitated that we review some of our strategies to respond as appropriate to these changing dynamics.

AcknowledgementsI wish to express my sincere appreciation to my colleagues on the Board for their invaluable support and encouragement and for the confidence placed in me. My most sincere appreciation also to our entire team that makes up CLC, whose focused approach, passion and commitment have been indispensable to achieving an excellent financial performance. I also extend my gratitude to our shareholders, customers and business partners and other stakeholders for their confidence which continues to inspire us to reach greater heights.

Ishara NanayakkaraChairman


It is my pleasure to present to you the review of a record performance and an year of several milestones.

Surpassing MilestonesThe year under review was a landmark year for Commercial Leasing Company (CLC) for many reasons. Most significantly, CLC, which has been a leasing company since its inception 24 years ago, was able to obtain Central Bank approval to become a Finance Company. CLC was thus renamed Commercial Leasing & Finance Ltd during the year. This enhanced role has presented us with many new opportunities; and we look to the year ahead with much enthusiasm to offer a broader portfolio to our customers and to capitalize on these opportunities. The transition also brought with it several challenges; such as the need for a change in outlook and employee orientation and training; the need for new policy and procedural manuals and to create market awareness of our enhanced scope. It was a noteworthy achievement that CLC was able to launch into deposit taking within one month of being registered as a finance company, and I would like to note with gratitude the effort by our entire team at CLC, that made it possible.

Subsequent to the year under review also saw another milestone as CLC made a transition to become a public listed company, meeting the regulations of the new Finance Business Act No. 42 of 2011; by listing 10% of the company’s shareholding in the Colombo Stock Exchange.

CLC opened its 50th branch in February 2012, in Killinochchi. This became our 8th branch in the North & East of the country, and is a reflection of our commitment to support the socio-economic revival in these areas.

PerformanceSupported by an environment of high economic growth and low interest rates in 2011 which was most conducive to business, CLC recorded significant growth and achieved its best performance to date.

Profits Before Tax grew by a significant 329% to reach Rs. 3.2 Bn compared with Rs. 741 Mn the previous year, whilst Profit After Tax reached Rs. 2.9 Bn. The growth in profits stemmed mainly from the increase in interest income which grew by 54%. A very successful marketing strategy, operational excellence, an effective, balanced credit policy and guidelines were factors which drove this performance.

Director/Chief Executive OfficerCommercial Leasing & Finance Ltd.

Director/Chief Executive Officer’s Review

Broader solutions to customers


The portfolio recorded steady growth over the previous year, increasing by 31% to Rs. 24 Bn. Reflecting this growth in the portfolio, Revenue also increased to Rs. 5.2 Bn compared with Rs. 3.4 Bn the previous year.

The Non Performing Loan (NPL) ratio during the year was amongst the industry best, at 2.8%. And this achievement is made all the more significant in the context of the high portfolio growth during the period; thus reflecting the fact that the quantum increase in the portfolio came without a compromise on quality. It is also a reflection of the commitment and dedication of our recovery staff.

Our pioneering decision to introduce factoring into rural areas has proven to be a wise one, and has also enabled Commercial Factors to enjoy first mover advantage in this niche market. The factoring business which constitutes 11% of our total portfolio contributed 15% to revenue during the year under review. Factoring also contributed to the increase in interest income, with a 73% growth over the previous year, to reach Rs. 795 Mn.

The Company also made a structural change of divesting its investment in Diriya Investments, thereby making a capital gain of Rs. 2 Bn during the year under review with a capital base of Rs. 6.6 Bn. The Company is one of the most capitalized Finance companies in Sri Lanka with a debt to equity ratio of 1:2.7. The opportunity to mobilise deposits as a finance company would further strengthen our funding base in the year ahead. CLC is one of the few Sri Lankan finance companies whose funding base extends to credit lines from international agencies, which include FMO, Triodos and the Asian Development Bank (ADB). The company thus stands well poised to meet the challenges of tomorrow and further accelerate the growth recorded over the past few years. Our association with these leading international funding institutions provides us with a valuable advantage which underscores the potential of the company.

Future GrowthThe strength of our Business Introducer model continued to be a key element of CLC’s performance, and contributed around 60% of total business volumes once again. In addition to a lean management style that this model facilitates due to its cost efficacy, the strength of these partnerships also inspires us to reach higher, and extend our island wide reach.

Our financial products mainly benefit the micro sector of the economy and the small to medium scale entrepreneurs. And brand CLC has become a household name in the multitude of rural and semi urban locations we operate in. This has enabled CLC to become an integral part of the empowerment and enrichment of these communities. We will intensify our focus in these micro and SME sectors in the next few years and capitalize on the numerous opportunities that still remain untapped. Our branch network and the “Business Introducer” channel would continue to be a key conduit for this strategy in the next few years.

We also plan to expand products such as factoring facilities for working capital into markets which are yet to have seen these products.

The synergies that we enjoy from the combination of being a member of the LOLC Group and the value of the CLC brand as a trusted and preferred brand in the micro and SME market, will continue to be a key strength which we will leverage on.

AppreciationI would like to convey my sincere appreciation to the Chairman and the Board of Directors, and my colleagues on the management team for their vision, unstinted support and guidance, and for the confidence placed in me.

My sincere appreciation to our entire team of employees, for demonstrating that the dedication, commitment and loyalty of a company’s human resource is the greatest asset that it can have. Surpassing the many milestones as we did this year, would not have been possible without the passion and initiative of this team of over 500 individuals. The challenges that came with these transitions were met successfully and swiftly enabling a seamless transition; and the team is now geared to capitalize on the numerous opportunities that we foresee.

The confidence and trust amongst our customers, business partners and other stakeholders, in our dependability and stability have been significant factors that have contributed to our performance, and the strength of the CLC brand during its 24 years in business. I would like to extend my sincere appreciation to them. And the enhanced scope of our company in the year ahead will help further strengthen these relationships.

Krishan ThilakaratneDirector/Chief Executive Officer


Dear Shareholder,Commercial Leasing & Finance Ltd (CLC) reports yet another remarkable performance in an year in which it also surpassed several other milestones.

The company’s performance is adequately discussed in the Chairman’s and CEO’s Reviews. In my message I would like to emphasise on the key performance s the Company achieved during the reported period.

The year under review saw another record performance with the highest ever profits in the company’s history. The vibrant growth it has achieved in its portfolio in the year under review is a result of many factors. Amongst the most significant is the success of CLC’s “Business Introducer” model, which has been able to reach areas and people which probably financial institutions have been unable to, spanning the many rural and semi urban localities of the country. Since the company’s inception 24 years ago, it has recorded steady growth built on a brand name which has earned the loyalty and trust of a customer base of over 40,000; and the growth achieved since 2008 has been particularly significant with 227% increase in net lending portfolio.

The company has added a reason to feel rewarded, as its consistently high performance stands as testimony to its approach to business and to the values it holds high; that a sustainability of a business must go hand in hand with the sustainability of the larger communities which it is part of. This value is fundamental to CLC’s business strategy which focuses on the micro and lower end of SME sectors of the economy who otherwise have limited access to formal sources of credit. The company will continue to focus on these sectors in which it sees much untapped potential. It will also further strengthen its focus on the Northern and Eastern provinces of the country where an economic revival since the dawn of peace, offers much potential for growth, not just for your company but for the collective benefit of the country.

Message from the Director

DirectorCommercial Leasing & Finance Ltd.

The success of CLC is its people, who with their own unique sense of passion have contributed to its performance


The need for good governance in a financial enterprise can never be overstated. Whilst CLC’s association with leading international funding agencies is an endorsement of its stability and good governance, these relationships also provide opportunities for CLC to frequently enhance and adopt the state of the art best practices. Some of the measures practiced at CLC to ensure collective instead of individual decision making and facilitate greater transparency and accountability include the several committees such as the Audit Committee, the Assets & Liabilities Management Committee, the Internal Risk Management Committee and the IT Steering Committee, all of which meet regularly and play an active role. Senior management meetings are held frequently.

Risk management has been a priority area in the company’s strategy and this is reflected in an excellent Non Performing Loan (NPL) ratio of 2.8%,achieved during the year, and which is well above the industry average.

Strengthened by its past successes and re-energised by the broadened scope as a finance company, CLC is well poised for sustainable growth by capitalising on the many opportunities in the micro and SME market in the years ahead. Sound management and a visionary strategy will continue to be key factors in its future performance.

AcknowledgementsI would like to convey my sincere thanks to our Chairman for his leadership and unstinted support and to my colleagues on the Board for their constant guidance and support. My sincere appreciation also extends to all employees of CLC whose commitment and work ethic has made the many significant achievements possible. My gratitude also extends to the regulatory authorities, customers, business partners and all other stakeholders of the company for their vital contribution to CLC’s success.

Kapila JayawardenaDirector


Board of Directors

1. Mr. I C Nanayakkara Chairman/Non-Executive Director

2. Mr. W D K Jayawardena Non-Executive Director

3. Mrs. K U Amarasinghe Non-Executive Director

4. Mr. P D J Fernando Senior Independent Non-Executive Director

5. Dr. H Cabral, PC Independent Non-Executive Director

6. Mr. D M D K Thilakratne Director/Chief Executive Officer

7. Miss. C S Emmanuel Company Secretary

1

3

5

7

2

6

4


Board of Directors’ Profiles

Mr. I C NanayakkaraMr. Ishara Nanayakkara is an astute businessman who holds directorial positions in many corporates and conglomerates in Sri Lanka.

He ventured into the arena of financial services with the strategic investment in Lanka ORIX Leasing Company PLC. He was appointed to the Board of CLC in June 2008 and was appointed as Chairman in January 2012. Today, as Deputy Chairman of LOLC Group, he straddles a conglomerate that encompasses financial services, agriculture and plantation, leisure, renewable energy, construction, manufacturing and trading.

Mr. Nanayakkara has extensive exposure in both banking and non-banking financial sectors through his involvement in Lanka ORIX Leasing Company PLC, Lanka ORIX Finance PLC and Seylan Bank.

His interest in microfinance is evident through his recurrent contribution to PRASAC – the largest microfinance Company in Cambodia and in his own initiative, LOLC Micro Credit Ltd - the only regulated private sector microfinance institution with foreign equity in Sri Lanka.

His passion for renewable energy is reflected through the green portfolio of the LOLC Group - comprising hydro power, solar power, agri waste and bio-mass – a promising source of alternate energy. The green investments of the LOLC Group companies are poised to offer their share to the environment.

Mr. Nanayakkara is also conversant in sustainable forestry and plantation through group companies - Maturata, Pussellawa and Gal Oya Plantations. The addition of Agstar Fertilisers Ltd, a leading agri input provider in the country, have further enhanced the Group’s contribution to the agriculture and plantation sectors.

The participation in Sierra Constructions (Pvt) Ltd, one of the largest construction companies in the country, is timely, considering the contribution of the construction sector to the post war development.

Mr. Nanayakkara is focused on the opportunities presented by the leisure sector. With the recent acquisitions of some of the leading hotels in the Southern Coast alongside key properties in the North and East, development plans are underway for the leisure subsidiaries of LOLC Group – Eden Hotel Lanka PLC, Riverina Hotels PLC, Palm Garden Hotels PLC, Tropical Villas (Pvt) Ltd and Dickwella Resorts (Pvt) Ltd.

He is also involved at strategic level in Browns Group of Companies, a conglomerate with leading market position in trade, leisure, manufacturing, consumer appliances and agriculture equipment.

He holds a Diploma in Business Accounting from Australia.


Mr. W D K JayawardenaMr. Kapila Jayawardena was appointed as a Director of the Company in June 2008. He holds a MBA in Financial Management, is an Associate of the Institute of Cost and Executive Accountants and was awarded Fellowship of the Institute of Bankers (IBSL) in 2006.

He has varied experience in the fields of Banking, Audit, Relationship Management, Corporate Finance, Corporate Banking, Investment Banking and Treasury Management.

Mr. Jayawardena was appointed as the Chairman of the Sri Lanka Banks Association (SLBA) in 2003/04 and served as President of the American Chamber of Commerce in Sri Lanka in 2006/2007.

He served as a Director of Lanka Clear, National Institute of Business Management (NIBM) and The Institute of Bankers (IBSL).

Mr. Jayawardena was appointed to the Financial Sector Reforms Committee (FSRC) by the Prime Minister and was a member of the Finance Sector and Capital markets cluster of the National Council of Economic Development (NCED). He was a key member of the inaugural sovereign rating team and sovereign debt for Sri Lanka appointed by the Governor of the Central Bank.

He was presented with the prestigious Combined Support Group Award by the US Navy for services rendered after the Tsunami in 2005. The Government of Sri Lanka appointed him to the Board of the Sri Lanka Fulbright Commission in 2010.

Mr. Jayawardena was appointed to the Council of the National Chamber of Commerce of Sri Lanka on 27th January 2011.

Mr. Jayawardena has over 27 years experience in all areas of banking, out of which 9 years in the capacity of CEO/Country Head Citibank Sri Lanka and Maldives. He was the first Sri Lankan to be appointed as a Senior Credit Officer (SCO) by Citi Bank in Sri Lanka. During his leadership Citi Bank in Sri Lanka was rated AAA by Fitch Rating in Sri Lanka. Citi Bank Sri Lanka was the first foreign Bank to obtain an AAA rating.

Mr. Jayawardena is also the Chairman of Lanka ORIX Finance PLC, LOLC Insurance Co Ltd, LOLC General Insurance Ltd, LOLC Life Insurance Ltd, LOLC Leisure Ltd, LOLC Motors Ltd, LOLC Securities Ltd, Speed Italia (Pvt) Ltd, United Dendro Energy (Pvt) Ltd, Palm Garden Hotels PLC, Riverina Hotels PLC and Eden Hotel Lanka PLC.

He is the Group Managing Director/ CEO of Lanka ORIX Leasing Company PLC and serves on the Board of LOLC Micro Credit Ltd. Mr. Jayawardena is also a Director of HDFC Bank and Brown & Company PLC.

Board of Directors Profiles contd.


Mrs. K U AmarasingheMrs. Kalsha Amarasinghe was appointed to the Board of Directors in June 2008. She holds an Honours Degree in Economics.

She serves on the Boards of Lanka ORIX Finance PLC, LOLC Insurance Co Ltd, LOLC General Insurance Ltd, LOLC Life Insurance Ltd, LOLC Leisure Ltd, LOLC Securities Ltd, Speed Italia (Pvt) Ltd, United Dendro Energy (Pvt) Ltd, Palm Garden Hotels PLC, Riverina Hotels PLC and Eden Hotel Lanka PLC.

Mr. Priyantha FernandoMr. Priyantha Fernando was appointed to the Board of CLC on 30th March 2012.

Mr. Fernando has more than 35 years of experience at the Central Bank where he rose to the position of the Deputy Governor. He was the Deputy Governor of the Central Bank in 2010-2011, in charge of Financial System Stability and the Corporate Services clusters. Mr. Fernando has extensive experience and expertise in the fields of Banking and Financial Sector particularly at the policy making levels in financial regulation and supervision, information technology, national accounting, macro-economic analysis and statistics and finance and fund management. At the Central Bank he was the Chairman of the Financial Stability Committee, member of the Monetary Policy Committee, member of the Risk Management Committee, Chairman of the National Payment Council. He also functioned as the Secretary to the Monetary Board during 2009/2010.

He was an ex-officio board member in several regulatory organisations, namely the Securities & Exchange Commission, the Insurance Board of Sri Lanka, the Chairman of the Credit Information Bureau, Institute of Bankers - Sri Lanka and have also served as a Board Member at Employers Trust Fund, Lanka Clear (Pvt) Ltd and Lanka Financial Services Bureau.

During his career he has initiated and spearheaded several key projects of national importance, especially in the area of developing the infrastructure for the national payments and settlement system.

Mr. Fernando has served a number of committees at national level covering a range of subjects representing the Central Bank.

Currently he serves on the Boards of Union Bank PLC, Taprobane Holdings Ltd and Hambana Petrochemicals Ltd., as an Independent Non-Executive Director.

Dr. Harsha Cabral, PCDr. Harsha Cabral was appointed to the Board as an independent Director in December 2011. He is a President’s Counsel and holds a PhD in Corporate Law (University of Canberra) Australia. Dr. Cabral is a Senior Counsel in Corporate Law with twenty four years experience, specialising in Company Law, Intellectual Property Law, Commercial Law, International Trade Law & Commercial Arbitration.


Board of Directors Profiles contd.

He serves as a Commissioner, Law Commission of Sri Lanka. He is a Member of the Advisory Commission in Company Law, Sri Lanka (key member in drafting the new Companies Act No. 07 of 2007), NCED (National Council for Economic Development –Legal Cluster) Sri Lanka, Ministerial Committee appointed to reform the Law on Commercial Arbitration. He is a Council member of the University of Colombo, member of the Board of Studies - the Council of Legal Education in Sri Lanka, member of the Academic Board of Studies of the Institute of Chartered Accountants of Sri Lanka and a member of the Corporate Governance Committee of the Institute of Chartered Accountants of Sri Lanka.

He is currently serving on the boards of Diesel & Motor Engineering PLC (DIMO), Union Bank of Colombo PLC, Richard Pieris & Co. Distributors Ltd., Tokyo Cement Company (Lanka) PLC, Tokyo Super Cement Co (Private) Ltd., Fuji Cement Co (Lanka) Ltd, Tokyo Cement Power (Lanka) Ltd, Hayleys PLC, Hambana Petrochemicals Ltd, and Lanka ORIX Finance PLC.

Dr. Cabral is the Course Director of University of Wales – IALS – LLM Programme, a lecturer & examiner of University of Wales-UK, University of Colombo & Sri Lanka Law College, Council member/faculty member of Institute for the Development of Commercial Law & Practice, a lecturer & examiner, Post Graduate Diploma in Advanced Corporate Law, Institute of Advanced Legal Studies, Sri Lanka Law College and the Vice President of Business Recovery & Insolvency Practitioners Association of Sri Lanka.

He is the author of several books on Company Law & Intellectual Property Law.

Mr. Krishan ThilakaratneMr. Krishan Thilakaratne was appointed to the Board on 6th March 2012. He is an Associate Member of the Institute of Bankers of Sri Lanka (AIB) and joined the LOLC Group in 1995. He counts over nineteen years of experience in Banking, Credit, Leasing, Factoring and Branch Management.

He is the CEO of the Islamic Business Unit of Lanka ORIX Finance PLC. He has held the position of CEO of Lanka ORIX Factors Limited and CEO of Auto Finance of Lanka ORIX Leasing Company PLC previously.

He also serves on the Boards of Commercial Insurance Brokers (Pvt) Ltd and Commercial Factors Limited .

Miss. C S Emmanuel (Company Secretary)Miss. Chrishanthi Emmanuel is a Fellow of the Institute of Chartered Secretaries and Administrators - UK and a Fellow of the Institute of Chartered Corporate Secretaries (Sri Lanka).

She is Company Secretary of most subsidiaries within the LOLC Group. She is also Secretary of the Leasing Association of Sri Lanka.


Management Team

1. Jude Anthony - Assistant General Manager - Branch Network2. Nihal Weerapana - Deputy General Manager - Recoveries3. Nishanthi Kariyawasam - Assistant General Manager - Finance4. Lasantha Peiris - Chief Manager - IT Operations5. Dharsha Abeyawardena - Manager - Savings & Fixed Deposits6. Dishan Obeysinghe - Manager - Asset Backed Finance7. Upul Samarasinghe - Chief Manager - Credit8. Prasanna Dayaratne - Chief Manager - Customer Service9. Deepamalie Abhayawardane - Assistant General Manager - Factoring10. Pradeep Uluwaduge - Head of Human Resources and Administration11. Tharanga Indrapala - Chief Manager - Operations

1

6 7 8 9 10 11

2 3 4 5


3.2BnProfit Before Tax

26Bn

Ass

et

Base

6.6BnShareholders Funds


The EnvironmentSri Lanka’s economy sustained its high growth momentum surpassing last year’s record high to grow by 8.3% in 2011. This high pace of economic growth combined with subdued inflation, at mid single digit levels and low interest rates in 2011 provided an ideal environment for business. The rapid pace of expansion resulting in high demand for credit, fuelled significant growth in the Listed Finance Companies (LFC) sector during the year. The country’s financial stability continued to be strengthened, thereby supporting the growth momentum despite the uncertainties in global prospects and turbulence in international financial markets. In the low interest regime, credit growth accelerated during the year and the performance of financial institutions improved with enhanced growth in assets, healthy profitability, higher capitalization and lower risk levels.

The regulatory and prudential framework governing the financial system was strengthened, facilitating greater investor confidence and safeguards. The key reform during the year was the new “Finance Business Act” which aims at further strengthening the regulation of finance companies by enhancing powers to combat unauthorized deposit-taking and finance business activities. It also introduced new requirements for capital adequacy and liquidity for finance companies. In order to comply with the requirements of this new regulatory regime, CLC listed 10% of its shareholding in the Colombo Stock Exchange thereby becoming a Public Listed Company in June 2012.

Key ContributorsThe most significant landmark during the year was the enhancement of the company’s business scope from a specialized leasing company to become a full fledged finance company. Thus, Commercial Leasing was renamed as Commercial Leasing & Finance during the year. And it is a noteworthy achievement that CLC was able to launch into deposit taking within a month of being registered as a finance company.

The credit team’s role in the company’s performance is a vital one, and more so in the case of CLC which focuses on the micro and SME sectors in the country. In addition to developing an appropriate and a balanced credit policy, the team also played a key role in training marketing personnel across the company, thus facilitating a higher portfolio quality and credit standards at CLC.

MD

&A

Management Discussion & Analysis

A customer centric approach permeates our culture


The performance of CLC’s recoveries has also been a key element of the company’s performance. The Non Performing Loan (NPL) ratio during the year was amongst the industry best, at 2.8%. And this achievement is made all the more significant in the context of the high portfolio growth during the period; indicating that the quantum increase in the portfolio was without compromise on quality. This achievement also reflects the sound credit policies, operational excellence, and the commitment, dedication and market knowledge of our staff across all departments.

The company continually reviews and enhances its operations, and is guided by the principle that achieving operational excellence must be without compromise on the quality of customer service. We are in fact ever mindful that our operations must be geared to providing an excellent service to our customers. Towards this end, the Operational Manual is regularly reviewed and adapted to meet changing needs and trends.

Information Technology (IT) is a vital cog that moves our enterprise in today’s market. We have invested in world class IT infrastructure and systems that support our business model. The co-banking system in use supports assets and liabilities of our business and is well integrated.

With a customer centric approach that permeates our corporate culture, the company’s marketing strategy is designed to develop brand CLC and to support our business channels. The marketing communication team played a particularly significant role during the year just ended, in creating market awareness of the transition to a finance company, and more specifically, in the launch of savings and fixed deposits. The seamless transition that we were able to make into this new role of a finance company and the wide market acceptance received within a very short span, stand as testimony to the success of our marketing strategy and effort.

The Factoring BusinessSri Lanka’s Factoring industry, in line with other sectors of the economy, continued on the high growth trend of the previous year, recording a 76% growth during the year just ended.

Commercial Factors, which has been a pioneer in the factoring industry, during the year under review was amongst the two best performers in the sector. Along with the significant growth of the factoring portfolio CLC managed to secure more clients during the year. The increase in active clientele by 32% reflected the high demand for working capital and related solutions, in an environment of high growth and low interest rates. Our strategy and service standards were key factors in this performance. Trading and Manufacturing sectors accounted for a majority of the business and the Services sector contributed the remainder.

CLC, which pioneered the offer of Factoring services outside the traditional urban and semi urban areas of Western Province, will continue to strengthen its presence and expand further into rural markets. During the year under review, two branches dedicated for factoring and working capital products were opened in Kandy and Matara to offer an enhanced service to our clients in the Central and Southern Provinces respectively.

We continued to innovate by structuring customized facilities to meet the different working capital needs of clients. The product mix offered by CLC included Domestic Recourse Factoring, Invoice Discounting, Sales Ledger Administration, Debt Collection and Cheque Discounting,- to enhance factoring services in the SME sector in particular.

We see factoring as a sound alternative to bank overdrafts, and combined with its added feature of portfolio management, the potential for the factoring industry in Sri Lanka is immense.

Management Discussion & Analysis contd.


StrategyThe key focus area of our financial products continued to be the micro and SME sectors of the economy. We will continue to intensify our focus on these sectors, which have tremendous potential still to be tapped.

CLC’s "Business Introducer" model continued to be a significant conduit for its strategy, accounting for over 60% of the business. The company will continue to build on the strength of this model for future expansion and growth. In addition to the cost effectiveness of this model, the lean management structure it facilitates also supports CLC’s ability to be nimble in responding to market changes.

The synergies we enjoy, from being a member of the LOLC Group since 2008,combined with the customer loyalty and trust that brand CLC has earned during its 24 years in the leasing market, will continue to be key advantages in capitalising on the many opportunities we foresee.

Our ReachCLC continued its strategy of volume growth, and expanded its distribution channel, opening 8 new branches and 2 post office window counters during the year. This brings the total number of island wide branches to 50. The milestone 50th branch was opened in Killinochchi bringing the total number of CLC’s branches in the North and East of the country to eight, reflecting our commitment to contribute to the post war socio economic resurgence in these areas by fulfilling a need for financial solutions.

Our PeopleThe year under review saw your company surpass several significant milestones, for which kudos must go to our team of 511 employees. The success we achieved during the year reflects our belief that a company’s most valuable asset is the commitment, ability, passion and the dedication of its human resource. A belief made more real by the fact that our company is in the service sector where the intangibles of service provides a vital competitive edge.

Our training and development initiatives include continuous training as well as need based training. Continuous training involves providing training programmes regularly to motivate individuals, create the appropriate culture, build leadership skills and enhance knowledge and skills. Training programmes carried out during the year under review included several “Induction & Orientation” programmes which enabled new recruits to adapt easily to the culture of CLC.

As an enterprise engaged in providing Financial Services, the quality of service delivery is also an area of emphasis in our training and development, and more so because of the excellence we strive for at CLC. And combined with the technical know how of our people, our service quality has been a key factor in the strong relationships we have built; and the trust and confidence we have earned amongst all our stakeholders. Building relationships with rural customers requires a paradigm shift in modern customer relationship management, requiring our staff to grasp the hopes and aspirations of the economically disadvantaged and the cultural nuances of each locale and community, whilst being cognizant of their inherent pride and dignity. Our staff have hence developed the ability to empathize and speak the same language as our customers who hail from different socio economic backgrounds.

A culture sans hierarchy is actively promoted within the company. We believe that employees must be provided an environment in which they can give their best to the organization whilst reaching towards their own potential. A merit based work place ensures professionalism and

34

177

300

Staff Grade Wise

Managerial

Executive

Clerical


has also served to engender a new mind set. A clear career path, succession planning and performance based remuneration are key elements which has enabled CLC to become a preferred employee, as reflected in the high staff retention ratio of 87%. This is a noteworthy achievement, in a highly competitive industry which has seen many new entrants into the business over the past few years.

Moreover, CLC also has one of the youngest set of employees in the industry with more than 50% of staff under thirty years of age. A formal succession planning for the company enables the grooming and developing of employees, whilst career planning at individual level encourages employees to reach their potential. Performance evaluation methods are carried out in a transparent manner and the best performing employees are recognized and rewarded fittingly.

The cadre at CLC grew by 18.84% to 511 during the year under review, mainly due to an increased demand at branches. This comparatively slower rate of growth vis a vis the previous year’s of 87%; reflects the company’s increased focus on quality and a search for the “right attitude” when recruiting.

We firmly believe that the sustainability of our human resource is not merely about the monetary rewards which are commensurate with performance; but it also has much to do with satisfaction levels which are linked to the corporate culture, spirit of camaraderie, opportunities for recognition, personal development and fellowship. Some of the informal channels at CLC that facilitate a team spirit include the annual CLC sports day – a much looked forward to event which brings together employees from head office and the fifty branches. CLC’s Sports Club sponsored by the company, plays an active role in employee recreation, and also participates in mercantile cricket, football, rugby, badminton and athletics. CLC is also a popular participant at the Annual Mercantile Quiz contests organized by the Banking and Finance sector institutes. Our people philosophy supported by new systems and processes will continue to attract, develop and build a pool of talented, dynamic and a motivated human resource base with the right competencies that will be a key driver of the company’s sustainable growth in the years ahead.

1043

275183

Age Analysis

20-30

30-40

40-50

Above 50

Management Discussion & Analysis contd.


Our Outreach

CLC BranchesPost Office Service CentersSpecialised Factoring Branches

Matara

Galle

Ambalangoda

Pitigala

Udugama

Embilipitiya Tissamaharama

Kalawana

Ratnapura

Welimada Monaragala

BadullaNuwara Eliya

Ampara

Baduraliya

Kalutara

NugegodaMaharagama

AvissawellaKaduwela

Gampaha

WarakapolaKandy

Kalmunai

Batticaloa

Bakamoona

Dambulla

Polonnaruwa

Nochchiyagama

TrincomaleeKebitigollewa

Anuradhapura

Medawachchiya

Vavuniya

Parakramapura

Nelliady

Jaffna

Kilinochchi

Kurunegala

Puttalam

Matale

Wennappuwa

Kelaniya

Negombo

Kuliyapitiya

PettahBambalapitiya


Financial Review

OverviewThe Company concluded an extremely successful year in achieving both objectives of top line and bottom line contribution results. Main strategic contributory factors for better performance were the rapid expansion in the island wide reach, concentrated efforts on improving the service delivery to the different customer segments of the Company and maintaining and strengthening the brand of the Company.

The name of the Company was changed to Commercial Leasing and Finance Ltd. after obtaining approval from the Central Bank of Sri Lanka (CBSL) to function as a Finance Company. Keeping in line with the CBSL requirements to list the Company, an application was made with the Colombo Stock Exchange for listing which was accepted and the Company shares were traded after the financial year end.

RevenueTotal revenue of the Company reached Rs.5,245 Mn compared to Rs.3,402Mn last year. Revenue includes interest income from leasing, hire purchase, loans, factoring income and operational income such as interest on overdue rentals, profit on contracts terminated etc.

The growth in profits was a direct result of the increase in interest and operational income which grew by 54% to reach Rs. 5,245Mn. The factoring business of the Company, ComFactors too contributed to the increase in interest income with 73% growth over the last year to end at Rs. 795 Mn. Other operating income increased by 1155% mainly due to the profit on sale of subsidiary.

Interest expenseIncrease in borrowings to fund the additional volume growth together with rising market interest rates have caused an increase in interest expenses for the year to Rs. 2,167Mn from Rs.1309 Mn, an increase of 66% over the previous year.

Operating expensesThe operating expenses of the Company increased supporting the growth in the business and expansion of the footprint throughout the island. The resultant increase in total overheads by 37% from Rs.1,530Mn to 2,093Mn. However, these increases in expenses did not negatively affect the

The Company concluded an excellent year of financial performance and further strengthening of the balance sheet

Lea

sing

0

2,000

250

500

1,000

1,500

Rs. Mn

Hire

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cha

se

Fac

torin

g

Oth

er l

oa

n

Inte

rest

on

ove

rdue

rent

als

Hire

rent

al

Interest Income

2011

2012


performance of the Company, clearly demonstrating the low cost model of the Company with a superior cost to income ratio of 20%. The Company made additional provisions over and above the CBSL requirement, providing an additional Rs. 96Mn on account of bad and doubtful debts.

TaxationThe Company paid Rs.85Mn as VAT on financial services and provided Rs.205Mn as income taxation. The deferred taxation provision made in the financials amounts to Rs. 57Mn.

ProfitabilityThe Company recorded an impressive growth in profit before tax of Rs. 3,182Mn for FY 2011/12 up from Rs. 741 Mn in the previous year. Company’s profit after tax Rs. 2,920 Mn. These profits were achieved by strategic expansion of its core business of lending and effective management of the borrowing costs and operating expenses.

Asset growthThe total assets reached Rs. 26,381 Mn from Rs. 21,408 Mn last year which is an increase of 23%. The lending portfolio including factoring recorded steady growth over the year increasing the portfolio from Rs. 18,371Mn to Rs. 24,104 Mn. This was a growth of 31%.

BorrowingsTotal borrowings of the Company increased to Rs.17,649Mn from 15,833Mn supporting the portfolio growth and business expansion. The Company enjoys a rare benefit of having a wide range of multilateral and bilateral funding agencies as a result of the parent company’s long standing relationship with these institutions. During the year, the Company secured US$ 17Mn new foreign borrowing from foreign funding partners. These funding comes at attractive long term rates which helps the Company to maintain a healthy level of cost of borrowings. The Company policy is to have a zero foreign exchange risk with 100% hedging on all foreign borrowings which safeguards the Company against the foreign exchange fluctuations prevailed during the year. This policy is aligned to the mandate given by the CBSL of zero exposure to exchange risks on foreign borrowings.

Non performing loans and advancesThe Company’s collection efforts provided a strong backing to achieve this superior financial performance with the non-performing loans being contained at a ratio of 2.8%, which is one of the best NPL ratios in the industry. The provisions made on account of bad and doubtful debts were strengthened with additional provisions of Rs. 96 Mn being made over and above the Central Bank of Sri Lanka (CBSL) requirements.

Deposit baseSubsequent to receiving the approval of the CBSL to canvass public deposits, the Company launched its deposit mobilising campaign towards the latter part of the year and within three months of savings and fixed deposits operations, the Company was able to mobilise Rs.385Mn as deposits.

The Company concluded an excellent year of financial performance and further strengthening of the balance sheet. The Company’s strategies are well defined and carefully executed to further strengthen the financial position of the Company, which will enhance overall value to all the stakeholders.

2007

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30,000

25,000

5,000

10,000

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20,000

Rs. Mn

2008

/09

2009

/10

2010

/11

2011

/12

Total Assets to Net Lending Portfolio

Net portfolio

Total assets


Risk Management

Enterprise Risk Management at LOLC group is a centralised operation and the Group level mechanisms, models are replicated for Commercial Leasing & Finance PLC as in the case of other subsidiaries. The following is an extract of the Enterprise Risk Management Review for the LOLC Group which was published in the Group Annual Report. The Risk Profile has been amended to depict the entity level position of CLC.

Risk Management with a VisionWith the vision of creating an organisational culture where protection, assurance, reliability, accountability, transparency and confidentiality are treasured as lasting values, We consider all employees, including the Board of Directors, as risk managers within the scope of their respective functions.

We define risk as any circumstance or event that might hinder the achievement of stated corporate objectives. This definition helps all members of the CLC team to focus on identifying material, minor or even isolated process level risks. It also allows us to identify potential issues at source, enabling us to formulate controls and strategies to align risk with our risk appetite.

The Risk Management FrameworkThe LOLC Group risk management framework permits active synergies between risk management, compliance, internal audit and information systems audit functions under the umbrella of the Group Enterprise Risk Management (ERM) Division, ensuring that risk is a consideration with respect to all operational functions.

Action is guided by the Group risk management policy. Dedicated officers are appointed within the risk management function for each subsidiary in which the Parent Company has a material stake. These officers report to the Chief Risk Officer (CRO). The ERM process retains total independence from other business functions, with the CRO reporting to the Chairperson of the Board through the Integrated Risk Management Committees (IRMC) of every major Group company. These Committees are constituted from an appropriate mix of Independent Directors, Executive Directors and Management Personnel.

Each IRMC evaluates the identified risks that are relevant to it. Group level risks are escalated to the Parent Company IRMC and the Board. The process is simplified by adopting common risk policies across the Group, retaining uniformity and avoiding policy conflict. Risk information is held centrally at Group level, with reporting lines to Group ERM from each subsidiary. Additionally,

LOLC takes a defence-in-depth approach in responding to risk


every regulated subsidiary has its own appointed compliance officer for better focus on the diverse regulatory compliance requirements of each. The Group ERM Division enjoys unrestricted access and auditing rights over all major subsidiaries of the Group.

Despite our broad presence at grass roots level across Sri Lanka, support services of the Group are managed centrally. In order to capture vital risk information, reporting lines run to Group ERM from every business unit and branch. Tactical level operations are governed by well-defined policies and procedures, which once approved by the Board, are owned and protected by Group ERM. Any changes to operating policy or procedures are reviewed for adequacy with respect to internal controls. Internal Audit reviews compliance and the currency of rules when a function is audited.

Accountability and a focus on supervisory functions are maintained by the annual issue, by the heads of each business unit, of certificates testifying compliance with internal controls, with all material exceptions reported. Internal audit also conducts an annual compliance test on key and material controls relating to financial reporting.

Propagating Awareness and Understanding of RiskAll Group employees undergo training on risk management at induction, while training programmes on risks relating to specific functions are conducted periodically by Group ERM. Should internal audit report a lack of awareness or increased frequency of non-compliance in a certain function or business unit, Group ERM mandates awareness building and training sessions, which are conducted in collaboration with the respective unit and the Human Resources Division.

How We Identify RiskThe inherent risk of risk management lies in not identifying a particular risk. LOLC Group practises a three-tier risk identification methodology to help minimise this danger. The three tiers consist of separate assessments by the risk owner, by stakeholders and finally an independent assessment by LOLC Group ERM. This process is augmented by a “whistle-blowers’ hot line” whose users enjoy full privacy and confidentiality.

Customers are often the first to detect irregular practices or process efficiency bottlenecks, and they are encouraged to report them to Group ERM using our customer feedback line. Information received is acted upon and followed up until resolution. This practice has greatly helped us in streamlining our processes and procedures, increasing both effectiveness and control.

Supplementing the operational monitoring mechanisms established by business and service units of the Group are compulsory reporting requirements on risk for each unit, as well as field audits by the Group’s Internal Auditors. Anti-money laundering precautions and ‘know your customer’ rules are embedded in all contract and transaction processes, with centralised monitoring by Group compliance officers.


Defence-in-DepthLOLC takes a defence-in-depth approach in responding to risk. Within the policy and procedural frame work, the first line of defence relies on the risk awareness, skills and knowledge of line staff with respect to their particular functions. The second line of defence is formed by management supervision, embedded information systems and application controls. Risk detection and response may also result from reviews conducted by the internal monitoring functions of each business unit as well as from periodic internal and IT audits. Finally, Group ERM has the mandate and capacity to conduct forensic audits and investigations, including the integrity of our IT platform, if the need arises.

Internal audit adopts a four-step follow-up process on action to mitigate risk. It consists of:1. Confirmation by the risk owner that the weakness identified by internal audit has been

rectified.2. Follow up review on the effectiveness of rectification by internal audit.3. Control self-assessment by the risk owner, under the guidance of Group ERM.4. Follow-up by internal audit based on this self-assessment.

Capacity Building and Quality Management for ERM StaffERM staff possess a diverse array of knowledge and skills covering the entire gamut of operations of the LOLC Group. They are kept updated through continuous training and education. A broad and comprehensive educational resource base, managed by Group ERM, is in frequent use by risk officers as well as Internal Auditors.

Reaching for ExcellenceIn this uncertain world, the complete elimination of risk is impossible. However, we believe there is no limit to continuous improvement in effective risk management. All our risk management processes are continually reviewed and, wherever possible, improved. Internal quality management is strengthened by a rating system adopted to monitor the quality of assignments handled by department staff, and feedback received from supervisors drives further improvement.

Risk Profile of LOLCThis is a high level categorisation based on perceived risk. The table below assigns risk values based on a numerical scale:

Risk Rating ScoreVery Low 1Low 2Medium 3High 4Very High 5

Financial Risks

Asset & Liability Risk

Profitability & Income structure Risk

Capital Adquacy

Risk

Credit Risk

Liquidity Risk

Interest rate Risk

Market Risk

Currency Risk

5

4

3

2

1

0

Business Risks

Legal Risk

Systemic Risk

5

4

3

2

1

0

Industry Risk

Image RiskFinancial InfrastructureRisk

Policy Risk

Risk Management contd.


Future ChallengesThe volatile global business environment, a variable macroeconomic outlook and the Group’s exposure to multiple industry sectors call for aggressive and effective risk mitigation strategies. This has necessitated changes in our risk management approach and the adjustment of mitigation mechanisms to meet various regulatory and business requirements. It has also created a need for robust automation to strengthen our processes.

Global RecognitionLOLC Group’s institutionalisation of good governance, risk management and compliance Practices were recognised in the year under review with a global achievement award from the Open Compliance and Ethics Group (OCEG), USA. LOLC is the first Asian business entity to receive this award.

In her congratulatory message to LOLC, Ms. Carole Switzer, President of OCEG observes: “I am writing to extend my personal congratulations to LOLC, as a recipient of the 2012 GRC Achievement Award from OCEG. The award recognises the great strides that companies, Government agencies and other organisations have made in improving and integrating their approaches to governance, risk management and compliance, to achieve principled performance”.

Although elated, we will not rest on our laurels. We are already moving to further improve and consolidate our internationally-acclaimed risk management practices.

Political Risk

Disaster Management & Business Continuity Risk

Event Risks

5

4

3

2

1

0Contagion RiskExogenous Risk

Business Strategy Risk

Operational Risks

4

3

2

1

0

5

MIS Management

&FraudRisk

InternalSystems

&Operational

risk

Technology Risk


Corporate Governance Report

Commercial Leasing & Finance Limited comes within the purview of the Central Bank of Sri Lanka (CBSL), as it is a licensed finance company (LFC) and also a company licensed to engage in leasing. Consequent to its listing on 5th June 2012, the Company also complies with the Listing Rules of the Colombo Stock Exchange (CSE).

As a LFC, CLC is regulated and monitored by the CBSL, which conducts periodic inspections of the Company’s records and operations. The ensuing dialogue between the Directors of the Company and the CBSL officials ensures focus and compliance on a continuing basis. The Company also reports regularly to the CBSL on various aspects of operations, including liquidity and other ratios. This facilitates transparency and accountability.

In accordance with CBSL directions, sub committees of the Board have been appointed, to facilitate a more detailed study of relevant issues, including controls.

The Audit Committee is governed by the Audit Charter establishing its duties and responsibilities in financial reporting, business risk management, internal controls, compliance with laws and Company policies, monitor performance and independence of external and internal auditors. The Committee has acted within the parameters set by its terms of reference. During the year under review the Committee reviewed the scope of internal and external audits, and the internal control mechanisms established to provide the assurance that the assets and integrity of financial reporting have been safeguarded.

The Integrated Risk Management Committee reviews credit, market, liquidity, operational and strategic risks. These risks were reviewed monthly by the Chief Risk Officer and summarised reports were submitted quarterly to the Committee for concurrence and/or specific directions in order to ensure that the risks were managed appropriately.

Relevant senior management personnel are also invited to the meetings of these board sub committees, so that the gravity of the issues and the need for swift and appropriate action are understood by all. The Minutes of all sub committee meetings are also submitted to the Board, so that all directors are aware of the discussions and decisions of these sub committees.

To the best of the knowledge of the Directors, the Company has been in compliance with all prudential requirements, regulations and laws


In compliance with the listing rules of the Colombo Stock Exchange, a Remuneration Committee was formed to determine the broad policy framework of the remuneration of the Executive and Non-Executive Directors.

A whistle blowing policy has been introduced and the number of the related “hot line” has been publicised to all Company (and LOLC group) employees. This had been done in order to encourage employees/ customers to inform the management of deliberate deviations from controls and / or processes and procedures so that preventive/ corrective actions could be promptly taken.

The Company’s 20th Annual General Meeting of the shareholders will be held on 18th September 2012, where, as with every other AGM the shareholders are provided an opportunity to dialogue with the Board and senior management, on any aspect of the Company’s operations.

In accordance with best practices, the offices of Chairperson and Chief Executive Officer are separate, and the Chairperson is a Non-Executive Director. This ensures a balance of power and enhances accountability. To bring in a greater element of independence the Board appointed Mr. P D J Fernando as the Senior Independent Director.

The agenda of the monthly Board meetings includes reports on performance and on compliance with relevant regulations. This enables the Board to ensure that, the Company performs at an optimal level, while being fully compliant.

Mr. W D K Jayawardena retires by rotation and offers himself for re-election. The Board recommends his re-election. Dr. H Cabral, PC, Mr. P D J Fernando, and Mr. D M D K Thilakaratne were appointed during the year. They retire and offer themselves for re-election. The Board recommends their re-election.

In compliance with the Corporate Governance direction of the Central Bank of Sri Lanka, having reached the age limit, and at the conclusion of the transitional period, Mrs. R L Nanayakkara stepped down as Chairperson on 31st December 2011. The Board places on record its deep appreciation of her valued contribution.

There is no financial, business, family or other relationship between the Chairman and the CEO. Mr. I C Nanayakkara and Mrs. K U Amarasinghe share a family relationship. There is no financial, business, family or other material relationship between any other members of the Board.

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.

The Company has obtained a certification from its external auditors, M/s KPMG, Chartered Accountants on compliance with the Corporate Governance Direction issued by the Monetary Board.

The Directors confirm that no significant deviations have been observed by the external auditors and that the Company has not engaged in any activity that contravenes any applicable law or regulation. To the best of the knowledge of the Directors, the Company has been in compliance with all prudential requirements, regulations and laws.


Direction No.

Reference to the Finance Companies Corporate Governance Direction No. 3 of 2008

Company’s Level of compliance

2. The Responsibilities of the Board of Directors

2.1 The Board of Directors shall strengthen the safety and soundness of the finance company by:

a. approving and overseeing the finance company’s strategic objectives and corporate values and ensuring that such objectives and values are communicated throughout the finance company;

Complied with

b. approving the overall business strategy of the finance company, including the overall risk policy and risk management procedures and mechanisms with measurable goals, for at least immediate next three years;

In view of the volatile market environment the Company has to review its strategies constantly to compensate for negative market influences. However we are now in the process of drafting a medium to long term strategy factoring in the above challenges while allowing the Company to remain flexible enough to take remedial action and also seize opportunities.

c. identifying risks and ensuring implementation of appropriate systems to manage the risks prudently;

Complied with

d. approving a policy of communication with all stakeholders, including depositors, creditors, shareholders and borrowers;

Complied with

e. reviewing the adequacy and the integrity of the finance company’s internal control systems and management information systems;

Complied with

f. identifying and designating key management personnel, who are in a position to: (i) influence policy; (ii) direct activities; and (iii) exercise control over business activities, operations and risk

management;

Complied with

g. defining the areas of authority and key responsibilities for the Board and for the key management personnel;

Complied with

h. ensuring that there is appropriate oversight of the affairs of the finance company by key management personnel, that is consistent with the finance company’s policy;

Complied with

i. periodically assessing the effectiveness of its governance practices, including: (i) the selection, nomination and election of directors and appointment

of key management personnel;

Complied withDirectors are selected and nominated to the Board for skills and experience in order to bring about an objective judgment on issues of strategy, performance and resources. Election of directors are effected in accordance with the requirements of the Companies Act No. 7 of 2007. Effectiveness of this process is ascertained by their contribution at board meetings in their respective fields. In addition a Board approved procedure for the appointment of Directors is also in place.

Corporate Governance Report contd.


Direction No.



i. (contd.) (ii) the management of conflicts of interests; and (iii) the determination of weaknesses and implementation of changes

where necessary;

KMPs are selected and recruited in terms of the HR policy of the Company. KMPs directly report to the Managing Director or the Group CEO and performance appraisals are completed at least twice a year by the above Directors.

Conflicts of interest are managed on a monthly basis where directors disclose their directorships in other companies. KMPs declare any interest annually.

Weaknesses are identified from the above processes and changes may be implemented where necessary.

j. ensuring that the finance company has an appropriate succession plan for key management personnel;

Complied with

k. meeting regularly with the key management personnel to review policies, establish lines of communication and monitor progress towards corporate objectives;

Complied with

l. understanding the regulatory environment; Complied with

m. exercising due diligence in the hiring and oversight of external auditors. Complied with

2.2 The Board shall appoint the chairman and the chief executive officer and define and approve the functions and responsibilities of the chairman and the chief executive officer in line with paragraph 7 of this Direction.

Complied withThe Chairman and CEO have been duly appointed by the Board.

Their functions and responsibilities have been approved by the Board in terms of paragraph 7 of this direction, subsequent to the financial year end.

2.3 There shall be a procedure determined by the Board to enable directors, upon reasonable request, to seek independent professional advice in appropriate circumstances, at the finance company’s expense. The Board shall resolve to provide separate independent professional advice to directors to assist the relevant director(s) to discharge the duties to the finance company.

Complied with

2.4 A director shall abstain from voting on any Board resolution in relation to a matter in which he or any of his relatives or a concern in which he has substantial interest, is interested, and he shall not be counted in the quorum for the relevant agenda item at the Board meeting.

Complied with

2.5 The Board shall have a formal schedule of matters specifically reserved to it for decision to ensure that the direction and control of the finance company is firmly under its authority.

Complied withThe Board has put in place systems and controls to facilitate the effective discharge of Board functions. Pre-set agenda of meetings ensure the direction and control of the company is firmly under Board control and authority.


Direction No.



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

No such situation has arisen. In the event of such a possibility the Board will take necessary actions to comply.

2.7 The Board shall include in the finance company’s Annual Report, an annual corporate governance report setting out the compliance with this Direction.

Complied withThis report serves the said requirement.

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

Complied with

3. Meetings of the Board

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

Complied withPlease see page 47 for further details.

3.2 The Board shall ensure that arrangements are in place to enable all directors to include matters and proposals in the agenda for regular Board meetings where such matters and proposals relate to the promotion of business and the management of risks of the finance company.

Complied with

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

Complied withA calendar notice of all meetings are circulated to all concerned at the end of December or beginning of January followed up by a monthly refresher. In addition, a 7 day notice period is given to the directors in order to enable them to include matters in the Agenda.

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

Complied withPlease see page 47 for further details.

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

Complied withAn experienced Chartered Secretary functions as the Company Secretary. She also ensures that proper board procedures are followed and that applicable rules and regulations are brought to the notice of the Board.

3.6 If the chairman has delegated to the company secretary the function of preparing the agenda for a Board meeting, the company secretary shall be responsible for carrying out such function.

Complied with



Direction No.



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

Complied with

3.8 The company secretary shall maintain the minutes of Board meetings and such minutes shall be open for inspection at any reasonable time, on reasonable notice by any director.

Complied with

3.9 Minutes of Board meetings shall be recorded in sufficient detail so that it is possible to gather from the minutes, as to whether the Board acted with due care and prudence in performing its duties. The minutes of a Board meeting shall clearly contain or refer to the following: (a) a summary of data and information used by the Board in its

deliberations; (b) the matters considered by the Board; (c) the fact-finding discussions and the issues of contention or dissent

which may illustrate whether the Board was carrying out its duties with due care and prudence;

(d) the explanations and confirmations of relevant executives which indicate compliance with the Board’s strategies and policies and adherence to relevant laws and regulations;

(e) the Board’s knowledge and understanding of the risks to which the finance company is exposed and an overview of the risk management measures adopted; and

(f) the decisions and Board resolutions.

Complied with

4. Composition of the Board

4.1 The number of directors on the Board shall not be less than 5 and not more than 13.

Complied withThe board comprises 6 directors

4.2 The total period of service of a director other than a director who holds the position of chief executive officer or executive director shall not exceed nine years. The total period in office of a non executive director shall be inclusive of the total period of service served by such director up to the date of this Direction.

No Director has completed 9 years as a Non-Executive Director.

4.3 An employee of a finance company may be appointed, elected or nominated as a director of the finance company (hereinafter referred to as an “executive director”) provided that the number of executive directors shall not exceed one-half of the number of directors of the Board. In such an event, one of the executive directors shall be the chief executive officer of the company.

Complied withThere is 1 Executive Director (the CEO) and 5 Non-Executive Directors on the Board.


Direction No.



4.4 The number of independent non-executivedirectors of the Board shall be at least one fourth of the total numbers of directors. A non-executive director shall not be considered independent if such director:a) has shares exceeding 2% of the paid up capital of the finance

company or 10% of the paid up capital of another finance company;

b) has or had during the period of two years immediately preceding his appointment as director, any business transactions with the finance company as described in paragraph 9 hereof, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds of the finance company as shown in its last audited balance sheet;

c) has been employed by the finance company during the two year period immediately preceding the appointment as director;

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

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

f) is an employee or a director or has a share holding of 10% or more of the paid up capital in a company or business organization:(i) which has a transaction with the finance company as defined

in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

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

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

Complied withThere are 2 Independent Non-Executive Directors on the Board.

4.5 In the event an alternate director is appointed to represent an Independent Non-Executive director, the person so appointed shall also meet the criteria that apply to the independent non-executive director.

No alternate directors were appointed to represent independent directors during the year.

4.6 Non-Executive Directors shall have necessary skills and experience to bring an objective judgment to bear on issues of strategy, performance and resources.

Complied withDirectors profiles are provided on pages 13 to 16.



Direction No.



4.7 A meeting of the Board shall not be duly constituted, although the number of directors required to constitute the quorum at such meeting is present, unless at least one half of the number of directors that constitute the quorum at such meeting are non-executive directors.

Complied withDetails of attendance at meetings are provided on page 47.

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

Complied withThe directors for the year under review are:Mrs. R L Nanayakkara, Non-Executive Chairperson (resigned with effect from 31.12.2011)Mr. I C Nanayakkara, Non-Executive Chairman Mr. W D K Jayawardena, Non-Executive Director Mrs. K U Amarasinghe, Non-Executive DirectorDr. H Cabral, PC, Independent NE Director Mr. P D J Fernando, Senior Independent NE DirectorMr. D M D K Thilakaratne, Executive Director/CEO

The directors profiles are given on pages 13 to 16.

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

Complied with

4.10 All directors appointed to fill a casual vacancy shall be subject to election by shareholders at the first general meeting after their appointment.

Complied with

4.11 If a director resigns or is removed from office, the Board shall announce to the shareholders and notify the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka, regarding the resignation of the director or removal and the reasons for such resignation or removal, including but not limited to information relating to the relevant director’s disagreement with the Board, if any.

Complied with

5. Criteria to assess the fitness and propriety of directors

5.1 Subject to the transitional provisions contained herein, a person over the age of 70 years shall not serve as a director of a finance company

Complied withMrs. R L Nanaykkara stepped down at the end of the transitional period on 31st December 2011.

The age of the current Directors is within the period permitted under this direction.

5.2 A director of a finance company shall not hold office as a director or any other equivalent position in more than 20 companies/societies/bodies corporate, including associate companies and subsidiaries of the finance company. Provided that such director shall not hold office of a director or any other equivalent position in more than 10 companies that are classified as Specified Business Entities in terms of the Sri Lanka Accounting and Auditing Standards Act no. 15 of 1995.

All Directors are compliant with regard to the number of boards on which they serve. However two of the directors are currently exceeding the permitted number of specified business entities on which they can serve. They will be resigning from those companies shortly.


Direction No.



6. Delegation of Functions

6.1 The Board shall not delegate any matters to a board committee, chief executive officer, executive directors or key management personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.

Complied withThe Board has established a procedure under which powers have been delegated to the MD/CEO as sanctioned by the Company’s Articles of Association.

6.2 The Board shall review the delegation processes in place on a periodic basis to ensure that they remain relevant to the needs of the finance company.

Complied with

7. The Chairman and the Chief Executive Officer

7.1 The roles of chairman and chief executive officer shall be separated and shall not be performed by the one and the same person.

Complied with

7.2 The chairman shall be a non-executive director. In the case where the chairman is not an independent non-executive director, the Board shall designate an independent non-executive director as the Senior Director with suitably documented terms of reference to ensure a greater independent element. The designation of the Senior Director shall be disclosed in the finance company’s Annual Report.

Complied with The Chairman is a Non-Executive Director.

The Board has designated Mr. P D J Fernando Independent Non-Executive Director as the Senior Director to ensure a greater element of independence.

7.3 The Board shall disclose in its corporate governance report, which shall be an integral part of its Annual Report, the name of the chairman and the chief executive officer and the nature of any relationship [including financial, business, family or other material/ relevant relationship(s)], if any, between the chairman and the chief executive officer and the relationships among members of the Board.

Complied withThere is no financial, business, family or other relationship between the Chairman and the CEO.

Mr. I C Nanayakkara and Mrs. K U Amarasinghe share a family relationship.

There is no financial, business, family or other material relationship between any other members of the Board.

7.4 The chairman shall: (a) provide leadership to the Board; (b) ensure that the Board works effectively and discharges its

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

manner.

Complied with

7.5 The chairman shall be primarily responsible for the preparation of the agenda for each Board meeting.

The chairman may delegate the function of preparing the agenda to the company secretary.

Complied with

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

Complied with

7.7 The chairman shall encourage each director to make a full and active contribution to the Board’s affairs and take the lead to ensure that the Board acts in the best interests of the finance company.

Complied with



Direction No.



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

Complied with

7.9 Subject to the transitional provisions contained herein, the chairman, shall not engage in activities involving direct supervision of key management personnel or any other executive duties whatsoever.

Complied with

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

Complied with

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

Complied with

8. Board appointed Committees

8.1 Every finance company shall have at least the two Board committees set out in paragraphs 8(2) and 8(3) hereof. Each committee shall report directly to the Board. Each committee shall appoint a secretary to arrange its meetings, maintain minutes, records and carry out such other secretarial functions under the supervision of the chairman of the committee. The Board shall present a report on the performance, duties and functions of each committee, at the annual general meeting of the company.

Complied withPlease refer the reports on pages 50 to 51.

8.2 Audit Committee Please refer page 50 for the Committee Report.

a. The chairman of the committee shall be a non-executive director who possesses qualifications and experience in accountancy and/or audit.

Complied with

b. The Board members appointed to the committee shall be non-executive directors.

Complied with

c. The committee shall make recommendations on matters in connection with: (i) the appointment of the external auditor for audit services to be

provided in compliance with the relevant statutes;(ii) the implementation of the Central Bank guidelines issued to auditors

from time to time;(iii) the application of the relevant accounting standards; and (iv) the service period, audit fee and any resignation or dismissal of the

auditor, provided that the engagement of an audit partner shall not exceed five years, and that the particular audit partner is not re-engaged for the audit before the expiry of three years from the date of the completion of the previous term.

Complied withA formal Agenda for Audit Committee meetings including items prescribed by the Direction is followed for the conduct of Audit Committee meetings.

d. The committee shall review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit processes in accordance with applicable standards and best practices.

Complied with


Direction No.



e. The committee shall develop and implement a policy with the approval of the Board on the engagement of an external auditor to provide non-audit services that are permitted under the relevant statutes, regulations, requirements and guidelines. In doing so, the committee shall ensure that the provision by an external auditor of non-audit services does not impair the external auditor’s independence or objectivity. When assessing the external auditor’s independence or objectivity in relation to the provision of non-audit services, the committee shall consider:(i) whether the skills and experience of the auditor make it a suitable

provider of the non-audit services;(ii) whether there are safeguards in place to ensure that there is no

threat to the objectivity and/or independence in the conduct of the audit resulting from the provision of such services by the external auditor; and

(iii) whether the nature of the non-audit services, the related fee levels and the fee levels individually and in aggregate relative to the auditor, pose any threat to the objectivity and/or independence of the external auditor.

Complied with

f. The committee shall, before the audit commences, discuss and finalise with the external auditors the nature and scope of the audit, including: (i) an assessment of the finance company’s compliance with Directions

issued under the Act and the management’s internal controls over financial reporting;

(ii) the preparation of financial statements in accordance with relevant accounting principles and reporting obligations; and

(iii) the co-ordination between auditors where more than one auditor is involved.

Complied with

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

requirements.

Complied with

h. The committee shall discuss issues, problems and reservations arising from the interim and final audits, and any matters the auditor may wish to discuss including those matters that may need to be discussed in the absence of key management personnel, if necessary.

Complied with



Direction No.



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

Complied with

j. The committee shall take the following steps with regard to the internal audit function of the finance company:(i) Review the adequacy of the scope, functions and resources of the

internal audit department, and satisfy itself that the department has the necessary authority to carry out its work;

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

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

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

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

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

Complied withThe Audit Committee annually considers the scope of the internal audit function to ensure that adequate resources and the necessary authority have been allocated to carry out its work.

The appraisal of performance of the Head of the internal audit function is carried out by the Chairman twice a year.

This process will be further strengthened by the establishment of a terms of reference for the internal audit function to fulfill the requirements of this direction.

k. The committee shall consider the major findings of internal investigations and management’s responses thereto;

Complied with

l. The chief finance officer, the chief internal auditor and a representative of the external auditors may normally attend meetings. Other Board members and the chief executive officer may also attend meetings upon the invitation of the committee. However, at least once in six months, the committee shall meet with the external auditors without the executive directors being present.

The Audit Committee will strengthen this process as specified in this direction and meet with the external auditors at least once in six months, without the Executive Directors being present.

m. The committee shall have: (i) explicit authority to investigate into any matter within its terms of

reference; (ii) the resources which it needs to do so; (iii) full access to information; and(iv) authority to obtain external professional advice and to invite outsiders

with relevant experience to attend, if necessary.

Complied with

n. The committee shall meet regularly, with due notice of issues to be discussed and shall record its conclusions in discharging its duties and responsibilities.

Complied with


Direction No.



o. The Board shall, in the Annual Report, disclose in an informative way, (i) details of the activities of the audit committee; (ii) the number of audit committee meetings held in the year; and (iii) details of attendance of each individual member at such meetings.

Complied withPlease refer report on page 50.

p. The secretary to the committee (who may be the company secretary or the head of the internal audit function) shall record and keep detailed minutes of the committee meetings

Complied with

q. The committee shall review arrangements by which employees of the finance company may, in confidence, raise concerns about possible improprieties in financial reporting, internal control or other matters. Accordingly, the committee shall ensure that proper arrangements are in place for the fair and independent investigation of such matters and for appropriate follow-up action and to act as the key representative body for overseeing the finance company’s relations with the external auditor.

Complied withA whistle blowing hot line has been publicised to all employees.

8.3 Integrated Risk Management Committee Please refer page 51 for the Committee Report.

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

Complied with

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

The Committee assesses risks which have been identified on a monthly basis and submitted to the Committee meetings held quarterly. This procedure will be further strengthened as specified in this direction.

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

Complied with

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

Complied with

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

Complied with

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

Complied with



Direction No.



g. The committee shall submit a risk assessment report within a week of each meeting to the Board seeking the Board’s views, concurrence and/or specific directions.

The current procedure will be further strengthened as specified in this direction.

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

Complied withThis will be further strengthened as specified in this direction.

9. Related party transactions

9.1 The following shall be in addition to the provisions contained in the Finance Companies (Lending) Direction, No. 1 of 2007 and the Finance Companies (Business Transactions with Directors and their Relatives) Direction, No. 2 of 2007 or such other directions that shall repeal and replace the said directions from time to time.

9.2 The Board shall take the necessary steps to avoid any conflicts of interest that may arise from any transaction of the finance company with any person, and particularly with the following categories of persons who shall be considered as “related parties” for the purposes of this Direction:a) A subsidiary of the finance company;b) Any associate company of the finance company;c) A director of the finance company;d) A key management personnel of the finance company;e) A relative of a director or a key management personnel of the

finance company;f) A shareholder who owns shares exceeding 10% of the paid up

capital of the finance company;g) A concern in which a director of the finance company or a relative

of a director or a shareholder who owns shares exceeding 10% of the paid up capital of the finance company, has substantial interest.

9.2-9.4 Complied withA Board approved process is in place to ensure that the Company does not engage in related party transactions as defined in this direction.

The Company is in the process of strengthening the monitoring mechanism.

Transactions with related parties are made with the sanction of the Board subject to such transactions being in the normal course of business.

9.3 The transactions with a related party that are covered in this Direction shall be the following:a) Granting accommodation,b) Creating liabilities to the finance company in the form of deposits,

borrowings and investments,c) providing financial or non-financial services to the finance company

or obtaining those services from the finance company,d) creating or maintaining reporting lines and information flows between

the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party.


Direction No.



9.4 The Board shall ensure that the finance company does not engage in transactions with a related party in a manner that would grant such party “more favourable treatment” than that is accorded to other similar constituents of the finance company. For the purpose of this paragraph, “more favourable treatment” shall mean:a) Granting of “total net accommodation” to a related party, exceeding

a prudent percentage of the finance company’s regulatory capital, as determined by the Board. The “total net accommodation” shall be computed by deducting from the total accommodation, the cash collateral and investments made by such related party in the finance company’s share capital and debt instruments with a remaining maturity of 5 years or more.

b) Charging of a lower rate of interest than the finance company’s best lending rate or paying a rate of interest exceeding the rate paid for a comparable transaction with an unrelated comparable counterparty;

c) Providing preferential treatment, such as favourable terms, covering trade losses and/or waiving fees/ commissions, that extends beyond the terms granted in the normal course of business with unrelated parties;

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

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

10. Disclosures

10.1 The Board shall ensure that:(a) annual audited financial statements and periodical financial

statements are prepared and published in accordance with the formats prescribed by the regulatory and supervisory authorities and applicable accounting standards, and that

(b) such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.

Complied with

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

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

Complied withPlease refer the Directors Report on pages 53 to 55.

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

Complied withPlease refer the Directors Statement on Internal Controls over Financial Reporting on pages 58 to 59.



Direction No.



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

Complied withThe Company has obtained a certification from M/s KPMG, Chartered Accountants on the effectiveness of the internal control mechanism.

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

Complied withPlease refer the Directors Report on pages 53 to 55 and Note 33 to the Financial Statements.

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

Complied withPlease refer the Directors Report on pages 53 to 55.

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

Complied withTotal net accommodation outstanding in respect of each category of related party is found under Note 17 to the Financial Statements.

Net accommodations granted to related parties as a percentage of capital funds of the Company at the year-end was 0%.

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

Complied withPlease refer Note 9 to the Financial Statements

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

Complied withStatus of compliance with prudential requirements, regulations and laws are in the Directors report set out in pages 53 to 55.

i. A statement of the regulatory and supervisory concerns on lapses in the finance company’s risk management, or non compliance with the Act, and rules and directions that have been communicated by the Director of the Department of Supervision of Non-Bank Financial Institutions, if so directed by the Monetary Board to be disclosed to the public, together with the measures taken by the finance company to address such concerns.

Complied withThere were no significant supervisory concerns / lapses in the Company’s risk management and compliance with this direction to be directed by the Monetary Board to be disclosed to the public.

j. The external auditor’s certification of the compliance with the Act and rules and directions issued by the Monetary Board in the annual corporate governance reports published after January 1, 2011.

Complied withThe Company has obtained a certification from the external auditors on compliance with the Corporate Governance direction issued by the Monetary Board.


Section No. Rules of the Colombo Stock Exchange LOFC’s Level of compliance

7.10 Corporate Governance

7.10 Statement confirming that as at the date of the annual report that the Company is in compliance with these rules.

Complied withThe Company is compliant with the listing rules of the Colombo Stock Exchange.

For further details please see below.

7.10.1 Non-Executive DirectorsThe Board of Directors of a listed entity shall include at least: two Non-Executive Directors; or such number of Non-Executive Directors equivalent to one third of the total number of directors whichever is higher.

Requirement for at least 2 Non-Executive Directors or 1/3rd of the Board whichever is higher.

Complied withAs at 31st March the Board comprised 6 directors of whom 5 were Non Executive Directors.

7.10.2 Independent DirectorsWhere the constitution of the Board of Directors includes only two Non-Executive Directors in terms of 7.10.1, both such Non-Executive directors shall be independent. In all other instances two or 1/3rd of the Non-Executive directors appointed to the Board, whichever is higher shall be independent.

2 or at least 1/3rd of Non-Executive directors to be independent against specified criteria.

Complied withAs at 31st March 2012 the Board comprised 2 Independent Directors.

7.10.3-4 Directors disclosuresAnnual determination as to the independence or non independence of each Non-Executive director.

Complied withThe Board has determined the independent/ non independent status based on the criteria set out by the CSE.

Please refer directors profiles on pages 13 to 16.

7.10.5 Remuneration CommitteeShall comprise of a minimum of two independent Non-Executive directors or of Non-Executive directors a majority of whom shall be independent, which ever shall be higher.

Complied withPlease refer committee report on page 52.

7.10.6 Audit CommitteeShall comprise of a minimum of two independent Non-Executive directors or of Non-Executive directors a majority of whom shall be independent, which ever shall be higher.

Complied withPlease refer committee report on page 50.



Board and Board Sub CommitteesDirectors attendance at meetings

Board Meetings Audit Committee

Integrated Risk Management Committee

No of Meetings 12 08 04

Director Classification

* Mrs. R L Nanayakkara(Resigned with effect from 31.12.11)

Non-Executive 09 N/A N/A

* Mr. I C Nanayakkara(Appointed Chairman with effect from 30.01.12)

Non-Executive 12 N/A N/A

** Mr. W D K Jayawardena Non-Executive 12 08 04

Mrs. K U Amarasinghe Non-Executive 12 07 04

Dr. L J S H Cabral PC(A.W.E.F 06th December 2011)

Non-Executive, Independent 2 01 N/A

Mr. P D J Fernando (A.W.E.F 30th March 2012)

Non-Executive, Independent - N/A N/A

Mr. D M D K Thilakaratne(A.W.E.F 06th March 2012)

Executive 1 N/A 04

* Chairman of the Board ** Chairman of the Audit Committee

Growth in profits was a direct result of the rise in interest and operational income, and capital gain, which was a significant increase for the Company.Augmented by exceptional service and a diverse portfolio of products that are known for its value and competitive rates, we have carved a niche in the market as one of the preferred leasing and financial institutions with which to work. In the year ahead, we hope to prolong our unmitigated growth and carry on the inimitable quality that we have maintained for more than two decades.

Financial InformationAudit Committee Report 50Integrated Risk Management Committee 51Remuneration Committee Report 52Directors’ Report 53Directors’ Statement on Internal Controls 58Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 60

Independent Auditor’s Report 61Income Statement 62Balance Sheet 63Statement of changes in equity 64Cash Flow Statement 65Accounting Policies 67Notes to the Financial Statements 73

329


Audit Committee Report

The Audit Committee is a sub committee of the Board assisting to fulfill its responsibilities relating

to financial governance. The Committee comprises the following members with the Company

Secretary functioning as its Secretary:

W D K Jayawardena - Committee Chairman/Non-Executive Director

P D J Fernando - Senior Independent Director

Dr. H Cabral, PC - Independent Director

The Committee provides a forum for the appraisal of the control framework within the Company,

oversees disclosure in financial statements in accordance with SLAS, Company’s Act and CBSL

financial reporting regulations and requirements, assesses the independence and performance

of the external auditors and makes recommendations to the Board with regard to their

appointment/removal and remuneration.

Regular meetings are scheduled every quarter, with provision for extra meetings if an issue is

raised by the Chief Risk Officer. Activities stipulated by the Direction on Corporate Governance

issued by the Central Bank of Sri Lanka (CBSL) are also fitted into the quarterly audit meetings.

These Audit Meetings ensure that controls are tested and validated and deviations from

procedures are highlighted, allowing corrective measures to be taken. The Chief Executive

Officer is invited to attend meetings together with the Chief Financial Officer, Chief Risk Officer,

Chief Information Officer and the Chief HR Officer, and when it is considered relevant to include

them in the discussions, the Heads of the various other departments are also invited to the

meeting.

During the period under review, the reports of internal audit from the Enterprise Risk Management

Division (ERM) covering all departments and branches were also reviewed by the Committee.

It also considered the major findings of internal investigations and management’s responses

thereto. The Committee is satisfied that an effective system of internal control is in place to

provide the assurance on safeguarding the assets and the integrity of financial reporting.

The Audit Committee submits the minutes of meetings to the Board so that all directors are kept

aware of the discussions and decisions of the committee.

The committee met 8 times during the year under review and the members’ attendance at

Committee meetings is provided on page 47.

W D K Jayawardena

Chairman - Audit Committee


Integrated Risk Management Committee

The Integrated Risk Management Committee (IRMC) is a subcommittee of the Board and

comprises the following members with the Company Secretary functioning as its Secretary:

W D K Jayawardena - Committee Chairman/Non Executive Director

Mrs K U Amarasinghe - Non Executive Director

D M D K Thilakaratne - Director/CEO

Mrs S Wickremasekera - Chief Risk Officer

Mrs S Kotakadeniya - Chief Financial Officer

J Kelegama - Chief Credit Officer

R Perera - Group Treasurer

C Dias - Chief Information Officer

Mrs N Kariyawasam - AGM - Finance (Compliance Officer)

N Weerapane - Deputy General Manager - Recoveries

The Integrated Risk Management Committee meets quarterly and reviews credit, market,

liquidity, operational and strategic risks. These risks were reviewed monthly by the Chief Risk

Officer and summarised reports were submitted quarterly to the Committee for specific

directions in order to ensure that the risks were managed appropriately.

As delegated by the Committee the Chief Risk Officer submits a risk assessment report to the

Board, subsequent to each meeting, stating the risk mitigation actions pursued and seeking the

Board’s views. Minutes of these sub-committee meetings were also tabled at the subsequent

Board meeting, to enable all directors to be fully informed of the proceedings.

The Committee met four times during the year under review and the members’ attendance at

Committee meetings is provided on page 47.

W D K Jayawardena

Chairman - Integrated Risk Management Committee


Remuneration Committee Report

The Remuneration Committee is a subcommittee of the Board comprising non executive

directors, with majority of them being independent:

I C Nanayakkara - Committee Chairman/Non Executive Director

Mr P D J Fernando - Senior Independent Director

Dr H Cabral, PC - Independent Director

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

Committee determines and agrees with the Board, the broad policy framework of the

remuneration of the executive director and the monthly fees paid to non executive directors for

being on the board and meeting attendance.

As the executive director is an employee of the Company his remuneration is based on the

terms and conditions stipulated in his contract of employment. The non executive directors’ fees

are in line with market practices.

Directors’ emoluments are disclosed in aggregate on page 53.

I C Nanayakkara

Chairman - Remuneration Committee


Directors’ Report

Your Directors have pleasure in presenting their Annual Report together with the Audited Financial

Statements for the year ended 31st March 2012.

Principal Activities and Nature of OperationsDuring the year the principal activities of the Company comprised provision of leasing, hire

purchase, loans, factoring and other lending products. Having received a finance company

license, the activities expanded to include mobilisation of fixed and savings deposits.

DirectorateThe Directors during the year under review were as follows:

1. Mrs. R L Nanayakkara - Non-Executive Chairperson

(Resigned with effect from 31st December 2011)

2. Mr. I C Nanayakkara - Non-Executive Director

(Subsequently appointed Chairman with effect from 30.01.2012)

3. Mr. W D K Jayawardena - Non-Executive Director

4. Mrs. K U Amarasinghe - Non-Executive Director

5. Dr. H Cabral PC - Non-Executive Independent Director

(Appointed with effect from 06th December 2011)

6. Mr. D M D K Thilakaratne - Executive Director /CEO

(Appointed with effect from 06th March 2012)

7. Mr. P D J Fernando - Senior Independent Director

(Appointed with effect from 30th March 2012)

Mrs. Nanayakkara was Chairperson from 27th January 2009, and in accordance with the

directions of the Central Bank of Sri Lanka on Corporate Governance , having reached the

age of 70 years and the end of the transitional period, she stepped down as director and

Chairperson.

The Board places on record its appreciation of Mrs. Nanayakkara’s contribution to the growth

and progress of the Company.

Directors Interests in ContractsThe 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.

Lists of other companies on which these Directors serve are included on pages 56 to 57.

Directors’ remunerationThe Company paid Rs. 988,721/00 as Directors’ remuneration for the financial year ended 31st

March 2012.


Board Sub CommitteesIn compliance with regulatory guidelines and also with best practices, the Board has formed the

following sub committees:

The Audit Committee

The Integrated Risk Management Committee

The Remuneration Committee

The reports of these Committees can be found on pages 50 to 52.

Directors’ Responsibility for Financial ReportingThe Directors are responsible for the preparation of financial statements of the Company

to reflect a true and fair view of the state of its affairs. The Directors are of the view that the

financials (appearing on pages 62 to 87) have been prepared in accordance with the

requirements of the Sri Lanka Accounting Standards, the Companies Act No. 7 of 2007, the

Finance Business Act No. 42 of 2011 and all relevant directions of the Central Bank of Sri Lanka.

Going ConcernThe 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 & Auditor’s ReportThe financial statements and Auditor's Report are given on pages 61 to 87.

Statutory PaymentsFor 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.

AuditorsM/s KPMG, the Auditors of the Company retire and offer themselves for re-appointment. The

Board recommends their re-appointment for the year 2012/2013 at a fee to be decided upon

by the Board.

During the year under review, the Auditors were paid Rs.800,000/- as audit fees.

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.

Directors’ Report contd.


Compliance with Laws and RegulationsThe Company has not engaged in any activity that contravenes any applicable law or

regulation, and to the best of the knowledge of the Directors the Company has been in

compliance with all prudential requirements, regulations and laws.

ShareholdingThe stated capital of the Company is Rs. 1,425,946,629/- divided into 6,377,711,170 shares.

Status Change of the CompanyIn accordance with the direction of the Central Bank of Sri Lanka, the Company sought a listing

on the Colombo Stock Exchange, by way of an introduction. Accordingly the shares of the

Company were listed on the Diri Savi Board on 5th June 2012. The Directors now recommend to

the shareholders that the status of the Company be changed from “Limited” to “PLC”. This has

been included in the agenda of the Annual General Meeting for your approval.

Krishan Thilakaratne

Director/ CEO


Directors’ Declarations

Name Directorships held

Mr. I C Nanayakkara Chairman:Commercial Leasing & Finance Ltd

Deputy Chairman:Lanka ORIX Leasing Company PLCLanka ORIX Finance PLC

Director:PRASAC Micro Finance InstituteBrown & Company PLCDiriya Investments (Pvt) LtdSeylan Bank PLCSierra Constructions LtdAgstar Fertilizers (Pvt) LtdLOLC Micro Credit LtdAgrisil Holdings LtdFree Lanka Capital Holdings (Pvt) Ltd

Mr. W D K Jayawardena Chairman:LOLC Insurance Company LtdLOLC Motors LtdLOLC Securities LtdLOLC Leisure LtdUnited Dendro Energy (Pvt) LtdLanka ORIX Finance PLCEden Hotel PLCLOLC Life Insurance LtdLOLC General Insurance LtdPalm Garden Hotels PLCRiverina Hotels PLCSpeed Italia (Pvt) Ltd

Managing Director/ Group CEO:Lanka ORIX Leasing Company PLC

Director:LOLC Micro Credit LtdCommercial Leasing & Finance LtdHDFC BankBrown and Company PLC

Directors’ Report contd.


Name Directorships held

Mrs. K U Amarasinghe Director:Commercial Leasing & Finance LtdLanka ORIX Finance PLCLanka ORIX Leasing Company PLCLanka ORIX Project Development LtdLOLC Insurance Company LtdLOLC Leisure LtdLOLC Micro Credit LtdLOLC Securities LtdUnited Dendro Energy (Pvt) LtdEden Hotel Lanka PLCRiverina Hotels PLCPalm Garden Hotels PLCLOLC Life Insurance LtdLOLC General Insurance LtdSpeed Italia (Pvt) LtdBrown and Company PLC

Dr. Harsha Cabral, PC Director:Diesel & Motor Engineering PLC (DIMO)Union Bank of Colombo PLCRichard Pieris & Co. Distributors LtdTokyo Cement Company (Lanka) PLCTokyo Super Cement Co (Private) LtdHambana Petro Chemicals LtdFuji Cement Co (Lanka) LtdHayleys PLCLanka ORIX Finance PLCCommercial Leasing & Finance LtdTokyo Cement Power Company Ltd

Mr. P D J Fernando Director:Commercial Leasing & Finance LtdUnion Bank of Colombo PLCTaprobane Holdings LtdHambana Petro Chemicals (Pvt) Ltd

Mr. D M D K Thilakaratne Director:Commercial Leasing & Finance LtdCommercial Insurance Brokers (Pvt) LtdCommercial Factors Ltd


Directors’ Statement on Internal Controls over Financial Reporting

ResponsibilityIn line with the Finance Business Act No. 42 of 2011, Finance Companies (Corporate Governance) Direction No 03 of 2008: section 10 (2) b), the Board of Directors present this report on Internal Controls over Financial Reporting.

The Board of Directors (“the Board”) is responsible for the adequacy and effectiveness of the system of internal controls over Financial Reporting of Commercial Leasing & Finance Ltd. (“the Company”). However, such a system is designed to manage the Company’s key areas of risk within an acceptable risk profile, rather than eliminate the risk of failure to achieve the policies and business objectives of the company. Accordingly, the system of internal controls can only provide reasonable, not absolute, assurance against material misstatement of management and financial information and records or against financial losses or fraud.

The Board has established an on-going process of identifying, evaluating and managing the significant risks faced by the Company and this process includes effecting modifications to the internal control system, to align with constant changes in the business environment or regulatory guidelines. The process is regularly reviewed by the Board and Board appointed sub committees.

The Board is of the view that the system of internal controls in place is sound and adequate to provide reasonable assurance regarding the reliability of financial reporting and that the preparation of financial statements for external purposes is in accordance with relevant accounting principles and regulatory requirements.

The management assists the Board in the implementation of policies and procedures on risk and control, by identifying and assessing the risks faced and in the design, operation and monitoring of suitable internal controls to mitigate and control such risks. Management is accountable to the Board for the design, operation and monitoring of Company’s internal control system and for providing assurance to the Board that it has done so.

Key Features of the Process Adopted in Reviewing the Design and Effectiveness of the Internal Controls over Financial ReportingThe key processes that have been established in reviewing the adequacy and integrity of the system of internal controls with respect to financial reporting include the following:

Several Committees are established by the Board to assist in ensuring the effectiveness of the Company’s daily operations and that the Company’s operations are in accordance with the corporate objectives, strategies, policies and guidelines.

The Internal Audit Division (Enterprise Risk Management / ERM Division) of the Company checks for compliance with policies and procedures and the effectiveness of the internal control system on an on-going basis, using samples and rotational procedures and highlights significant findings in respect of any non-compliance. Audits are carried out on all units and branches, the frequency of which is determined by the level of risk assessed, to provide an independent and objective report. The annual audit plan is reviewed and approved by the Audit Committee. Findings of the ERM Division are submitted to the Audit Committee for review at their periodic meetings.


The Audit Committee of the Company reviews internal control issues identified by the ERM Division, regulatory authorities and management, and evaluates the adequacy and effectiveness of the risk management and internal control system. They also review the functions of ERM, with particular emphasis on the scope and quality of internal audits. The minutes of the Audit Committee meetings are tabled to the Board of the company on a periodic basis. Further details of the activities undertaken by the Audit Committee of the Company are set out in the Audit Committee Report.

In reviewing the internal control system, identified officers of the Company collated all procedures and controls that are connected with significant accounts and disclosures of the financial statements of the Company. These in turn were observed and checked by the ERM team for suitability of design and effectiveness on an on-going basis. The scope of the internal control review covers significant processes that lead to the financial statements.

The Board along with the relevant committees will review comments made by the external auditors in connection with the internal control system & will ensure appropriate actions are taken on the recommendations made.

ConfirmationBased on the above process, the Board confirms that that the financial reporting system of the Company has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes has been done in accordance with Sri Lanka Accounting Standards and regulatory requirements of the Central Bank of Sri Lanka.

Review of the Statement By External AuditorsThe external auditors have reviewed the above Directors’ Statement on Internal Controls included in the annual report of the Company for the year ended 31 March 2012 and reported to the Board that nothing has come to their attention that causes them to believe that the statement is inconsistent with their understanding of the process adopted by the Board in the review of the design and effectiveness of the internal control system over Financial Reporting of the Company.

By order of the Board

I C Nanayakkara W D K JayawardenaChairman Director

W D K JayawardenaChairman/Audit Committee

24th May 2012


Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement

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. 07 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 Messrs KPMG Ford Rhodes Thornton &Company,

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.

Krishan Thilakaratne

Director/ Chief Executive Officer

Sunjeevani Kotakadeniya

Chief Financial Officer - LOLC Group

24th May 2012


Independent Auditor’s Report

TO THE SHAREHOLDERS OF COMMERCIAL LEASING AND FINANCE LIMITED

Report on the Financial StatementsWe have audited the accompanying financial statements of Commercial Leasing and Finance Limited, which comprise the balance sheet as at 31st March, 2012, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial 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 on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies 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 31stMarch, 2012and the financial statements give a true and fair view of the Company’s state of affairs as at 31st March, 2012 and its profit and cash flows for the year ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory RequirementsThese financial statements also comply with the requirements of Section 151(2) of the Companies Act No. 07 of 2007.

The financial statements present the information required by the Finance Business Act No. 42 of 2011.

Chartered AccountantsColombo24th May 2012


For the year ended 31 March 2012 2011 Note Rs. Rs.

Interest income 6 5,244,735,474 3,402,488,288

Interest expense 7 (2,167,308,335) (1,309,331,566)

Net interest income 3,077,427,139 2,093,156,722

Other operating income 8 2,191,083,252 174,639,240

Expenses

Personnel costs (405,926,056) (381,732,276)

Premises, equipment & establishment expenses (151,846,089) (141,490,742)

Depreciation on property plant & equipment (47,359,534) (44,047,241)

Provision for bad & doubtful debts (260,262,130) (115,413,911)

Other operating expenses (1,143,030,000) (706,160,588)

VAT on financial services (84,902,834) (140,984,381)

Profit from operations 3,175,183,748 737,966,823

Share of profit of equity accounted investee (net of tax) 7,327,454 3,118,832

Profit before tax 9 3,182,511,202 741,085,655

Income tax expense 10 (262,843,978) (76,643,211)

Profit for the year 2,919,667,224 664,442,444

Earnings per share 11 0.91 0.21

The Accounting Policies and Notes on pages 67 through 87 form an integral part of these Financial Statements.

Figures in brackets indicate deductions.

Income Statement


As at 31 March 2012 2011 Note Rs. Rs.

AssetsCash & cash equivalents 12 448,002,476 416,183,963Marketable securities 13 4,570,351 12,034,696Rentals receivable on leased & hire purchase 14 16,948,746,918 13,290,812,408Loans and advances 15 4,472,431,423 2,126,965,539Factoring receivable 16 2,682,594,400 2,953,714,065Amounts due from related company 17 3,043,128 3,589,880Other receivables 18 1,347,808,381 922,443,263Investment securities 19 99,768,020 182,500Bank deposit -US dollar deposit - 270,034,505Investment in equity accounted investee 20 59,335,721 52,968,267Investment in subsidiaries 21 - 1,080,533,520Property, plant & equipment 22 315,087,404 279,219,045Total Assets 26,381,388,222 21,408,681,651

Equity and LiabilitiesBank overdraft 626,398,920 914,265,585Interest bearing loans & borrowings - Current 23 5,810,595,187 7,488,247,531Loans obtained from related companies - Current 24 448,229,561 216,106,704Deposits from customers 385,301,564 -Current tax liabilities 152,112,430 84,607,570Other payables 25 1,233,867,451 1,509,405,969Interest bearing loans & borrowings - Non current 23 8,409,556,515 4,362,441,439Loans obtained from related companies - Non Current 24 1,038,292,960 2,442,748,068Amounts due to related companies 26 1,316,142,957 409,633,550Deferred tax liabilities 27 339,981,986 282,549,561Retirement benefit obligations 28 17,688,380 15,122,587Total Liabilities 19,778,167,911 17,725,128,564

EquityStated capital 29 1,425,946,629 1,425,946,629Revaluation reserve 56,872,900 56,872,900Statutory reserve fund 289,382,256 123,465,621General reserve 288,079,789 288,079,789Investment fund 108,049,238 17,400,921Retained earnings 4,434,889,499 1,771,787,227Total Equity 6,603,220,311 3,683,553,087Total Equity and Liabilities 26,381,388,222 21,408,681,651


These Financial Statements are prepared in compliance with the requirements of Companies Act No. 7 of 2007.

Sunjeevani KotakadeniyaChief Financial Officer - LOLC Group

The Board of Directors is responsible for the preparation and presentation of these financial statements.Signed for and on behalf of the Board by;

I. C. Nanayakkara W. D. K. JayawardenaChairman Director

24th May 2012Colombo

Balance Sheet


For the year ended 31 March Stated Revaluation Reserve General Investment Retained Total capital reserve fund reserve fund earnings Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 1 April 2010 417,612,729 76,326,964 110,176,772 288,079,789 - 1,138,034,553 2,030,230,807

Right issue of shares 1,008,333,900 - - - - - 1,008,333,900

Deficit on revaluation - (19,454,064) - - - - (19,454,064)

Profit for the year - - - - - 664,442,444 664,442,444

Transfer to reserve fund - - 13,288,849 - - (13,288,849) -

Transfer to investment fund - - - - 17,400,921 (17,400,921) -

Balance as at 1 April 2011 1,425,946,629 56,872,900 123,465,621 288,079,789 17,400,921 1,771,787,227 3,683,553,087

Profit for the year - - - - - 2,919,667,224 2,919,667,224

Transfer to reserve fund - - 165,916,635 - - (165,916,635) -

Transfer to investment fund - - - - 90,648,317 (90,648,317) -

Balance as at 31 March 2012 1,425,946,629 56,872,900 289,382,256 288,079,789 108,049,238 4,434,889,499 6,603,220,311

Revaluation reserve

The Revaluation reserve consists of the net surplus on the revaluation of Property Plant & Equipment as described in Note 22. Deficit on revaluation

is set off against revaluation reserves.

Reserve fund

Reserve fund was created to comply with the Direction No. 1 of 2003 (Capital funds) issued by the Central Bank . The Company is required to

transfer 5% of annual profits to this reserve fund as long as the capital funds are not less 25% of the total deposit liabilities. During the period

2011/2012, the Company transferred Rs. 165,916,635/- to the Statutory reserve.

General reserve

General reserve consists of such amounts that have been from time to time transferred from retained earnings as resolved at General meetings.

Retained earnings

This represents the undistributed earnings held by the Company to be used in the Company's operations. This could be used to absorb future

possible losses or dividends payable.

Investment fund

The reserve is created in accordance with the Central Bank guidelines issued to create an Investment fund reserve. 8% of the profits liable for VAT

on Financial Services is transferred to this reserve monthly when the payment of VAT on Financial Services for such month becomes due.


Statement of changes in equity


For the year ended 31 March 2012 2011 Rs. Rs.

Cash flow from operating activities

Profit before taxation 3,182,511,202 741,085,655

Interest cost 2,167,308,335 1,309,331,566

Investment income (33,177) (257,170)

Provision for doubtful debts 260,262,130 115,413,911

Profit on disposal of marketable securities 947,860 (3,504,284)

Provision for retiring gratuity 3,911,554 3,850,710

Depreciation on property plant & equipment 47,359,534 44,047,241

Share of equity accounted investee (7,327,454) (3,118,832)

Profit on disposal of shares (1,346,939) (3,055,112)

Profit on disposal of subsidiary (2,033,617,912) -

Loss on retirement of software 4,170,043 -

Loss/(profit) on disposal of property, plant & equipment 540,247 (2,318,902)

442,174,221 1,460,389,128

Operating profit before working capital changes 3,624,685,423 2,201,474,783

(Increase)/decrease in lease & hire purchase receivables (3,691,585,559) (5,874,025,764)

(Increase)/decrease in factoring debtors 8,369,554 (1,557,171,648)

(Increase)/decrease in other receivables (2,747,695,745) (1,758,176,459)

Increase/(decrease) in other payables 570,613,629 (948,414,245)

Deposit from customers 385,301,565 -

(5,474,996,556) (10,137,788,116)

Cash generated from operations (1,850,311,133) (7,936,313,333)

Interest paid (1,925,221,364) (1,162,151,754)

Retiring gratuity paid (1,345,761) (4,139,085)

Economic service charge paid (39,816,028) (49,924,807)

Income tax paid (84,540,144) (34,560,252)

Net cash inflow/ (outflow) from operating activities (3,901,234,430) (9,187,089,231)

Cash Flow Statement



Cash flow from investing activities

Dividend received-Associate & others 993,177 1,217,170

Purchase of property, plant & equipment (92,950,334) (70,369,279)

Withdrawal of US dollar deposit 270,034,503 530,915,676

Investments in treasury bonds & repos (99,585,520) -

Investment in marketable securities (7,104,500) (4,692,000)

Proceeds from disposal of shares 14,967,923 4,281,959

Proceeds from disposal of subsidiary 3,114,151,432 -

Proceeds from disposal of property, plant & equipment 5,012,154 9,691,897

Net cash outflow from investing activities 3,205,518,835 471,045,423

Cash flow from financing activities

Proceeds from debenture issue - 700,000,000

Proceeds from term loans 2,621,687,545 1,500,000,000

Proceeds from right issue - 1,008,333,900

Proceeds from Triodos - 918,900,000

Long term loans received from related companies 1,250,000,000 2,100,579,120

Repayment of long term loans (3,371,261,477) (1,006,606,185)

Asian Development Bank loan paid (445,060) 364,670

ADB USD loan paid (185,858,333) (211,399,999)

Proceeds from FMO 2,209,999,350 -

Net proceeds from short term loans & borrowings (1,508,721,252) 3,887,373,483

Net cash flow from financing activities 1,015,400,773 8,897,544,989

Net increase/(decrease) in cash & cash equivalents 319,685,178 181,501,181

Cash & cash equivalents at beginning of the period (498,081,622) (679,582,803)

Cash & cash equivalents at end of the period (178,396,444) (498,081,622)

Analysis of cash and cash equivalents at the end of the year

Cash at bank and in hand 448,002,476 416,183,963

Bank overdrafts (626,398,920) (914,265,585)

(178,396,444) (498,081,622)


Cash Flow Statement contd.


1. Corporate InformationGeneral

Commercial Leasing & Finance Limited was

incorporated as a Private Limited Company in

April 1988 and in 1992 converted into a Public

Limited Company and listed in the Colombo

Stock Exchange. In 2008 the Company

submitted an application to delist from

Colombo Stock Exchange and it was treated

as de-listed with effect from July 01, 2009.

Further to Finance Leasing Act No. 56 of 2000,

on 07th December 2011, the Company has

obtained the License to carry on Finance

Business under the Finance Business Act No.

42 of 2011.

The Financial Statements of the Company for

the year ended March 31, 2012 comprise the

Company and its interest in Equity Accounted

Investee.

The Financial Statements were authorised for

issue by the Directors on 24th May 2012.

Holding Company

The Company's immediate parent entity

is Lanka ORIX Leasing Company PLC

which presents the consolidated Financial

Statements of the Company.

Principal Activities and Nature of Operations

During the year, the principal activities of

the Company comprised of leasing, hire

purchase, loans, factoring and mobilisation of

public deposits.

Directors' Responsibility Statement

The Board of Directors takes the responsibility

for the preparation and presentation of these

Financial Statements as per the provisions of

the Companies Act No. 07 of 2007 and the Sri

Lanka Accounting Standards.

Accounting Policies

Address of the Registered Office of the Company

No 68, Bauddhaloka Mawatha, Colombo 04.

2. Accounting Policies2.1 Basis of Preparation

The Financial Statements are presented in

Sri Lankan Rupees where appropriate the

significant Accounting Policies disclosed in the

succeeding notes. The Financial Statements

are prepared on the historical cost basis

except investment securities that has been

measured at fair value. Assets and liabilities

are grouped by nature and listed in an

order that reflect their relative liquidity. Where

appropriate the Significant Accounting Policies

are disclosed in the succeeding notes.

These Financial Statements are prepared in

Sri Lankan Rupees, which is the Company’s

functional currency, unless otherwise stated.

The preparation and presentation of these

Financial Statements is in compliance with the

Companies Act. No. 07 of 2007.

Statement of Compliance

The Financial Statements of the Company

are prepared in accordance with the Sri

Lanka Accounting Standards laid down by the

Institute of Chartered Accountants of Sri Lanka.

2.2 Significant Accounting Judgments, Estimates and Assumptions

The preparation of the financial statements in

conformity with SLASs requires management

to make judgments, estimates and

assumptions that affect the application

of accounting policies and the reported

amounts of assets, liabilities, income and

expenses. Actual results may differ from these

estimates.

Estimate and underlying assumptions are

reviewed on an ongoing basis and the

management is required to consider, key

assumptions concerning the future and other

key sources of estimation uncertainty at the

Balance Sheet date, that have a significant

risk of causing a material adjustments to the

carrying amounts of assets and liabilities.

Revisions to accounting estimates are

recognised in the period in which the estimate

is revised and in any future periods affected.

The respective carrying amounts of assets and

liabilities are given in the related Notes to the

Financial Statements.

Information about critical judgments,

estimates and assumptions in applying

accounting policies that have the most

significant effect on the amounts recognised

in the financial statements is included in the

following notes

Impairment Losses on Loans and

Advances

In addition to the provisions made

for possible loan losses based on the

parameters and directives for specific

provisions on Loans and Advances by the

Central Bank of Sri Lanka, the Company

reviews its Loans and Advances portfolio

at each reporting date to assess whether

a further allowance for impairment should

be provided in the Income Statement.

The judgments by the management

is required in the estimation of these

amounts and such estimations are

based on assumptions about a number

of factors though actual results may

differ, resulting in future changes to the

provisions.


Defined Benefit Plans

The cost of defined benefit plans-gratuity

is determined using actuarial valuations.

The actuarial valuation involves making

assumptions about discount rates,

expected rates of return on assets, future

salary increases, mortality rates and future

pension increases. Due to the long term

nature of these plans, such estimates are

subject to significant uncertainty.

Reviews of Impairment Losses on Other

Assets

The Company determines whether assets

have been impaired by performing

an impairment review. This requires the

estimation of the ‘value in use’ of the

cash generating units. Estimating value

in use requires management to make

an estimate of the expected future cash

flows from the cash generating unit and

also to select a suitable discount rate in

order to calculate the present value of the

relevant cash flows. This valuation requires

the Company to make estimates about

expected future cash flows and discount

rates, and hence, they are subject to

uncertainty.

Going Concern

The Directors have made an assessment of

the Company’s ability to continue as a going

concern and they do not intend either to

liquidate or to cease trading.

Comparative information

The accounting policies have been

consistently applied by the Company and,

are consistent with those used in the previous

year.

Foreign currency transactions

Transactions in foreign currencies are

translated to the functional currency

at exchange rates at the dates of the

transactions. Monetary assets and liabilities

denominated in foreign currencies at

the reporting date are retranslated to the

functional currency at the exchange rate at

that date. The foreign currency gain or loss

on monetary items is the difference between

the original carrying amount in the functional

currency and the carrying amount in foreign

currency translated at the exchange rate at

the end of the year.

Non-monetary items in a foreign currency

that are measured in terms of historical cost

are translated using the exchange rate at

the date of the transaction. Foreign currency

differences arising on retranslation are

recognised in profit or loss

2.3 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,

form an integral part of the Company’s cash

management, are included as a component

of Cash and Cash Equivalents for the purpose

of cash flows.

ii) Finance Leases and Hire purchase

Assets leased to customers which transfer

substantially all the risks and rewards

associated with ownership other than legal

title, are classified as finance leases. Amounts

receivable under finance leases are included

under “Rentals receivable on Leased Assets”.

Leasing balances are stated in the Balance

Sheet after deduction of initial rentals

received, unearned lease income and the

provisions for rentals doubtful of recovery.

iii) Loans and Advances

Loans and Advances to customers reflected

in the Balance Sheet at amounts disbursed

less repayments and provision for doubtful

debts.

iv) Provision for Doubtful Debts

The specific provisions for doubtful debts are

arrived at using the following bases:

The Company computes its provisioning

for bad and doubtful debts in accordance

with Direction No. 03 of 2006 of the Finance

Business Act No. 42 of 2011 as follows

Fifty percent (50%) of all lease, hire

purchases and loan receivables (net of

unearned income) which are in arrears for

a period of 06 to 12 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 12 months and more

Additional specific provisions are made upon

management review on the performance of

the lease, hire purchase and loan portfolios.

Balance receivables on any terminated

contracts are provided fully. i.e. One hundred

percent (100%) of balance receivables.

v) Investments in Treasury Bills and Bonds of

Government of Sri Lanka

Investment in Treasury Bills and Treasury Bonds

are carried at the total of purchase price,

accrued interest and amortization/ (accretion)

of premium/ (discount).

Gains/losses on disposal are measured at the

difference between the sales proceeds and

the carrying amount and are recognised in

profit or loss.

Accounting Policies contd.


Securities Purchased under Re-sale

Agreements

Securities purchased under re-sale

agreements are recorded separately in the

Financial Statements at cost. The difference

between the purchase and sale price

represents interest income and is recognised

in the Income Statement over the period of

the resale agreement

vi) Other Receivables

Other receivable balances are stated at

estimated amounts receivable after providing

for doubtful receivables.

vii) Investment in Quoted Shares

Investments in quoted shares are stated at

their market values at the balance sheet date.

Any difference between the cost and the

market value is recognised in profit or loss.

viii) Property, Plant and Equipment

(a) Recognition and Measurement

Items of property, plant & equipment are

measured at cost or revaluated amount

less accumulated depreciation and

accumulated impairment losses.

(b) Owned Assets

The cost of property, plant & equipment

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 labor, 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.

A revaluation of land is done when there is a

substantial difference between the fair value

and the carrying amount of the land and is

undertaken by professionally qualified valuers.

Increases in the carrying amount on

revaluation are credited to the revaluation

reserve in shareholders' equity. Decrease

that offset previous increases of the same

individual assets are charged against

revaluation reserve directly to the equity. All

other decreases are expensed in profit or loss.

(c) Subsequent expenditure

The cost of replacing a part of an item of

property, plant & 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

Company and its cost can be measured

reliably. The carrying amount of these

parts that are replaced is derecognised in

accordance with the derecognition policy

given below.

The cost of the day-to-day servicing of

property, plant & equipment are recognised

in the income statement.

(d) Derecognition

The carrying amount of an item of property,

plant and equipment is derecognised on

disposal; or when no future economic benefits

are expected from its use. Gains and losses

on derecognition are recognised in the

income statement.

(e) Depreciation

Depreciation is charged to Income Statement

on a straight-line basis over the estimated

useful lives of each item of property, plant

and equipment.

The estimated useful lives for the current and

comparative periods are as follows.

Building 40 years

Fixtures 05 years

Office Furniture 05 years

Office Equipment 05 years

Motor Vehicles 04 years

Computer Equipment 05 years

Land is not depreciated

(f) Impairment

The carrying amounts of the Company’s

assets are reviewed at each reporting date to

determine whether there is any indication of

impairment. If any such indication exists then

the asset’s recoverable amount is estimated.

Calculation of Recoverable Amount

The recoverable amount of an asset or cash-

generating unit is the greater of its value in use

and its fair value less costs to sell. In assessing

value in use, estimated future cash flows are

discounted to their present value using a pre-

tax discount rate that reflects current market

assessments of the time

Impairment/Reversal of Impairment

An impairment loss is recognised if the

carrying amount of an asset or its cash-

generating unit exceeds its recoverable

amount. Impairment losses are recognised in

profit and loss. Impairment losses recognised

in prior periods are assessed at each reporting

date for any indications that the loss has

decreased or no longer exists. An impairment

loss is reversed if there has been a change

in the estimates used to determine the

recoverable amount.


An impairment loss is reversed only to the

extent that the asset’s carrying amount does

not exceed the carrying amount that would

have been determined, net of depreciation

or amortisation, if no impairment loss had

been recognised.

2.4 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) Deposits from Customers

Deposits include savings deposits and term

deposits. They are brought to account at the

gross value of the outstanding balance.

Interest for the period is charged to the profit

or loss.

ii) Income Tax

Income tax expense comprises current and

deferred tax. Current tax and deferred tax

is recognised in profit or loss except to the

extent that it relates items recognised directly

in equity

Current tax is the expected tax payable

or receivable on the taxable income or

loss for the year, using tax rates enacted or

substantively enacted at the reporting date,

and any adjustment to tax payable in respect

of previous years.

iii) Deferred Taxation

Deferred tax is recognised in respect of

temporary differences between the carrying

amounts of assets and liabilities for financial

reporting purposes and the amounts used

for taxation purposes. Deferred tax is not

recognised for temporary differences on the

initial recognition of assets or liabilities in a

transaction that is not a business combination

and that affects neither accounting nor

taxable profit or loss;

Deferred tax is measured at the tax rates that

are expected to be applied to temporary

differences when they reverse, based on the

laws that have been enacted or substantively

enacted by the reporting date.

Deferred tax assets and liabilities are offset if

there is a legally enforceable right to offset

current tax liabilities and assets, and they

relate to income taxes levied by the same

tax authority on the same taxable entity. A

deferred tax asset is recognised for unused tax

losses, tax credits and deductible temporary

differences, to the extent that it is probable

that future taxable profits will be available

against which they can be utilised.

Deferred tax assets are reviewed at each

reporting date and are reduced to the extent

that it is no longer probable that the related

tax benefit will be realised.

iv) Swap Instruments and Forward Contracts

Company in its ordinary course of business

enters into transactions such as currency

swaps and foreign exchange contracts

and uses derivative instruments to manage

exposure to currency risk.

Foreign currency forward contracts are

measured at their fair value at the balance

sheet date.

vi) Employee benefits

(i) Defined contribution plans

A defined contribution plan is a post-

employment benefit plan under which

an entity pays fixed contributions into a

separate entity and will have no legal

or constructive obligation to pay further

amounts. Obligations for contributions

to defined contribution pension plans

are recognised as an employee benefit

expense in profit or loss in the periods

during which services are rendered by

employees. Prepaid contributions are

recognised as an asset to the extent that

a cash refund or a reduction in future

payments is available 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.

(ii) Defined benefit plans

A defined benefit plan is a post-

employment benefit plan other than a

defined contribution plan. The Company's

net obligation in respect of defined

benefit pension plans is calculated by

estimating the amount of future benefit

that employees have earned in return

for their service in the current and prior

periods; that benefit is discounted

to determine its present value. Any

unrecognised past service costs are

deducted.

The calculation is performed every

three years by a qualified actuary

using the projected unit credit method.

For the purpose of determining the

charge for any period before the next

regular actuarial valuation falls due,

an approximate estimate provided by

the qualified actuary is used. When the



benefits of a plan are improved, the

portion of the increased benefit related to

past service by employees is recognised

in profit or loss on a straight-line basis

over the average period until the benefits

become vested. To the extent that the

benefits vest immediately, the expense is

recognised immediately in profit or loss.

The Company recognises all actuarial

gains and losses arising from the defined

benefit plan and all expenses related

to defined benefit plans in personnel

expenses in profit or loss.

2.5 Income Statement

Company income represents the gross

income receivable for the year on all

performing contracts. It includes all income

related to operations such as interest on

overdue rentals, profit/loss on contracts

terminated and collections on contracts

written-off.

i) Revenue Recognition

Revenue is recognised to the extent that

it is probable that the economic benefits

will flow to the Company and the revenue

and associated costs incurred or to

be incurred can be reliably measured.

Revenue is measured at the fair value of the

consideration received or receivable net of

trade discounts and sales taxes. The following

specific criteria are used for the purpose of

recognition of revenue.

a) Income from Leases, Hire purchases &

Loans & Advances

The excess of aggregated contract

receivable over the cost of the assets

constitutes the total unearned income

at the commencement of a contract.

The unearned income is recognised

as income over the term of the facility

commencing with the month that the

facility is executed in proportion to the

declining receivable balance, so as to

produce a constant periodic rate of return

on the net investment.

Non-performing loans are those facilities

where the rentals are overdue for six

months and over. Income accrued is

suspended from the date a facility is

classified as non-performing and credited

to the “Earned Income in Suspense”

in compliance with Direction no.15 of

1991 of the Finance Business Act No.

42 of 2011. Thereafter such income is

recognised on cash basis.

b) Fee and other service Income

Fees and other service related income

are recognised when the services are

performed.

Profit or loss on contracts terminated,

collections on contracts written off and

interest on overdue rentals are accounted

for on cash basis.

ii) Others

Other income is recognised on an accrual

basis.

Net Gains and losses of a revenue nature on

the disposal of property, plant & equipment

and other noncurrent assets including

investments have been accounted for in the

income statement, having deducted from

proceeds on disposal, the carrying amount of

the assets and related selling expenses.

2.6 Expenditure Recognition

Expenses are recognised in the income

statement on the basis of a direct association

between the cost incurred and the earning

of specific items of income. All expenditure

incurred in the running of the business has

been charged to income in arriving at the

profit for the year.

Value Added Tax (VAT) on Financial Services

The base for the computation of Value Added

Tax on Financial Services is the accounting

profit before income tax adjusted for the

economic depreciation and emoluments of

employees computed on prescribed rate.

The VAT on Financial service is recognised as

expense in the period it becomes due.

2.7 Movement of Reserves

Movement of Reserves is disclosed in the

Statement of Changes in Equity.

2.8 Related Party Transactions

Transactions with related parties are

conducted on normal business terms. The

relevant disclosures are given in Notes 34 to

the Financial Statements.

2.9 Earnings per share

The Company presents basic per share data

for its ordinary shares. Basic earnings per share

is calculated by dividing the profit or loss

attributable to ordinary shareholders of the

Company by the weighted average number

of ordinary shares outstanding during the year.


3. Cash Flow StatementsThe 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.

4. Events occurring after the Balance Sheet dateAll material post Balance Sheet events have

been considered and where appropriate

adjustments or disclosures have been made

in the respective notes to the Financial

Statements.

5. New Accounting standards issued but not yet effective at the Reporting DateThe Institute of Chartered Accountants of

Sri Lanka issued a new volume of Sri Lanka

Accounting Standards which will become

applicable for annual periods beginning on

or after 1st January 2012.Accordingly, these

standards have not been applied in preparing

these Financial Statements as they were not

effective for the year ended 31st March 2012.

The Company is currently in the process

of evaluating the potential effect of these

Standards on its Financial Statements.




6. Interest incomeLeasing interest income 1,824,807,833 854,535,728Hire purchase interest income 1,686,290,495 1,633,327,257Interest on overdue rentals 191,753,685 126,866,571Other loan interest income 730,141,052 292,738,556Hire rental income 16,583,325 34,133,191Factoring income 795,159,084 460,886,985 5,244,735,474 3,402,488,288

7. Interest ExpenseInterest on short term borrowings & overdrafts 791,995,941 475,088,114Interest on long term borrowings 1,012,658,322 554,586,942Interest on securitisation 232,250,280 180,919,568Debenture interest 93,053,589 74,846,164Interest on customer deposits 5,804,482 -Costs incidental to obtaining loans 31,545,721 23,890,778 2,167,308,335 1,309,331,566

8. Other Income/(Expenses)8.1 Other IncomeDividend income 33,177 257,170Profit on disposal of property, plant & equipment - 2,318,902Gain/(loss) on mark to market of trading securities - 3,504,284Profit on disposal of subsidiary 2,033,617,912 -Administration fee- Lanka ORIX Finance PLC 23,395,801 62,150,531Documentation fee 72,202,259 63,489,115Bad debt recovery - 10,168,957Sundry income 59,606,719 28,331,387Commission income 2,018,674 4,390,000Profit on disposal of marketable securities 1,346,939 3,055,112Interest received on treasury bills 1,688,082 -Rent income - 335,487Foreign exchange gain 2,831,839 - 2,196,741,402 178,000,945Less8.2 Other ExpensesLoss on retirement of software (4,170,043) -Profit on disposal of property, plant & equipment (540,247) -Loss on mark to market of trading securities (947,860) -Foreign exchange loss - (3,361,705)

2,191,083,252 174,639,240

Notes to the Financial Statements


For the year ended 31st March 2012 2011 Rs. Rs.

9. Profit before taxProfit before tax is stated after charging expenses including the following:

Directors' emoluments 988,721 432,000

Auditors' remuneration - Statutory audit 800,000 670,000

Legal and professional expenses 23,085,247 24,227,322

Staff cost (Note 9.1) 405,926,056 381,732,276

9.1 Staff cost

Salaries and other benefits 375,948,217 359,188,291

Defined contribution plan cost - EPF 20,652,893 14,954,619

- ETF 5,163,224 3,738,656

Defined benefit plan cost- Retiring gratuity 4,161,722 3,850,710

405,926,056 381,732,276

Number of employees 511 413

10. Income tax expense10.1 Current tax expense

Income tax on profits for the year 181,844,621 85,746,509

Over provision in respect of previous year 23,566,932 (3,196,496)

Social Responsibility Levy - 1,244,592

205,411,553 83,794,605

Deferred tax expense

Origination and reversal of temporary differences (Note 27) 57,432,425 (7,151,394)

Tax expense in Income Statement 262,843,978 76,643,211

10.2 Reconciliation of accounting profit and taxable income

Profit before taxation 3,182,511,202 741,085,655

Less: Associate company share (7,327,454) (3,118,832)

Dividend Received from Commercial Insurance Brokers (Pvt.) Ltd 960,000 960,000

Disallowable expenses 4,737,757,533 1,450,863,907

Non-taxable income (3,848,751,260) (132,249,322)

Less: Capital allowances and allowable expenses (3,415,704,948) (1,812,551,384)

Taxable Income 649,445,073 244,990,024

Income tax on taxable profit for the year 181,844,621 85,746,509

Notes to the Financial Statements contd.


11. Earnings per ShareThe profit for the period attributable to ordinary shareholders is divided by the average number of ordinary shares in issue during the period

determined by weighing the shares in issue on a time basis as required by the standard. The corresponding figure for the previous year has been

adjusted for comparison.

2012 2011

Net profit attributable to ordinary shareholders (Rs.) 2,919,667,224 664,442,444

Weighted average number of share 3,202,720,175 3,202,720,175

Earnings per ordinary share (Rs.) 0.91 0.21

As at 31 March 2012 2011 Rs. Rs.

12. Cash and Cash EquivalentsCash at bank 435,717,141 414,451,278

Cash in saving account 26,956 22,891

Cash in hand 12,258,379 1,709,794

448,002,476 416,183,963

13. Marketable Securities

As at 31 March 2012 2011 No of Cost Market No of Cost Market ValueQuoted Shares Value Shares Restated (Rs.) (Rs.) (Rs.) (Rs.)

Colombo Drydocks PLC 4,110 85,997 945,300 4,110 85,997 1,032,734

DFCC Bank PLC 19 - 2,139 19 - 3,215

Overseas Realty Ceylon PLC 113,680 1,664,891 1,523,312 113,680 1,664,891 1,679,622

Seylan Bank PLC 72,400 1,104,210 2,099,600 72,400 1,104,210 2,802,640

Freelanka Hydropower PLC - - - 469,200 4,692,000 6,516,485

2,855,098 4,570,351 7,547,098 12,034,696

Gain/(loss) on mark to market of trading securities (947,860) 2,536,834



14. Rentals Receivable on Leased & Hire PurchaseTotal Receivable

Contracts Receivable on Leased & Hire Purchase 24,374,395,151 19,334,131,338

Less: Unearned lease & HP income (5,864,404,535) (4,705,780,120)

Prepaid rentals (989,641,780) (700,564,930)

Earned income in suspense (97,312,513) (62,376,978)

Provision for doubtful debts (365,228,795) (331,577,746)

Security margin (109,060,610) (243,019,156)

Net lease receivables 16,948,746,918 13,290,812,408

Receivable after one year



Prepaid rentals (662,867,514) (371,299,413)


Security margin (75,419,040) (243,019,155)

Net receivables 11,350,992,082 7,817,757,338

Receivable within one year



Prepaid rentals (326,774,265) (329,265,517)

Earned income in suspense (97,312,513) (62,376,978)


Security margin (33,641,571) -

Net receivables 5,597,754,836 5,473,055,070

14.1 Non-Performing Lease & Hire Purchase

Net receivables 383,452,875 234,991,203

Less: Provision for doubtful debts (379,332,875) (144,475,748)

Net Non-Performing receivables 4,120,000 90,515,455

Lease and Hire Purchase receivables amounting to Rs. 9,365,907,739/- assigned under a securitisation funding arrangement

(2011- Rs. 11,895,678,462/-) also included under lease and hire purchase receivebles.




15. Loans and AdvancesTotal Receivable

Loans and Advances 4,499,156,411 2,133,336,526

Less: Income In Suspense (2,834,442) -

Provision for Doubtful Debts (23,890,546) (6,370,987)

Net Loans & Advances 4,472,431,423 2,126,965,539

Receivable after one year

Loans and Advances 3,810,555,034 1,456,155,671

Less: Income In Suspense - -


Net Loans & Advances 3,803,366,932 1,453,366,949

Receivable within one year

Loans and Advances 688,601,377 677,114,296

Less: Income In Suspense (2,834,442) -


Net Loans & Advances 669,064,491 673,532,031

15.1 Non-Performing Loans & Advances

Net receivables 13,087,050 -

Less: Provision for doubtful debts (9,594,365) -

Net Non-Performing receivables 3,492,685 -

16. Factoring ReceivableFactoring receivable 3,004,642,799 3,013,012,353


Net factoring receivable 2,682,594,400 2,953,714,065

17. Amounts due from Related CompanyAmount receivable from Lanka ORIX Finance PLC 3,029,916 3,589,880

Amount receivable from Lanka ORIX Information Services Ltd 13,212 -

3,043,128 3,589,880



18. Other ReceivablesOther debtors and prepayments 919,631,209 857,813,620


889,408,545 773,932,366

Value Added Tax receoverable 411,116,834 107,595,083

Economic service Charge recoverable 47,283,000 40,915,814

1,347,808,381 922,443,263

19. Investment Securities

No of Cost (Rs.) No of Cost (Rs.) Shares Shares

Un-Quoted

Equity Investments Lanka Ltd 17,250 172,500 17,250 172,500

Credit Information Bureau 100 10,000 100 10,000

Investment in treasury bonds 37,585,520 -

Investment in repurchase agreements 62,000,000 -

99,768,020 182,500

20. Investment in Equity Accounted Investee

Un quoted Principal Activity % Holding 2012 2011 Rs. Rs.

Commercial Insurance Brokers (Pvt.) Ltd. Insurance 40 800,000 800,000

(240,000 Ordinary Shares of Rs. 10/- each) Brokering services

Share of Equity Accounted Investee retained profit

Balance brought forward 52,168,267 50,009,435

Current period share of profit before taxation 8,806,522 4,352,067

Taxation (1,479,068) (1,233,235)

Current period share of profit after taxation 7,327,454 3,118,832

Dividends received during the year -Gross (960,000) (960,000)

58,535,721 52,168,267

Total carrying amount of Investment in Equity Accounted Investee 59,335,721 52,968,267

The Share of Equity Accounted Investee profit is based on the audited Financial Statements for the year ended 31st December 2011.

Summarized Financial data as at 31st December 2011 of Commercial Insurance Brokers (Pvt) Ltd is stated below.



2012 2011 Rs. Rs.

Revenue 157,944,670 104,515,685

Profit before tax 22,016,305 10,880,168

Profit after tax 18,318,634 7,797,080

Total assets 217,843,129 214,202,407

Total liabilities 69,503,825 81,781,738

21. Investment in Subsidiaries

Principal % 2012 2011 Activity Holding Rs. Rs.

Diriya Investment (Pvt) Limited Investment 50 - 1,080,533,520

(216,106,782 shares at Rs 10/- each)

During the year the Company has disposed the share investment in Diriya Investments (Pvt) Ltd for sales proceeds of Rs. 3,114,151,432/-.

22. Property, Plant & Equipment

Land Building Fixtures Office Office Motor Motor Computer Computer Total Furniture Equipment Vehicles Vehicles Equipment Software (Hiring) Rs. Rs. Rs. Rs. Rs. Rs. Rs Rs. Rs. Rs.

Cost/Valuation

Balance as at 1 April 2011 95,000,000 72,482,535 14,214,987 27,297,325 40,525,772 58,588,238 110,270,102 71,029,088 19,935,590 509,343,637

Additions - 3,366,646 367,500 11,426,984 26,360,563 16,106,968 5,477,679 29,843,995 - 92,950,335

Disposal - - - - - (1,703,267) (32,967,293) - - (34,670,560)

Retirement - - - - - - - - (19,935,590) (19,935,590)

Balance as at 31 March 2012 95,000,000 75,849,181 14,582,487 38,724,309 66,886,335 72,991,939 82,780,488 100,873,083 - 547,687,822

Depreciation

Balance as at 1 April 2011 - 14,482,535 10,916,971 14,014,926 22,582,261 25,039,092 77,640,725 52,983,343 12,464,737 230,124,591

Charge for the year - 5,199,022 1,278,411 4,126,390 5,854,673 11,295,138 8,433,414 7,871,676 3,300,811 47,359,534

Depreciation on disposals - - - - - (1,686,268) (27,431,891) - (15,765,548) (44,883,707)

Balance as at 31 March 2012 - 19,681,557 12,195,382 18,141,316 28,436,934 34,647,962 58,642,248 60,855,019 - 232,600,418

Carrying value

As at 31 March 2012 95,000,000 56,167,624 2,387,105 20,582,993 38,449,401 38,343,977 24,138,240 40,018,064 - 315,087,404

As at 31 March 2011 95,000,000 58,000,000 3,298,016 13,282,399 17,943,511 33,549,145 32,629,377 18,045,744 7,470,853 279,219,045


1. The Company's land & building at No. 68 Bauddhaloka Mawatha, Colombo 04 were revalued based on the cost approach by Sunil Fernando

& Associate a Chartered Valuer as at 31 March 2011, at Rs. 153,000,000. The resultant Revaluation deficit is Rs. 20,350,064/-.

2. Property Plant & Equipment includes fully depreciated assets with a carrying amount of Rs. 73,073,518.21/- (Rs71,803,769/- 2011)

3. The carrying amount of revalued assets that would have been included in the financial statements had the assets been carried at cost less

depreciation is as follows

Cost Depreciation Carrying Value For the year 2012 2011 Rs Rs

Land 12,780,000 - 12,780,000 12,780,000

Building 53,666,828 1,341,671 40,799,180 42,140,850

53,579,180 54,920,850


23. Interest Bearing Loans & BorrowingsTerm Loans

Balance as at 1 April 1,471,433,150 761,932,721

Obtained during the year 2,621,687,545 1,500,000,000

Repaid during the year (948,929,226) (790,499,572)

Balance as at 31 March 3,144,191,469 1,471,433,149

Asian Development Bank - 445,060

Asian Development Bank Term Loan 442,854,877 552,000,001

Triodos 1,023,916,500 918,900,000

FMO 2,209,999,350 -

Debentures 700,000,000 700,000,000

Securitisation 1,990,203,195 2,187,212,332

9,511,165,391 5,829,990,542

Payable within one year (1,101,608,876) (1,467,549,103)

Payable after one year 8,409,556,515 4,362,441,439

Short Term Liabilities

Current portion of Interest bearing loans & borrowings 1,101,608,876 1,467,549,103

Commercial papers 319,173,262 1,038,688,704

Other short term loans 4,389,813,049 4,982,009,724

5,810,595,187 7,488,247,531

The above loans were obtained for the purpose of financing the lease, hire purchase and loan portfolio. Lease and Hire Purchase receivables

amounting to Rs. 9,365,907,739/- (2011 - Rs. 11,895,678,462) were assigned under a securitisation funding arrangements. The average interest rate

of the company for the year 2011/2012 was 12%.




24. Loans obtained from Related CompaniesBalance as at 1st April 2,658,854,772 774,382,265

Obtained during the year 1,250,000,000 2,100,579,120

Repayments during the year (2,422,332,251) (216,106,613)

Balance at the end of the year 1,486,522,521 2,658,854,772

Payable within one year (448,229,561) (216,106,704)

Payable after one year 1,038,292,960 2,442,748,068

In year 2011 the Company has obtained two unsecured loans from Ishara Traders ( Pvt ) Ltd amounting to Rs. 1,250,000/-. The said loans are

repayable over 84 and 48 installments commencing from November 2011 and December 2011 respectively. Interest is payable at AWPLR+2.75%

per annum.


25. Other PayablesVendors 325,609,611 658,595,598

Other payables and accrued expenses 370,448,729 551,754,439

Withholding tax payable 4,269,361 7,603,152

Unclaimed dividend 3,638,963 3,638,963

Interest payable 529,900,787 287,813,817

1,233,867,451 1,509,405,969

26. Amount due to Related CompanyAmount Payable to Lanka ORIX Leasing Company PLC 1,315,393,739 278,993,550

Amount Payable to LOLC Services Ltd 747,950 -

Amount Payable to LOLC Investments Ltd 1,268 -

Amount Payable to Lanka ORIX Information Services Ltd - 130,640,000

1,316,142,957 409,633,550


27. Deferred Tax Liabilities

Temporary Difference Tax Effect

2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Amount accounted for:

Balance as at 01 April 2011 1,009,105,575 827,717,015 282,549,561 289,700,955

Current financial year 205,115,802 (25,540,693) 57,432,425 (7,151,394)

Balance as at 31 March 2012 1,214,221,377 1,009,105,575 339,981,986 282,549,561

Assets Liabilities Net 2012 2011

Lease rental receivables - 342,630,344 342,630,344 284,966,894

Property Plant & Equipment - 2,304,388 2,304,388 1,816,991

Retirement benefit obligations (4,952,746) - (4,952,746) (4,234,324)

(4,952,746) 344,934,732 339,981,986 282,549,561


28. Retirement Benefit ObligationProvision for Retiring Gratuity

Defined Benefit Obligation at beginning of the year 15,122,587 15,410,962

Interest cost on benefit liability 2,217,939 1,783,946

Current service cost 1,693,615 2,066,764

19,034,141 19,261,672

Benefits paid (1,345,761) (4,139,085)

Retirement Benefit Obligation at the end of the year 17,688,380 15,122,587

Present value of unfunded gratuity 17,688,380 15,122,587

Key assumptions used in the above valuation are as follows:

Discount rate 11% 9%

Salary increment rate 9% 8%



29. Stated Capital

2012 2011 No of Shares Rs. No of Shares Rs.

Issued and fully paid-ordinary shares of

At the beginning of the year 27,729,179 1,425,946,629 17,645,840 417,612,729

Share Split (1:230) 6,349,981,991 - 10,083,339 1,008,333,900

At the end of the year 6,377,711,170 1,425,946,629 27,729,179 1,425,946,629

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meeting of

the Company.

30. Commitments & Contingencies

2012 2011 Rs. Rs.

Commitments

Forward exchange contracts 3,516,373,872 1,261,397,146

On this commitment the Company will receive Euro 5,939,975 and US $ 20,815,667 on conversion.

Contingent Liabilities

There were no material contingent liabilities outstanding as at the Reporting Date.

31. Post Balance Sheet EventsThe Company was listed on the Diri Savi Board of the Colombo Stock Exchange on 5th June 2012.


32. Maturity Of Assets and Liabilities32.1 An analysis of the total assets of the Company as at the year end based on the remaining period at the Balance Sheet date to the respective contractual maturity dates is given below:

Up to 3 From 3 to 6 From 6 to 12 From 1 to 3 From 3 to 5 Over 5 Total as at Total as at Months Months Months Years Years Years 31.03.2012 31.03.2011 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cash & cash equivalents 448,002,476 - - - - - 448,002,476 416,183,963

Marketable securities 4,570,351 - - - - - 4,570,351 12,034,696

Rentals receivable on leased &

Hire purchase 1,606,605,361 1,333,061,156 2,658,088,319 8,192,781,177 3,105,575,464 52,635,441 16,948,746,918 13,290,812,408

Loans and Advances 206,918,464 141,782,184 320,363,844 2,900,640,939 902,725,993 - 4,472,431,423 2,126,965,539

Factoring receivable 2,682,594,400 - - - - - 2,682,594,400 2,953,714,065

Amounts due from related company 3,043,128 - - - - - 3,043,128 3,589,880

Other receivables 1,347,808,381 - - - - - 1,347,808,381 922,443,263

Investment securities - 99,768,020 - - - - 99,768,020 182,500

Bank deposit - US dollar deposit - - - - - - - 270,034,505

Investment in equity accounted investee - - - - - 59,335,721 59,335,721 52,968,267

Investment in subsidiaries - - - - - - 1,080,533,520

Property, plant & equipment - - - - - 315,087,404 315,087,404 279,219,045

Total Assets as at 31.03.2012 6,299,542,561 1,574,611,360 2,978,452,163 11,093,422,116 4,008,301,457 427,058,566 26,381,388,222

Total Assets as at 31.03.2011 5,431,237,631 1,097,582,613 2,560,857,088 8,122,930,714 2,751,939,366 1,444,133,974 21,408,681,651



32.2 An analysis of the total liabilities of the Company as at the year end based on the remaining period at the Balance Sheet date to the respective contractual maturity dates is given below:

Up to 3 From 3 to 6 From 6 to 12 From 1 to 3 From 3 to 5 Over 5 Total as at Total as at Months Months Months Years Years Years 31.03.2012 31.03.2011 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Bank overdraft 626,398,920 - - - - - 626,398,920 914,265,585

Interest bearing loans & borrowings 5,271,461,693 1,433,023,975 1,179,291,371 5,280,009,304 1,056,365,359 - 14,220,151,702 11,850,688,969

Loans obtained from related companies 112,137,392 112,057,390 224,114,781 590,307,958 287,190,714 160,714,286 1,486,522,521 2,658,854,772

Deposits from customers 250,257,521 20,289,055 99,795,847 8,650,451 6,308,691 - 385,301,564 -

Current tax liabilities 152,112,430 - - - - - 152,112,430 84,607,570

Other payables 1,233,867,451 - - - - - 1,233,867,451 1,509,405,969

Amounts due to related companies 1,316,142,957 - - - - - 1,316,142,957 409,633,550

Deferred tax liabilities - - - - - 339,981,986 339,981,986 282,549,561

Retirement benefit obligations - - - - - 17,688,380 17,688,380 15,122,587

Stated capital - - - - - 1,425,946,629 1,425,946,629 1,425,946,629

Revaluation reserve - - - - - 56,872,900 56,872,900 56,872,900

Statutory reserve fund - - - - - 289,382,256 289,382,256 123,465,621

General reserve - - - - - 288,079,789 288,079,789 288,079,789

Investment fund - - - - - 108,049,238 108,049,238 17,400,921

Retained earnings - - - - - 4,434,889,499 4,434,889,499 1,771,787,227

Total Equity and Liabilities

as at 31.03.2012 8,962,378,365 1,565,370,420 1,503,201,998 5,878,967,714 1,349,864,764 7,121,604,963 26,381,388,222

Total Equity and Liabilities

as at 31.03.2011 6,543,179,607 3,123,723,344 1,003,588,901 4,470,560,886 2,286,403,565 3,981,224,918 21,408,681,651

33. Related Party Transactions33.1 Identity of the related Parties

The Company has a related party transactions with, its equity accounted investee Commercial Insurance Brokers (Pvt) Ltd, Lanka ORIX Leasing

Company PLC is the main shareholder of the Company and with its Directors.

33.2 Transactions with key management personnel and their family members

(i) Loans to Directors

No loans have been given to the Directors of the Company

(ii) Key Management personnel compensation

Key management personnel comprises the Directors of the Company and details of their compensation are given in Note 9 to the Financial

Statement.


(iii) Other transactions with key management personnel

The aggregate value of transactions and outstanding balances relating to entities over which the Directors have significant influence as

follows:,

Name of the Company Relationship Nature of Transaction ValueRs.

Balance as at31 March 2012

Lanka ORIX Leasing Company PLC Parent Opening balance 278,993,550

Interest expense 165,400,417

Transfer of funds (20,447,251,432)

Funds received 20,336,295,624

Handling fee 370,101,349

Settlement of expenses by LOLC 611,854,231 (1,315,393,739)

Lanka ORIX Finance PLC Fellow Subsidiary Opening balance 3,589,880

Income on maintenance of portfolio 23,141,179

Bonus paid through LOFC current

accounts

(14,774,117)

Cash received (8,927,026) 3,029,916

LOLC Micro Credit Ltd Fellow Subsidiary Fund received 1,500,000

Paid (1,500,000)

Post office rent paid 938,099 -

Lanka ORIX Information Technology

Services Ltd

Fellow Subsidiary Provision for Information services 120,000,000 13,212

Browns & Company PLC Fellow Subsidiary Lease vehicle purchased 558,409,900

Ishara Traders (Pvt) Ltd Key Management

Personnel

Opening balance 2,658,854,772

Lease vehicle purchased 27,305,010

Purchase of equipments for company use 11,650,000

Loan obtained 1,250,000,000

Loan settled during the year (321,753,130)

Loan transferred to LOLC (2,100,579,120)

Interest paid (394,208,936) (1,486,522,522)

Commercial Insurance Brokers (Pvt) Ltd Associate Insurance commission received 31,673,574 -

LOLC Services Ltd Fellow Subsidiary Yard fee 4,800,000 (747,950)

LOLC Investments Ltd Fellow Subsidiary Settlement of expenses by LOLC 23,142 (1,268)



34. Statement of Directors' ResponsibilitiesThe Companies Act No 07 of 2007 requires the Directors to prepare financial statements for each financial year giving true and fair view of the

state of affairs of the Company as at end of the financial year and of the Statement of Income of the Company for the financial period ended

March 31,2012.

The Directors confirm that the financial statements have been prepared and presented in accordance with the Sri Lanka Accounting Standards

laid down by the Institute of Chartered Accountants of Sri Lanka and that they provide information as required by the Companies Act No 07 of

2007.

The Directors confirm that suitable accounting policies have been used and applied consistently and that all applicable accounting standards

have been followed in the preparation of the financial statements. Furthermore, reasonable and prudent judgments and estimates have been

made in preparation of these financial statements.

The Directors are also aware that the responsibility of safeguarding the assets of the Company, maintenance of proper accounting records and

the provision of reliable information is entrusted to them. As such a system of internal controls has been established and the Directors confirm

that this framework is adequate to provide reasonable but not absolute assurance that assets are safeguarded and any material misstatements

and irregularities in respect of accounting records are prevented or detected. The Directors confirm that they are justified in adopting the going

concern basis in preparing the accounts since adequate resources are available to continue operations in the foreseeable future.


Shareholder Information

Highest, Lowest and Closing Share Prices as at 31 March 2012The Company was listed on 05th June 2012, after the conclusion of the financial year.

Shareholding as at 31 March

2012 2011

No. of Shares % of Shares No. of Shares % of Shares

Residents 6,377,711,170 100.00 27,729,179 100.00

Non Residents - - - -

Total 6,377,711,170 100.00 27,729,179 100.00

Shareholders

2012 2011

No. of Shares % of Issued Capital No. of Shares % of Issued Capital

Lanka ORIX Leasing Company PLC 6,377,711,170 100.00 27,729,179 100.00

Directors Shareholdings

Directors Name As at 31.03.2011 As At 31.03.2012

1. Mrs. R L Nanayakkara

(Resigned with effect from 31.12.2011)

Nil Nil

2. Mr. I C Nanayakkara Nil Nil

3. Mr. W D K Jayawardena Nil Nil

4. Mrs. K U Amarasinghe Nil Nil

5. Mr. P D J Fernando Nil Nil

6. Dr. H Cabral PC Nil Nil

7. Mr. D M D K Thilakaratne Nil Nil

None of the Directors held any shares in the company during the year under review.


Ten Year Summary

31st December 31st MarchFor the year ended 2002 2003 2004 2005 2006 2007 2008/2009 2010 2011 2012(Rs. Mn.)

Operating Results

Profit before interest 227 348 546 766 1,053 1,399 2,154 1,722 2,047 5,342

Profit before tax 63 122 236 313 368 406 514 362 741 3,182

Profit after tax 55 121 165 209 268 328 415 354 664 2,920

Assets

Total assets 1,750 3,173 4,215 5,927 7,745 7,976 9,451 12,534 21,408 26,381

Liabilities

Total Liabilities 1,448 2,782 3,600 5,321 6,708 6,681 7,776 10,505 17,725 19,778

Shareholders' Funds

Stated capital 81 81 121 261 418 418 418 418 1,425 1,425

Reserves 221 310 494 344 620 878 1,257 1,612 2,258 5,178

Shareholders' funds 302 391 615 606 1,037 1,295 1,675 2,029 3,683 6,603

Investor Ratios

Long term borrowings to

shareholders funds 0.89:1 1.67:1 1.42:1 2.25:1 2.22:1 2.02:1 0.94:1 0.69:1 1.85:1 1.43:1

Total borrowings to

shareholders funds 4.46:1 6.72:1 5.38:1 6.18:1 5.63:1 4.1:1 4.64:1 4.55:1 4.19:1 2.73:1

Book value

per share (Rs.) - Adjusted 0.09 0.12 0.19 0.19 0.32 0.40 0.52 0.63 1.15 2.06

Earnings per share (Rs.) - Adjusted 0.02 0.04 0.05 0.07 0.08 0.10 0.13 0.11 0.21 0.91

Return on capital employed (%) 18 31 27 28 26 25 28 19 23 57

Return on assets (%) 3 4 4 4 3 4 2 3 4 12

Gross dividends (Rs. Mn) 61.76 61.76 70.58 79.41 70.58 70.58 35.29 - - -

Non Financial Information

Number of branches 5 5 9 10 11 11 22 26 40 50

Number of employees 123 135 151 188 211 221 276 388 413 511


Sources and Distribution of Income

2007 2008/09 2009/10 2010/11 2011/12 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Sources of income

Lease income 889,209 771,110 510,411 854,536 1,824,808

Hire purchase income 955,694 1,571,718 1,414,179 1,633,327 1,686,290

Loan income - 7,323 113,129 292,738 730,141

Vehicle hire income 48,380 56,241 42,242 34,133 16,583

Factoring income 113,867 270,410 304,777 460,887 795,159

Interest on overdue rentals 60,659 147,073 110,733 126,866 191,754

Other income 23,169 116,001 116,001 177,757 2,198,411

2,090,978 2,939,876 2,611,472 3,580,244 7,443,146

Distribution of income

To banks and other lenders 1,000,460 1,640,440 1,362,588 1,309,331 2,167,308

To government as taxation 472,061 166,050 166,050 224,778 347,747

To employees as emoluments 134,165 214,870 253,183 381,732 405,926

To providers of services 100,162 228,494 386,355 847,652 1,294,876

To shareholders as dividends 70,583 35,292 - - -

Depreciation 51,012 66,023 52,636 44,047 47,360

Provision for doubtful debts 53,527 80,454 85,436 115,414 260,262

Reserves (including provision for deferred taxation) 209,008 508,253 305,224 657,290 2,919,667

2,090,978 2,939,876 2,611,472 3,580,244 7,443,146


Statement of Value Added

2011/12 (%) 2010/11 (%) (Rs.'000) (Rs. '000)

Value added

Income 5,244,735 3,402,488

Other income 2,198,411 177,757

7,443,146 3,580,245

Cost of services (1,294,876) (847,652)

Provision for losses (260,262) (115,414)

5,888,008 2,617,179

Distribution of value added

To employees

Remuneration and other benefits 405,926 7% 381,732 14%

To government

Income tax, value added tax and VAT on financial services 347,747 6% 224,778 9%

To banks and other lenders

Interest and bank charges on borrowings 2,167,308 37% 1,309,331 50%

To providers of capital

Dividends to shareholders - -

To expansion and growth

Depreciation 47,360 1% 44,047 2%

Retained profits 2,919,667 49% 657,291 25%

5,888,008 100% 2,617,179 100%


Notice of the Meeting

NOTICE IS HEREBY GIVEN THAT THE 20th ANNUAL GENERAL MEETING of the above Company will be

held on 18th September 2012 at 4.00 p.m at the LOLC Auditorium, No. 100/1, Sri Jayawardenapura

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, 2012 with the Report of the Auditors thereon.

2. To re-elect as a director Mr W D K Jayawardena, who retires by rotation in terms of Article 75

of the Articles of Association of the Company.

3. To re-elect as a Director Dr H Cabral PC, who retires by rotation in terms of Article 70 of the

Articles of Association of the Company.

4. To re-elect as a Director Mr D M D K Thilakaratne, who retires by rotation in terms of Article 70

of the Articles of Association of the Company.

5. To re-elect as a Director Mr P D J Fernando, who retires by rotation in terms of Article 70 of the

Articles of Association of the Company.

6. To re-appoint as auditors M/s KPMG Ford Rhodes Thornton and Company, Chartered

Accountants at a remuneration to be fixed by the Directors

7. To approve the following Special Resolution:

“It is hereby resolved that consequent to the shares of the Company being listed on the

Diri Savi Board of the Colombo Stock Exchange by way of an introduction, the status of the

Company be and is hereby changed from “Limited” to “PLC”.

By Order of the Board

Miss Chrishanthi Emmanuel

Secretary

20th August 2012

Rajagiriya (in the greater Colombo)

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,

68, Baudhaloka Mawatha, Colombo 04, not later than 4.00 p.m on 16th September 2012.

3. A Form of Proxy accompanies this Notice.


Notes

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Form of Proxy

I / We ……………………….…………………………………………..................................................… of ………………………….. ……………….…………………………… being a member/members of the above named Company hereby appoint …..………………………………………………………of ……………………………………………………………………… whom failing

Mr Ishara Chinthaka Nanayakkara of Colombo or failing himMr Waduthanthri Dharshan Kapila Jayawardena of Colombo or failing himMrs Kalsha Upeka Amarasinghe of Colombo or failing herMr Priyantha Damian Joseph Fernando of Colombo or failing himDr Harsha Cabral PC of Colombo or failing himMr Don Manuwelge Don Krishan Thilakaratna 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 18th September 2012 and at any adjournment thereof and at

every poll which may be taken in consequence of the aforesaid Meeting.

For Against

1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March, 2012 with the Report of the Auditors thereon.

2. To re-elect as a Director Mr W D K Jayawardena, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

3. To re-elect as a Director Dr H Cabral PC, who retires by rotation in terms of Article 70 of the Articles of Association of the Company.

4. To re-elect as a Director Mr D M D K Thilakaratne, who retires by rotation in terms of Article 70 of the Articles of Association of the Company

5. To re-elect as a Director Mr P D J Fernando, who retires by rotation in terms of Article 70 of the Articles of Association of the Company

6. To re-appoint as auditors M/s KPMG Ford Rhodes Thornton and Company Chartered Accountants at a remuneration to be fixed by the Directors

7. To approve the following Special Resolution:“ It is hereby resolved that consequent to the shares of the Company being listed on the Diri Savi Board of the Colombo Stock Exchange by way of an introduction , the status of the Company be and is hereby changed from “Limited “ to “PLC”. “

dated this ....................................................... day of ................................, Two Thousand Twelve

………………………………………

Signature of Shareholder

Note:

1) a proxy need not be a member of the company

2) Instruction as to completion appear on the reverse hereof


Instructions as to Completion1. 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,

68, Baudhaloka Mawatha, Colombo 04 not less than 48 hours before the time appointed for

the holding of the Meeting.

To soar into the future, giving wings to the dreams, hopes and aspirations of our people and everyone who has a stake in the success of our enterprise.

To forge ahead to reach new frontiers, to touch new horizons, seeking new challenges and exploring new opportunities.

Together with our people with diverse strengths, committed to achieving personnel excellence and the continuous growth of our enterprise.

Vision

Name of the Company


Country of Incorporation

Sri Lanka

Legal Form

A quoted public company with limited liability

Date of Incorporation

22nd April 1988

Company Registration No.

PQ 131 PB

Principal Activities

During the year the principal activities of the

Company comprised provision of leasing, hire

purchase, loans and other lending products,

Having received a finance company license,

the activities expanded to include mobilizing

of fixed and savings deposits.

Company Secretary

Miss Chrishanthi S. Emmanuel, FCIS, FCCS

Auditors

KPMG, Chartered Accountants

Lawyers

Julius & Creasy, Attorneys-at-Law

Nithya Partners

Corporate Information

Registrars

PW Corporate Secretarial (Private) Ltd

Bankers

Bank of Ceylon

Standard Chartered Bank PLC

Citi Bank N A

Hatton National Bank PLC

Hongkong and Shanghai Banking Corporation Ltd

Deutsche Bank

Nation Trust Bank PLC

Commercial Bank of Ceylon

NDB Bank

Seylan Bank PLC

MCB Bank

Pan Asia Bank

Sampath Bank

DFCC Vardhana Bank

Union Bank

People’s Bank

Habib Bank

Registered Office

No. 68, Baudhaloka Mawatha, Colombo 04.

ContentsFinancial Highlights 2

Chairman’s Message 6Director/Chief Executive Officer’s Review 8

Message from the Director 10Board of Directors 12

Board of Directors’ Profiles 13Management Team 17

Management Discussion & Analysis 19Our Outreach 23

Financial Review 24Risk Management 26Corporate Governance Report 30

Financial InformationAudit Committee Report 50Integrated Risk Management Committee 51Remuneration Committee Report 52Directors’ Report 53Directors’ Statement on Internal Controls 58Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 60Independent Auditor’s Report 61Income Statement 62Balance Sheet 63Statement of changes in equity 64Cash Flow Statement 65Accounting Policies 67Notes to the Financial Statements 73

Shareholder Information 88Ten Year Summary 89

Sources and Distribution of Income 90Statement of Value Added 91

Notice of the Meeting 92Notes 93

Form of Proxy 95

Produced by Copyline (Pvt) Ltd Printed by Gunaratne Offset Ltd

2011/12A dynamicyear ofachievementCommercial Leasing & Finance Ltd Annual Report 2011/12


Commercial Leasing & Finance LtdRegistration No : PQ 131 PB

P.O. BOX 690,No. 68, Bauddhaloka Mawatha,

Bambalapitiya, Colombo 04, Sri Lanka.Phone (Hunting) : (011) 4 526526,

Fax : (011) 2559510, 4526517, 4526559E-mail : [email protected] Web : www.clc.lk

Commercial Leasing & Finance Ltd. is rated A-(lka) by Fitch Ratings Lanka Ltd., licensed by Monetary Board of the Central Bank of Sri Lanka under the Finance Business Act No. 42 of 2011. Date of incorporation 22/04/1988.

23% G

rowth in Asset Ba

se.

Through the partnership with

Associated Motorways PLC, executed

over 1,300 leases for Suzuki Maruti

branded vehicles within 5 months.

2.8% NPL Ratio.

Rs. 3.2 Bn Profit Before Tax.

Com

mer

cia

l Lea

sing

con

verte

d to

a

Fina

nce

Com

pa

ny.

Com

ple

ted

a d

yna

mic

yea

r of

bus

ines

s.

50th

Bran

ch w

as o

pene

d in

Kilino

chch

i.

Fixed and Savings deposit products

were launched.

Rs. 6.6 Bn Shareholders' Funds.

Total foreign funding lines

exceeding Rs. 3 Bn.

54% G

rowth in Incom

e.

Co

mm

erc

ial Le

asing

& Fina

nce

Ltd | Annua

l Rep

ort 2011/12

First

financ

ial instit

ution t

o open a

dedicated Fa

ctorin

g bra

nch o

utside

Colombo,

in Ka

ndy.

2011/12 - cse

Documents