67.4% 12,567mn 2.6% n 6.68bn 3.7% 78% 85% 12,567mn read 80 ... · annual report 2016/17 56% 8,345m...

Annual Report 2016/17

56%

8,345Mn

594Mn

80%

67.4% 6.68BN

8,345 M

5,341 M85%

12,567Mn

3,453Mn

2.6%

85%

5,341 M12,567Mn

78%

53%

56%8,345Mn

594Mn

80%

67.4% 6.68BN

8,345 Mn

5,341 Mn85%

12,567Mn

3,453Mn

3,453Mn

2.6%

85%

5,341 Mn12,567Mn

78%56%2.6%

53%

56%

8,345Mn

594Mn

80%

67.4% 6.68BN

8,345 Mn

5,341 Mn85%

12,567Mn

3,453Mn

3,453Mn

2.6%

85%

5,341 Mn12,567Mn

78%56%2.6%

53%

n

%

67.4% 6.68BN

8,345 Mn

5,341 Mn12,567Mn

3,453Mn

2.6%

85%

54.78 Mn12,567Mn

62%34%3.7%

67.4% 6.68BN

5,341 Mn85%

12,567Mn

3,453Mn

2.6%

85%

3.7%

53%

56%

8,345Mn

594Mn

80%

67.4% 6.68BN

8,345 Mn

5,341 Mn85%12,567Mn

3,453Mn

3,453Mn

2.6%

85%

5,341 Mn12,567Mn

78%56%2.6%

53%

56%

8,345Mn

594Mn

80%

67.4% 6.68BN

8,345 M

5,341 M85%

12,567Mn

3,453Mn

2.6%

85%

5,341 M

78%56%2.6%

53%

Read between the numbers

Contents

7

36

8

38

11

48

16

60

Financial Performance and Ratios

Board of Directors

Chairman’s Review

Corporate Governance

Managing Director’s Review

Board Sub Committee Reports

Management Discussionand Analysis

Financial Statements

About Us Our Story / 2Year at a Glance / 5Financial Performance and Ratios / 7Chairman’s Review / 8Managing Director’s Review / 11

Management Discussion and AnalysisThe Economy / 16Performance Review - Group / 23Sector Review / 24Sustainability Review / 28

StewardshipBoard of Directors / 36Corporate Governance / 38Board Sub Committee Reports- Audit Committee Report / 48- Remuneration Committee Report / 50- Nominations Committee Report / 51- Related Party Transactions Review Committee Report / 52

Financial StatementsAnnual Report of the Board of Directors / 54Statement of Director’s Responsibility / 57Statement of CEO’s and CFO’s Responsibility / 58

Independent Auditors’ Report / 59Income Statement / 60Statement of Comprehensive Income / 61Statement of Financial Position / 62Statement of Changes in Equity / 64Statement of Cash Flows / 66Notes to the Financial Statements / 68

Other InformationShareholder Information / 138Five year Performance / 146Five year Financial Positions / 148Notice of Meeting / 151Form of Proxy / 155Corporate Information / Inner Back Cover

Key Pages

1

READ BETWEEN THE NUMBERS

This has been a record breaking year for Softlogic Capital, one in which we reached several epic financial milestones in the success story we continue to write. As the financial services holding company of the Softlogic Group we are proud to report that in the year under review, we achieved over Rs1 billion in three of our most important performance indicators, as the balance sheet in this report will show.

Looking beyond the numbers of this review of our year’s operations, our stakeholders will also perceive that we continue to abide by our core principles; that fiduciary responsibility shall always be prioritized, that our investments will be conservative and prudent and that discipline, good governance and risk management will be inherent to all that we undertake to do.

We are proud of the excellent financial results we present to you our shareholder, here today. But we are equally, if not more proud of our outstanding record of performance across the many other measures of corporate excellence that we value, that you will see as you read between the numbers of this, our annual performance report.

1.3 billion PAT, 10.4 billion Turnover, 35.3 billion Total Assets

2

About Us | Management Discussion and Analysis | Stewardship | Financial Statements | Other Information

OUR STORY

Softlogic Capital PLC was incorporated as Capital Reach

Holdings Limited in April 2005 as an Investment Holding

Company. Subsequently, in August 2010, Softlogic Holdings

PLC acquired the Company under its objective to form a

fully-fledged finance arm to the greater Softlogic Group. The

ordinary shares of the Company were listed on the Dirisavi

Board of the Colombo Stock Exchange on September 2011.

Softlogic Capital PLC is the financial services sector holding

company of the Softlogic Group.

Softlogic Capital PLC is licensed by Securities & Exchange

Commission of Sri Lanka as a Market Intermediary under the

Investment Manager category.

Softlogic Capital’s portfolio of financial services comprises

of Softlogic Life Insurance PLC, an insurer licensed for Life

Insurance by the Insurance Board of Sri Lanka; Softlogic

Finance PLC, a Licensed Finance Company under the purview

of Central Bank of Sri Lanka; and Softlogic Stockbrokers (Pvt)

Ltd, a stock broking company licensed and operating on the

Colombo Stock Exchange.

Annual Report 2016/2017Softlogic Capital

3

UNMATCHEDEXCELLENCE IN SERVICEVISION

TO PROVIDE EXTRAORDINARY INVESTMENT GAINS TO OUR STAKEHOLDERS BY INNOVATING AND

DELIVERING “BEST VALUE” FINANCIAL SOLUTIONS TO THE CUSTOMERS IN OUR SECTOR.

MISSION

PEOPLE

PRODUCTIVITY

PORTFOLIO

PROFIT

CREATE A GREAT PLACE TO WORK WHERE PEOPLE ARE INSPIRED TO BE THE BEST THEY CAN BE.

BE A HIGHLY EFFECTIVE, LEAN AND FAST-MOVING TEAM.

ACQUIRE AND DEVELOP A UNIQUE RANGE OF FINANCIAL SERVICES THAT

ANTICIPATE AND SATISFY CUSTOMER DESIRES AND NEEDS.

MAXIMIZE AND DELIVER SUSTAINABLE RETURNS TO OUR SHAREHOLDERS.

4


GROUP STRUCTURE

Softlogic Holdings PLCInvestment holding company

Softlogic Capital PLCInvestment holding company

74.25%

Softlogic Life

Insurance PLCLife Insurance Company

licensed by Insurance Board of Sri Lanka

Softlogic Finance PLCRegistered Finance

Company licensed by Central Bank of Sri Lanka

Softlogic Stockbrokers

(Pvt) Ltd. Stock Broking Company

licensed by Securities and Exchange Commission of

Sri Lanka

Capital Reach Portfolio Management (PVT) Ltd.

No operations

59.19% 68.58% 100% 100%


5

YEAR AT A GLANCE

Awarded ‘Great Place to Work’ AccoladeSoftlogic Life Insurance was selected as one of the “Top 25 Best Companies to Work for in Sri Lanka -2016”

Island-wide launch of the “4 In 1” FD ProductSoftlogic Finance introduced groundbreaking new fixed deposit product, which was branded as “4 in 1”. This new product allows the customer to uplift his investment within the time periods of 3, 6, 9 & 12 months, without incurring any penalty.

Innovation of LifeUp“LifeUp” - the latest technological innovation from Softlogic Life Insurance has simplified and streamlined a range of functions for Life Advisors.

Launch of Education Loan ProductSoftlogic Finance introduced the Education Loan product, which provides parents with easy access to financial assistance in order to pay for their children’s international school and higher education, whether it is local or foreign. This product also provides financial assistance to working professionals to finance their academic and professional qualifications.

Achievement of 4 Awards at the Insurance Industry Awards of Sri Lanka 2016Softlogic Life gained major honors by winning 4 Top Awards at the inaugural “Insurance Industry Awards of Sri Lanka 2016” that was organized by the Insurance Association of Sri Lanka (IASL) and Fintelekt.

• Excellence in Agency Distribution – Life Insurance

• Excellence in Growth – Life Insurance

• Excellence in Growth - Motor Insurance

• Technology Innovation - General Insurance

We clinched the year on an exciting note, recording the highest-ever top line and bottom line numbers, by leveraging on our strategic business pillars to deliver excellent outcomes

for our stakeholder community.

Winner in the ‘Social Empowerment’ CategorySoftlogic Life Insurance PLC has been internationally recognized and rewarded as a winner in the ‘Social Empowerment’ category at the prestigious Asia Responsible Entrepreneurship Awards (AREA) 2016.

At the high profile event at Resort World Sentosa, Singapore, to present the awards to the winners, Softlogic Life Insurance shared the stage with 170 nominees from the region.

6


Year at a Glance

CMA Award for Annual Report 2015Softlogic Life Insurance PLC won an award for its 2015 Annual Report, in the “Ten Best Integrated Reports” category at the CMA Excellence in Integrated Reporting Awards 2015.

Cashless Hospitalization for 60 Hospitals Island-WideSoftlogic Life Insurance extended cashless hospitalization for 60 Hospitals Island wide. This Facility provides convenience to customers by eliminating the need for them to settle the hospital bill at the point of being discharged and get it reimbursed subsequently by going through the traditional reimbursement process.

Sale of Asian Alliance General Insurance Limited to the Fairfax GroupSoftlogic life Insurance PLC has transferred by way of sale, all the shares it held in Asian Alliance General Insurance Limited to the Fairfax Group.

Launch of Bundled Innovative SolutionsDoctor’s Visit to Your Doorstep; This service is available at any time of the day to examine a medical condition that has been covered by Softlogic Life. This will offer one free visit per policy year.

Emergency Medical Facilities and Medical Tests at Your Doorstep: Home Nursing & Swift Care will provide medical investigations which can be performed at your residence, and in the case of a medical emergency, an ambulance will be rushed to the required location.

Delivery of Prescription Medicines to Your Doorstep:This offers the facility to order medicines by sending the Medical Prescription via “LifeUp App” on Viber or WhatsApp - and the medicines will be delivered to the required location. Payment will be required on delivery.

Awarded the Gold Award in the Insurance CategorySoftlogic Life won the Gold Award in the Insurance Category and was also in the Top 10 across all Corporates at the most prestigious 52nd Annual Report Awards held by the Institute of Chartered Accountants of Sri Lanka

Softlogic Life was also an award recipient awarded under insurance sector at SAFA best presented annual report awards 2015

Swarna Sahana Gold Loan CampaignSoftlogic Finance launched a new 360° Gold Loan Promotional Campaign named “Swarna Sahana” in order to increase awareness of our Gold Loan Product and maintain the growth of this product.

Rebranded to Softlogic Life Insurance PLCThe name of Asian Alliance Insurance PLC has been changed to Softlogic Life Insurance PLC with effect from 24th October 2016.

We gave a new face to our insurance business considering the wellness, fitness and nutrition of a person’s life which benefits the customer now and while they live, with a greater purpose where we exist to nurture the wellbeing so that everyone can enjoy life today

Opening of Dematagoda BranchSoftlogic Finance opened its latest branch in Dematagoda in a very spacious and central location.


7

FINANCIAL PERFORMANCE AND RATIOS

2016/17 2015/16

Rs. Rs. %

Total Revenue - Continuing Operations Rs.million 10,433 9,263 13%

Profit Before Tax - Continuing Operations Rs.million 1,274 988 29%

Profit After Tax - Continuing Operations Rs.million 1,107 956 16%

Profit After Tax - Discontinued Operations Rs.million 203 (73) 380%

Profit After Tax - Total Rs.million 1,310 884 48%

Dividends (Rs.) Rs.million 344 - 100%

Basic Earnings Per Share - Continuing Operations Rs. 0.85 0.81 4%

Basic Earnings/(Loss) Per Share - Discontinued Operations Rs. 0.36 (0.06) 679%

Financial Position and Ratios 2016/17 2015/16 %

Total Assets Rs.million 35,341 34,293 3%

Equity and Reserves Rs.million 5,177 4,717 10%

Total Liability Rs.million 30,163 29,576 2%

Net Assets Per Share Rs. 4.77 3.87 26%

Investor Ratios 2016/17 2015/16 %

Share Price as at 31st March Rs. 4.70 6.00 -22%

Price to Book Value Per Share Times 1.01 0.63 61%

Price Earnings Ratio Per Share Times 5.55 7.38 -25%

Return on Equity % 40% 34% 17%

Pre-tax Return on Capital Employed (ROCE) % 15% 13% 22%

No. of Shares in Issue million 688.16 688.16 0%

Market Capitalisation Rs.million 3,234 4,129 -22%

Dividend Payout % 26% - 100%

Dividend Yield % 11% - 100%

Dividend Per Share Rs. 0.50 - 100%

-600

-300

0

300

600

900

1,200

1,500

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

Rs

PAT

05,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

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

Rs

Total Assets

0

2,000

4,000

6,000

8,000

10,000

12,000

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

Rs

Total Revenue

8


CHAIRMAN’S REVIEW


9

I take pride in presenting to you, valued shareholders, the Annual Report and Audited Financial Statements of Softlogic Capital PLC for the financial year 2016/17. In the previous annual report, I acknowledged the passion of our people to drive success for your Company and I am happy to declare that this faith was reaffirmed yet again by the enormous effort and dedication shown by them during the period under review, to lead the company to yet another milestone in performance. Softlogic Capital PLC had an outstanding year during which the group’s profit after tax increased by 48% to reach Rs. 1.3Bn for the financial year ended 31st March 2017. The profit attributable to equity holders amounted to Rs. 831Mn, representing an increase of 61% over the Rs.517Mn recorded in the previous year. Reflecting our commitment to grow shareholder wealth, Softlogic Capital distributed Rs. 344Mn as dividends during the year under review.

A rapidly expanding Small and Medium Enterprises (SME) sector and excellent prospects for life insurance offer significant growth potential which the respective group companies have leveraged upon this year. Our Life Insurance and licensed Finance Company operations were the major contributors to group profitability propelling the financial services sector to be the largest contributor to group profitability, with this dominant position expected to hold in the Softlogic Holdings’ earnings profile.

Softlogic Capital PLC is the Financial Services sector holding company of Softlogic Group represented by Softlogic Life in Life Insurance; Softlogic Finance, a licensed Finance Company; and Softlogic Stockbrokers. The fortunes of the stock broking business are tied to the country’s capital markets and the market conditions in 2016/17 proved less than favourable

for this area of our business, although the company itself is counted amongst the top three stockbrokering firms in the country. However, we are confident that the cycle will reverse as the true potential of the capital markets is yet to be seen..

Operating EnvironmentThe main driver of our financial services sector remains the economy of the country. The Sri Lankan economy contracted slightly in the period under review, recording 4.4 per cent in real terms as compared to 4.8 per cent growth in 2015. The per capita income is close to US$4000 and economic growth and improvement in per capita remains key to enhanced performance of our Sector. In insurance, it is to do with greater disposable incomes for people to buy protection or make an investment for the future.

Expansion in financial services, insurance and telecommunication were a major contributor to Services related activities in the national economy, which grew strongly during the year. The financial services industry was mostly under pressure from rising interest rates during 2016. Upward movement in deposit rates during 2016 also reflected the increased funding costs of financial institutions. Consumer price inflation moved upwards during the first half of 2016, although it stabilized somewhat during the remainder of the year, while core inflation broadly followed an upward trend in 2016. While macro-economic growth is expected to remain at current levels in the immediate future, we are optimistic about this rate accelerating in the medium term due to various economic initiatives taken by the present government to set the economy on a stronger path.

Strategic Steps to Strengthen Growth ProspectsDespite these macro challenges that have become a part and parcel of doing business, Softlogic Capital PLC was able to sustain and grow its profitability. A critical evaluation of our forward strategy led us to divest the general insurance business enabling us to focus strictly on the fast growing Life business. Consequently, Asian Alliance General Insurance Ltd. was sold to Fairfax Group. Your Company’s sole focus in Life business we feel will allow it to harness Group synergies and grow from strength to strength.

Our Life insurance business was rebranded as ‘Softlogic Life’ in October 2016 with the campaign, “Choose your Life”. The company has excelled in Life Insurance solutions since 2001 and this brand launch is targeted towards our customers who can engage in their daily affairs with peace of mind since they are now “protected” by Softlogic Life. Softlogic Life has strategically focused on health related products, where the Group’s Healthcare Sector, Asiri Health, plays a pivotal role in developing customer centric insurance solutions with an emphasis on technology-backed innovation in product and service delivery. We want to engage our customers on the platforms of Wellness, Fitness and Nutrition and make Insurance a positive mindset.

All of our Companies in this Sector of Insurance, Financial Services and Stockbrokering are led by committed management teams of professionals whose thinking is aligned with the greater group vision to create value for all stakeholders and the community alike. Sustainability is a key pillar of our operations and we have in place systems and processes that have embedded good governance, transparency and ethical standards that are well in excess of industry norms.

10


Chairman’s Review

Valuable Accolades We have been greatly encouraged by the accolades that we received during the year, where Softlogic Life won the most number of awards at the Inaugural Sri Lanka Insurance Industry Awards 2016 receiving “Excellence in Agency Distribution – Life Insurance” and “Excellence in Growth – Life Insurance” whilst being selected as one of the Top 25 Great Places to Work in the Country for 2016 by The Great Place to Work Institute. Softlogic Life also won the Gold Award for the 2015 Integrated Annual Report in the Insurance Category at the 52nd Annual Report Awards of Institute of Chartered Accountants and SAFA Award amongst all Insurers in the SAARC region.

AcknowledgementAs we continue our journey forward I would like to place on record my appreciation to my colleagues on the Board and towards all of the senior Management teams and all staff at Softlogic Life Insurance, Softlogic Finance and Softlogic Stockbrokers for their commitment and dedication and towards the Sector’s continued success. Finally, I thank all our stakeholders for the support extended to the Group during the year.

(Sgd.)Ashok PathirageChairman10 July 2017


11

MANAGING DIRECTOR’S REVIEW

12



I am pleased to share the exhilarating news that Softlogic Capital PLC has recorded significant growth and substantial improvement during the 2016/17 financial year. Notable moments during the year were surpassing the Billion Rupee mark in terms of Sector profitability, the divestment of our general insurance arm and the rebranding of our Life insurance entity, re-strategizing our NBFI business, a top 3 achievement in Stockbroking – that were all key achievements that wrote another chapter in the history of this Sector. Our presence in financial services sector has been a further dimension of the Softlogic Group’s success, enabling earnings from a diverse source of businesses. Our ability to remain focused on the numbers while at the same time sharpening our performance in other operational areas has been exceptional.

Key financial highlights in 2016/17:• Group Revenue from Continuing

Operations increased by 13% to Rs. 10.4Bn

• Group Profit Before Tax from Continuing Operations increased by 29% to Rs. 1.2Bn

• Total Profit of the Group for the year increased by 48% to Rs. 1.3Bn

• Earnings per share increased to Rs.1.21 from Rs. 0.75 in the previous year

• Dividend payout was 26% and Dividend yield was 11%

• Return on Equity increased to 40% from 34% in the previous year

Group Performance & StrategySoftlogic Capital synergized the value available from the other Sectors of the Group causing profitability to grow substantially, rising to Rs. 1.3Bn in the year under consideration as compared

to Rs. 883Mn in 2015, a 48% growth over the previous year. This was against the backdrop of an increase in revenue by 13% to Rs. 10.4Bn.

We have carefully strategized and differentiated our business propositions from the competition in each area of our presence in the financial services sector, and have prudently crafted the foundation for them to gain market leading positions in due course. We are confident that this focused strategy will bring about significant value creation for shareholders and other stakeholders of Softlogic Capital. For the year under review earnings per share increased by 61% to reach Rs.1.21, whilst the total assets of the Group increased to Rs.35 billion at end of the financial year, with shareholders’ funds increasing by 26% to Rs.3.3 billion. The Group posted net assets per share of Rs. 4.77 as at year end, marking an increase of 26% with a return on equity of 40% compared to the return on equity of 34% reported in the previous year.

Segmental PerformanceInsurance Sri Lanka’s insurance sector recorded improved performance in terms of asset growth and earnings during the year which is evident in the fact that total assets of the industry expanded by 10.9% to Rs. 503.1Bn in 2016 from Rs. 453.6Bn in 2015. Total profits earned by the industry marked a 67.5 per cent growth in 2016.

At Softlogic Life we concluded another fruitful year in 2016, recording GWP of Rs. 5.9Bn, which marks a growth of 26% and translates to Profit after tax of Rs.1.186Mn. The Life Fund of the Company rose to Rs. 6.6Bn amidst challenging market conditions and total assets of the Company increased to Rs. 10.2Bn from Rs. 9.7Bn in the previous year.

During the year under review, we divested our general insurance company in a strategic manner to retain focus on the life insurance area of the business. The transaction relating to sale of the general insurance company to the Fairfax Group was probably one of the smoothest M&A transactions concluded in recent times.

We have embarked on an exciting new chapter in our Life Insurance business with the Company branded as “Softlogic Life” with the name changed to Softlogic Life Insurance PLC. The year was marked by branch expansion activity, with the addition of 6 new branches to better reach communities in regions and fuel our organic growth. Further, our leadership in devising technology-backed solutions such as the ‘LifeUp’ smart phone application, ‘Doctor visit to your doorstep’, ‘Ambulance visit to your doorstep’ and the ‘Emergency Medical Facilities and Medical Tests at your doorstep’, extend infinite convenience for customers.

Delivering on our promises is a key focus and we extended the One-Day claim settlement promise by settling more than 80% of claims within one day, which assists policyholders and nominees with great convenience.

Financial ServicesThe Licensed Finance companies (LFCs) and Specialized Leasing Companies (SLCs) Sector expanded its asset-base exceeding the one trillion rupee mark while maintaining marginally lower growth than in previous year. The total asset base of the sector grew by 21.7 per cent (Rs. 215.8Bn) in 2016 to Rs. 1,211.9Bn compared to a growth of 22.3 per cent (Rs. 181.6Bn) in 2015. Emphasis was placed on moving out from the core business of vehicle financing to other loan products. The Central Bank of Sri Lanka continued to adopt prudential measures with a


13

specific focus on few LFCs with weak financial positions which could cause macro prudential concerns on financial system stability of the country.

Leveraging on the recognition of the Softlogic brand as an entrepreneurial business which has grown from quiet beginnings, aspiring entrepreneurs have been attracted to the company’s financial solutions which can grow and develop their businesses. Our business model enables speed and agility in funding solutions for which there is a substantial demand and the thrust towards financing the SME segment now accounts for a majority of the portfolio. Our brand has built on customer loyalty and the resultant deposit growth has been impressive, amounting to Rs. 15.4Bn and a 13% increase during 2016/17. Softlogic Finance at the end of the financial year witnessed an encouraging total income of Rs. 3.6Bn, with Net Profit after Tax for the year being recorded at Rs. 373Mn.

In keeping with our pledge to continuously foster a service culture within our organization, Softlogic Finance took steps and is introducing a core-banking solution that would make our internal processes more efficient, improve the customer experience and ensure that all our customers access the benefits of our progress in automation.

Amidst the growing risk of cyber security threats, we have increased commitment to preserve customer privacy and data security. Sound corporate governance and prudent risk management have been embedded into our culture, enabling us to endure resilience during times of macroeconomic challenges, gaining the optimum trade-off between risk and return.

Stockbroking Colombo Stock Exchange (CSE) recorded a poor performance in 2016 for the second consecutive year. The upward trend in interest rates in both domestic and international markets and the depreciation of the Sri Lankan rupee were amongst the factors that affected negatively to the performance of CSE. As a result, price indices pertaining to main sub sectors, namely banks, finance and insurance, diversified holdings, hotels and travels and telecommunication declined substantially by 7.7 per cent, 16.4 per cent, 7.4 per cent and 12.5 per cent, respectively, during the year. The daily average turnover of the CSE declined by 30.4 per cent to Rs. 737.2Mn in 2016 from Rs. 1,059.6Mn in 2015, reflecting a sluggish performance during the year. Foreign investors accounted for 42.2 per cent of the total turnover. Cumulative foreign purchases amounted to Rs. 74.6Bn, while cumulative foreign sales were Rs. 74.2Bn, resulting in a marginal net inflow to the market in 2016.

The Group’s stockbroking arm experienced a challenging year, reflecting subdued market conditions. During the year, the Company ranked among the top 3 equity broking houses in the industry based on volumes traded as at end-March 2017.We have in place all the necessary ingredients in place to benefit from an upsurge in the market and are looking eagerly to see how we can leverage when action returns to the markets.

Human CapitalOur objective has always been to attract the best talent in all of our businesses and we have worked hard to create an environment where the best talent can thrive. Softlogic Life was voted as one of Sri Lanka’s Top 25 Great Places to work showing that our employees trust the people they work

for, have pride in what they do and enjoy the company of people they work with.

Sustainability CommitmentSoftlogic Life is positioned on a Wellness and Nutrition platform and we integrate this with services that empower policy holders to live their life in a healthy manner which promote Economic, environment and Social sustainability. Softlogic Life carries out the majority of the group’s highly impactful CSR activities primarily directed towards empowering rural youth to make a valuable contribution to the national economy by helping develop their inter-personal and presentation skills through our WIN programme. Protecting our world and providing a healthy environment for people of the nation has been yet another key initiative.

Recognition & Rewards During 2016, Softlogic Life was awarded the Gold Award in the Insurance Category at the most prestigious 52nd Annual Report Awards held by the Institute of Chartered Accountants of Sri Lanka. It was also included amongst the Top 10 across all corporates. This award has given us immense pride and is a testimonial to the exceptional business model and industry best talent we have attracted.

The Company was yet again awarded heavily at the inaugural “Insurance Industry Awards of Sri Lanka 2016”, organized by Insurance Association of Sri Lanka (IASL) and Fintelekt, winning 4 Top Awards for excellence that included “Excellence in Agency Distribution – Life Insurance” and “Excellence in Growth – Life Insurance”.

Future OutlookWe are quite optimistic about the future and feel that Sri Lanka has the

14



potential for excellent growth. We are positioned in businesses that have great potential with an improvement in the GDP Per Capita of our country. We will continue to invest in resources that will give us a disproportionate advantage and are happy to see an increase in the valuable portfolio of investments that we have established.

We are overall confident that we have established a path of progression and performance that will be hard to match in the Financial Services arena and looking forward to the future with much anticipation.

AppreciationIn conclusion, on behalf of the Board of Directors and all employees of the Softlogic Capital Group, I would like to place on record my gratitude to all our stakeholders for the support extended to the Financial Services Sector during the year. I would also like to express my thanks to all employees of the Sector whose dedication and passion towards improving our business has been extremely impressive and encouraging.

(Sgd.)Iftikar AhamedManaging Director10 July 2017


15

Management Discussionand AnalysisThe Economy / 14Performance Review - Group / 21Sector Review / 22Sustainability Review / 26

16


MANAGEMENT DISCUSSION AND ANALYSIS

THE ECONOMYMacro-Economic EnvironmentGlobal EconomyWorld economic growth is expected to rise from 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018. Global growth is forecast to increase marginally beyond 2018, reaching 3.8 percent by 2022.

Recent DevelopmentsGlobal financial conditions are assumed to remain accommodative; an easing of lending conditions in major economies is expected to offset the anticipated rise in interest rates. Major factors that influence the global outlook:

• Non-fuel commodity prices, in particular for metals, are expected to strengthen as a result of substantial infrastructure spending in China, expectations of fiscal easing in the United States, and a general pickup in global demand.

• After the U.S. elections, which are expected to fuel the cyclical momentum

• An acceleration of activity in India resulting from the implementation of important structural reforms

Advanced EconomiesEconomic activity in advanced economies as a group is projected to grow by 2.0 percent in 2017 and 2018, 0.2 percentage point higher than expected in 2016. The stronger outlook in advanced economies reflects a projected cyclical recovery in global manufacturing, signs of which were already visible at the end of 2016.

Growth in US economy projected to expand at a faster rate in 2017

and 2018 at 2.3 and 2.5 percent, respectively supported by a cyclical recovery in inventory accumulation, solid consumption growth, and the looser fiscal policy standpoint. However, over a longer horizon, the outlook for the U.S. economy is more subdued compressed by the lower contribution by an aging population and weaker TFP growth. The euro area also expected to grow supported by a mildly expansionary fiscal stance, accommodative financial conditions, a weaker euro, coupled with uncertainty about the European Union’s future relationship with the United Kingdom.

The medium-term outlook for the euro area as a whole remains dim, as projected potential growth is held back by weak productivity, adverse demographics, and, in some countries, unresolved legacy problems of public and private debt overhang, with a high level of nonperforming loans. Japan is forecasted to gain a faster growth fueled by exports. However, over the medium term shrinking labor force will weigh on Japan’s growth prospects.

Emerging Market and Developing Economies Growth in the group of emerging market and developing economies is forecast to rise to 4.5 percent and 4.8 percent, respectively, in 2017 and 2018, from an estimated outturn of 4.1 percent in 2016.

• Growth in China is projected at 6.6 percent in 2017, slowing to 6.2 percent in 2018 supported by increasing resource misallocation and growing vulnerabilities associated with the reliance on near term

policy easing and credit-financed investment.

• Latin America and the Caribbean, projected to take hold with a forecasted growth of 1.1 percent in 2017 and 2.0 percent in 2018. Within the region, the growth outlook differs substantially across countries. Mexico and Brazil are expected to emerge from its recessions whereas Venezuela remains mired in a deep economic crisis.

• Emerging and developing Europe is projected to gain a favorable growth, with the exception of Turkey. The outlook is clouded by heightened political uncertainty, security concerns, and the rising burden of foreign-exchange-denominated debt caused by the lira depreciation. Growth in the rest of the region is expected to pick up after a temporary slowdown, as rising wages in some countries support strong domestic consumption growth.

• Weakened growth is forecasted for the Middle East due to the cut down oil production as agreed with OPEC and continued strife and conflict in many countries in the region. However, it is expected to pick up by 2018.

• In sub-Saharan Africa, a modest recovery is foreseen in 2017 backed by specific factors in the largest economies, such as recovery in oil production, continued growth in agriculture, and higher public investment. The outlook for the region, however, remains subdued as output growth is expected only moderately to exceed population growth over the forecast horizon.


17

World Economic outlook projections

Economic growth % YOY 2015 2016(Estimate)

2017(projections)

2018(projections)

% % % %

World Output 3.1 3.1 3.5 3.6

Advanced Economies 1.9 1.7 2 2

United States 2.5 1.6 2.3 2.5

Euro Asia 1.5 1.7 1.7 1.6

Japan 0.6 1 1.2 0.6

United Kingdom 2.2 1.8 2 1.5

Canada 1.2 1.4 1.9 2

Emerging Market and Developing Economies 4 4.1 4.5 4.8

Russia -3.7 -0.2 1.4 1.4

China 6.9 6.7 6.6 6.2

India 7.3 6.8 7.2 7.7

Sri Lankan EconomyThe Sri Lankan economy grew by 4.4 per cent in real terms in 2016 compared to 4.8 per cent growth in 2015, amidst numerous global and domestic challenges. Unfavorable weather conditions that prevailed during the year adversely impacted economic activity, primarily in the Agriculture sector.

GDP GrowthGDP at current market prices amounted to RS. 11,839 billion (US dollars 83.9 billion) in 2016 compared to Rs. 11,183 billion (US dollars 82.3 billion) in 2015.

Real Output 2015%

2016%

GDP Growth 4.8 4.4

Sectorial classification of GDP Growth

Agriculture 4.8 -4.2

Industry 2.1 6.7

Services 5.7 4.2

Services related activities, which constitute 56.5 per cent of real GDP, grew by 4.2 percent in 2016, on a year-on-year basis, supported by the expansion in financial services (12.4 per cent), insurance (8.5 per cent), telecommunications (8.3 percent), as well as transportation (4.1 percent) and wholesale and retail trade (2.5 percent).

Industry related activities, which account for 26.8 per cent of real GDP, recorded a notable growth of 6.7 per cent, driven by the subsectors of construction, and mining and quarrying, which grew by 14.9 percent and 14.4 percent,

respectively, jointly contributing 10.0 percent of GDP. Within the Industry sector, the growth in manufacturing activities was low at 1.7 per cent.

Agriculture, Forestry and Fishing related activities contracted by 4.2 percent in 2016, resulting in a reduction in their share in real GDP to 7.1 per cent in 2016. Adverse weather conditions that prevailed in 2016 resulted in a contraction mainly in paddy, tea and rubber subsectors.

As a share of GDP (%)

Contribution to change (%)

2016 2015 2016 2015

Agriculture, Forestry & Fishing

7.1 7.9 -7.4 9

Industries 26.8 26.2 11.5 16.5

Services 56.5 56.6 54 62.6

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Management Discussion and Analysis


Unemployment RateThe unemployment rate declined to 4.4 per cent in 2016 from 4.7 per cent in the previous year, while the number employed, increased by 1.5 per cent during the year with the expansion in the industry and Services related activities in the economy. The reduction in female and male unemployment rates to 7.0 per cent and 2.9 percent, respectively, in 2016, from 7.6 per cent and 3.0 per cent, respectively, in 2015, contributed to the overall decline in the unemployment rate.

During 2016, the unemployment rates by the level of education, declined across all categories, although unemployment amongst youth (15-24 years) increased to 21.6 per cent in 2016 from 20.8 percent in 2015. Meanwhile, the Labour Force Participation Rate (LFPR) remained unchanged in 2016 at 53.8 per cent.

Responding to policy actions by the government to minimize the social impact of unskilled female migration and the subdued economic performance in a majority of Middle Eastern economies and other labour destinations, departures for foreign employment declined in 2016. However, the improvement in the skill profile of the temporary migrants contributed to a moderate increase in remittance inflows. Meanwhile, labour productivity increased marginally during the

first three quarters of 2016. Labour productivity in the Agriculture sector remained at a level significantly lower than in the Industry and Services sectors.

Interest RateDuring 2016, market interest rates adjusted upwards reflecting tight monetary conditions in the economy. With the raising of SRR with effect from January 2016, the increase in policy interest rates in February 2016, and the gradual decline in excess rupee liquidity in the domestic money market, short term interest rates increased.

Due to tight monetary conditions and the high demand for funds from the government, yields on Treasury bills showed an upward trend during 2016 although some moderation was observed in the second half of the year. The impact of replacing the mixed system of auctions and direct placements to raise funds for the government with a purely auction based system where direct placements of treasury bills were made only with the Central Bank, also contributed to the increase in interest rates on government securities.

A considerable increase in both lending and deposit rates of commercial banks was observed in 2016. Accordingly, the Average Weighted Deposit Rate (AWDR) increased by 197 basis points to 8.17

per cent by end 2016 from 6.20 per cent at end 2015, while the Average Weighted Fixed Deposit Rate (AWFDR) also increased by 289 basis points to 10.46 per cent by end 2016 from 7.57 per cent at end 2015. Interest rates offered on new deposits also increased substantially during the year. Lending rates also increased, reflecting the impact of the tight monetary policy stance, deficit liquidity conditions and increased cost of funds due to high deposit interest rates.

InflationConsumer price inflation moved upwards during the first half of 2016, although it stabilized somewhat during the remainder of the year, while core inflation broadly followed an upward trend in 2016. Headline inflation, as measured by the year-on-year change in NCPI (2013=100) was subdued in the first quarter of the year as a result of imported deflationary effects associated with low international commodity prices. The year-on-year headline inflation based on the NCPI, which peaked at 6.4 per cent in June 2016, gradually decelerated to 4.2 per cent by end 2016, thus registering the same rate as at end2015. On an annual average basis, however, NCPI based headline inflation increased to 4.0 per cent by end 2016 compared to 3.8 per cent at end 2015. Following a similar trend, CCPI (2013=100) based headline inflation also reached a peak of 5.8 per

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cent in July 2016, before registering 4.5 per cent at end 2016, while on an annual average basis, it stood at 4.0 per cent by end 2016. Core inflation, which measures the underlying inflationary pressures in the economy, continued an upward trend in 2016 although some volatility was observed on a monthly basis.

External Sector DevelopmentSri Lanka’s external sector performance remained subdued in 2016, with foreign exchange outflows exceeding the moderate inflows during the year. The monetary policy normalization in the United States of America (USA), subdued external demand due to the slow pace of economic recovery in several advanced economies and emerging market economies, and persisting political tensions in the Middle East, significantly dampened the performance of the external sector.

The widening of the trade deficit, particularly in the last quarter of the year, and the primary income deficit led to a deterioration in the current account deficit during 2016, despite surpluses in the trade in services and the secondary income accounts. The subdued performance of the financial account of the BOP stemmed from continued outflows on account of debt repayments amidst modest non debt inflows.

Meanwhile, Sri Lanka experienced outflows of foreign holdings from the government securities market during the year, and the Central Bank intervened in the domestic foreign exchange market to dampen the depreciation pressure on the Sri Lanka rupee. The overall balance of the BOP recorded a deficit of US dollars 500 million in 2016, and the gross reserve asset position declined to US dollars 6.0 billion by end 2016, from US dollars 7.3 billion recorded at end 2015. With these developments, the rupee depreciated by 3.83 per cent against the US dollar in 2016.

The expansion in the trade deficit was driven by the reduction in earnings from exports compared to 2015 and the substantial increase in import expenditure during the last quarter of the year. Accordingly, the trade deficit widened to US dollars 9,090 million in 2016 compared to US dollars 8,388 million recorded in 2015 and the trade deficit as a percentage of GDP increased to 11.2 per cent in 2016 compared to 10.4 per cent in 2015. Earnings from exports contracted for the second consecutive year in 2016 with a contraction in earnings from agricultural and industrial exports.

Exchange RateThe external value of the Sri Lankan rupee continued to depreciate in 2016. The Sri Lankan rupee, which depreciated by 0.82 per cent in the first half of the year, depreciated at a higher rate of 3.04 per cent in the second half. The relatively low depreciation of the rupee in the first half was supported by the supply of foreign exchange liquidity by the Central Bank, amounting to US dollars 1,093 million, on a net basis.

However, the rupee depreciated at a higher rate with the curtailment in intervention by the Central Bank with a net absorption of US dollars 325 million during the second half of the year. A substantial amount of the foreign exchange supplied during the second half was to partially ease the pressure

arising due to the disinvestment by non-resident investors in the government securities market, particularly during the last quarter of the year.

Throughout the year, with these developments, the rupee depreciated by 3.83 per cent against the dollar from Rs. 144.06 as at end 2015, to Rs. 149.80 as at end 2016. In addition, the annual average exchange rate depreciated by international markets, the rupee depreciated against the euro by 0.32 per cent, the Indian rupee by 1.72 per cent, the Japanese yen by 7.05 per cent, while appreciating against the pound sterling by 16.04 per cent. Consequently, the rupee also depreciated against the SDR by 0.87 per cent during the year.

Global Economic OutlookThe acceleration in global growth and the resultant increase in global interest rates could have diverse effects on the Sri Lankan economy. The increase in oil prices as well as prices of other commodities in the global markets will weigh negatively in aggregate on the BOP and domestic price indices, while stagnant growth in the Middle East could reduce the income from tea exports and remittances by migrant workers. Tourist arrivals may pick up with high economic growth in Europe, China, India and Russia, which are Sri Lanka’s major sources of tourism. Sri Lanka, along with other small economies in Asia, could experience higher direct investment inflows, given the rising levels of South-South FDIs. The proposed trade and economic partnership arrangements in the region could enable Sri Lanka to gain access to larger regional markets with higher income levels. The tightening of financial markets, however, pose numerous challenges to Sri Lanka, in relation to borrowing in international financial markets that are necessary to rollover previous borrowings, and in relation to payment of interest on floating rate US dollar denominated instruments that are being used to finance the budget deficit.

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20



Sri Lankan Medium Term Macroeconomics OutlookSri Lankan economy is projected to grow at a moderate rate of around 5.0 per cent in 2017 amidst the adverse impact of unfavorable weather conditions, and is expected to improve gradually thereafter to record an annual growth rate of 7.0 per cent by 2020.The private sector is expected to play a key role in achieving this higher growth momentum by exploiting potential growth opportunities in the economy and external markets. Accordingly, economic expansion would be supported through increased investment from the private sector. Foreign investors are expected to contribute towards a higher level of investment with particular emphasis on services related activities and export oriented industries.

The opportunities for the private sector would include the planned establishment of the Colombo Financial City, new opportunities under the Western Region Mega polis Project and the proposed establishment of economic corridors in the North East and South West of the island, and also in the areas surrounding the Hambantota and Trincomalee ports. In addition to these initiatives, domestic investment activities are also expected to continue with emphasis on improving productivity through the adoption of new technology including mechanization initiatives in the Agriculture and Industry sectors together with the adoption of information technology (IT) related improvements.

These developments are expected to be supported by complementary policy measures of the government in creating a conducive environment for economic expansion. Such policy measures would include structural adjustments in both the fiscal and external sectors together with prudent macroeconomic management policies.

Further, appropriate monetary policy measures are expected to maintain

inflation at around 5.0 per cent, on average. The nominal exchange rate is also being allowed to adjust to attain a real effective exchange rate (REER) index of 100 and to maintain it at that level to support the competitiveness of the economy. With these developments, the production capacity of the economy would improve supporting higher domestic production, which be exported through improved market access supported by favorable policy initiatives.

Economic Indicators and their impact on Softlogic Capital Group

Economic Indicator

Cause of Movement Impact on Softlogic Capital Group

GDP and per capita income

Growth in GDP and increase in per capita

It will attract high demand for protection based products.

Helped the Group to increase its business volumes substantially.

Inflation Increasing inflation which causes rise in costs

Negative impact on administration and other expenses

Interest rates Increase in interest rate Decline in value of the bond portfolio

Positive impact on surplus due to lowering the insurance contract liabilities

Lower reinvestment risk

Substantial Growth in loans and advances

The share market performance

Volatility in equity market Volatility over earnings

Overview of the Sri Lanka Financial Services sectorThe financial sector continued to expand during the year whilst exhibiting resilience amidst challenging market conditions both globally and domestically. The banking sector maintained its capital and liquidity levels well above the statutory minimum requirement while assets of the sector recorded a lower growth in 2016 compared to 2015.

The increase in interest income of the banking sector mainly contributed to the higher profitability of the banking sector as reflected in Return on Assets (ROA) and Return on Equity (ROE). Meanwhile, asset quality measured by the Non-Performing Loan (NPL) ratio recorded its lowest level for the last two decades.

The licensed finance companies (LFCs) and specialized leasing companies

(SLCs) sector showed an expansion in the asset base. Domestic financial markets continued to be volatile during the year in response to changing local and global economic environment. Excess rupee liquidity in the domestic money market declined gradually into deficit levels during the year and rebounded to a surplus by end December 2016.

Strengthening of the supervisory and regulatory framework governing the financial sector continued during the year to ensure that potential risks to financial system stability are addressed in a timely manner. The asset base of the banking sector expanded by Rs. 969 billion during the year surpassing Rs. 9 trillion by end December 2016 albeit at a slower growth of 12.0 per cent (y-o-y) in 2016 compared to 15.9 per cent reported in 2015.


21

Total Assets of the Financial System

2016 2015

Rs. Bn Share (%) Rs. Bn Share (%)

Banking Sector 10,575.8 68.7 9,503.7 68.8

Other Deposit Taking Financial Institutions (Including Licensed Finance Companies)

1,246.7 8.1 1,044.2 7.6

Specialised Financial Institutions (Including Stock Brokers)

522.8 3.4 557.8 4.0

Contractual Savings Institutions (Including Insurance Companies)

3,040.3 19.8 2,711.1 19.6

Total 15,385.7 100 13,816.7 100

Insurance SectorThe insurance sector recorded improved performance in terms of asset growth and earnings during the year. As at end 2016, there were 29 insurance companies operating in Sri Lanka registered with the IBSL. While 14 companies operated as exclusive general insurance companies and 12 companies operated as exclusive long-term insurance business companies, the remaining 3 companies engaged in both long-term insurance and general insurance business. There were 59 companies engaged in insurance brokering business. Total assets of the insurance sector expanded by 10.9 per cent to Rs. 503.1 billion in 2016 from 453.6 billion in 2015. Total assets of long-term insurance business sub-sector increased to Rs. 334.4 billion at end 2016, accounting for 66.5 per cent of the total assets of the insurance sector compared to 67.3 per cent at the end of 2015.

The growth of Gross Written Premium (GWP) of the insurance industry decelerated to 16.0 percent in 2016 compared to the growth of 21.1 percent recorded in 2015. The general insurance sub sector accounted for 54.7 percent of GWP of the industry. Total profits earned by the insurance sector marked a 67.5 per cent growth in 2016.This impressive growth was mainly attributable to the performance in general insurance sector.

The higher growth rate recorded during years was supported by higher market interest rate prevailed in 2016. The underwriting profits increased to Rs. 10.1 billion in 2016 compared to Rs. 8.1 billion in 2015 and recorded a 24.9 per cent growth during the year. Profit of long-term insurance business grew at 24.8 per cent, while profits in the general insurance sector grew by 125.9 per cent. Claims of general insurance sector, increased by 15.9 per cent to Rs. 37.7 billion, while the claims for long term insurance increased by 9.0 per cent to Rs. 22.7 billion in 2016. Total claims in the overall sector accounted for 11.2 per cent of the total investments of general insurance at end 2016, compared to a share of 8.8 per cent in 2015. Meanwhile, investments in corporate debt securities by the long-term insurance sector increased to 23.0 per cent at end 2016 from 18.5 per cent in 2015.

Licensed Finance companies (LFCs) and specialized Leasing companies (SLCs) Sector The LFCs/SLCs sector recorded a strong performance in terms of asset growth and branch network expansion during 2016 amidst a challenging business environment, while placing emphasis on gradually moving out from its core business of vehicle financing to other loan products.

The licensed finance companies (LFCs)/ specialized leasing companies (SLCs) sector grew in terms of assets and the branch network during 2016, while other non banking financial institutions showed a mixed performance amidst a challenging business environment.

Business GrowthOutreach: By end 2016, this sector comprised of 46 LFCs, 7 SLCs and 1,313 branches, out of which 886 branches were located outside the Western Province. During the year, a new finance leasing license for Sarvodaya Development Finance Ltd. was granted and the finance leasing license of People’s Bank was cancelled on their request while 101 new branches were added to the branch network.

Assets: During 2016, the LFCs/SLCs sector was able to expand their asset base exceeding the one trillion rupee mark while maintaining marginally lower growth than in previous year. The total asset base of the sector grew by 21.7 per cent (Rs. 215.8 billion) in 2016 to Rs. 1,211.9 billion compared to a growth of 22.3 per cent (Rs. 181.6 billion) in 2015.

Liabilities: The sector’s reliance on retail deposits has gradually shifted towards bank borrowings & has changed the overall funding structure of the sector by increasing the share of borrowings to 36.2 per cent in 2016 from 31.6 per cent in 2015, while the share of deposits decreased to 43.8 per cent in 2016 from 48.3 per cent in 2015. During 2016, the borrowings increased by 39.6 percent or Rs. 124.4 billion to Rs. 438.7 in absolute terms compared to a growth of 44.6 per cent recorded in 2015.

22



Composition of Assets and Liabilities of the LFCs/SLCs Sector

2016 2015

Rs. Bn Share (%) Rs. Bn Share (%)

Assets

Loans and Advances 962.7 79.4 795.8 79.9

Investments 111.7 9.2 99.6 10

Other 137.5 11.3 100.7 10.1

Liabilities

Total Deposits 531 43.8 480.6 48.3

Total Borrowings 438.7 36.2 314.3 31.6

Capital Elements 146.1 12.1 123.1 12.4

Total Funds 1,115.7 92.1 918 92.2

Other 96.2 7.9 78.1 7.8

Total Assets/Liabilities (net) 1,211.9 100 996.1 100

Risks in the LFC/SLC SectorCredit Risk - The NPL ratio showed a decline from 5.7 per cent in 2015 to 5.3 per cent in 2016. The increase of Rs. 5.6 billion in NPLs in 2016 was not significant compared to higher growth of the loan portfolio. The total loan loss provisions increased by Rs. 5.9 billion to Rs. 34.8 billion mainly due to an increase in the specific provisions made for NPLs with a delinquency period of more than 12 to 24 months. As a result, the net NPL ratio decreased to 1.2 per cent as at end of 2016 compared to 1.6 per cent in 2015 and the provision coverage increased to 65.7 per cent in 2016 compared to 61.0 per cent enabling a minimization of potential default risk of the sector.

Market Risk - The LFCs and SLCs continued to experience a minimal market risk due to the lower exposure to trading portfolio and foreign currency transactions. Market interest rates increased during the year, resulting higher “re-pricing risk”, which reduced the sector margin due to prevailing negative assets and liabilities mismatch. However, the increased interest rate risk was minimized due to the improvement of the negative assets and liabilities mismatch up to 12 months’ time bucket

Liquidity Risk- The excess liquidity in the LFCs/SLCs sector witnessed in the previous year continued to remain high during the year under review amidst increased lending activities of the sector. The overall statutory liquid assets available in the LFCs/SLCs sector were at a surplus of Rs. 15.4 billion by end 2016 compared to the stipulated minimum requirement of Rs. 74.7 billion.

Profitability and Capital ResourcesProfitability - The sector posted a profit after tax of Rs. 31.5 billion compared to that of Rs. 15.2 billion in 2015 reporting a more than two fold increase.

Capital - The total regulatory capital of the sector improved by 25.1 per cent to Rs. 116.2 billion mainly due to retained profits. The core capital and total risk weighted capital ratios of the sector increased to 11.4 and 11.7 per cent, respectively, as at end 2016 from 10.5 and 11.2 per cent, respectively, as at end of 2015.

Stockbroking SectorColombo Stock Exchange (CSE) recorded a dismal performance in 2016 for the second consecutive year. All Share Price Index (ASPI) declined by

9.7 per cent to 6,228.3 points and S&P SL20 Index declined by 3.6 per cent to 3,496.4 points at end 2016 compared to 6,894.5 and 3,625.7, respectively, at end 2015. The upward trend in interest rates in both domestic and international markets and the depreciation of the Sri Lankan rupee were amongst the factors that affected negatively to the performance of CSE. As a result, price indices pertaining to main sub sectors, namely banks, finance and insurance, diversified holdings, hotels and travels and telecommunication declined substantially by 7.7 per cent, 16.4 per cent, 7.4 per cent and 12.5 per cent, respectively, during the year.

Market capitalisation of the CSE declined in 2016. The market capitalisation as a percentage of GDP declined to 23.2 per cent at end 2016 from 26.8 per cent in 2015. In terms of market capitalisation, banks, finance and insurance (23.8 percent), beverage, food and tobacco (19.4 percent) and diversified holdings (18.7 per cent) were the first three largest sectors of CSE while the ten largest companies listed on CSE accounted for 41.7 per cent of total market capitalisation compared to 40.8 per cent in 2015.

The daily average turnover of the CSE declined by 30.4 per cent to Rs. 737.2 million in 2016 from Rs. 1,059.6 million in 2015, reflecting a sluggish performance during the year. Foreign investors accounted for 42.2 per cent of the total turnover. Meanwhile, cumulative foreign purchases amounted to Rs. 74.6 billion, while cumulative foreign sales were Rs. 74.2 billion, resulting in a marginal net inflow to the market in 2016. The primary market remained active during the year. In 2016, Rs. 82.4 billion was raised through 20 Initial Public Offerings (IPOs), both equity and debt, 6 right issues and 1 new introduction.


23

PERFORMANCE REVIEW – GROUPSoftlogic Capital has established an impressive presence in the market with portfolio comprising of;

• Softlogic Life Insurance PLC, an insurer licensed for Life Insurance by the Insurance Board of Sri Lanka

• Softlogic Finance PLC, a Licensed Finance Company under the purview of Central Bank of Sri Lanka;

• Softlogic Stockbrokers (Pvt) Ltd, a stock broking company licensed and operating on the Colombo Stock Exchange.

Together with the Investment Manager initiatives set up at Softlogic Capital PLC that is licensed by the SEC, this comprehensive financial service portfolio as primed the Sector for strident growth, leveraging on its fast increasing customer base acquired from diverse sectors of the overall Group.

Financial Review RevenueThe Softlogic Capital Group recorded consolidated revenue of Rs. 10.4 billion during 2016/2017, in comparison to the revenue of Rs. 9.3 billion reported the previous year. This increase of 13% mainly arose from the extraordinary performance of the insurance sector which accounted for 54% of the total revenue. The Insurance sector

witnessed a 21% increase in total revenue to Rs. 6 billion in 2016/2017. The NBFI sector also recorded a 6% improvement in revenue to reach Rs. 4.3 billion for the year.

ProfitabilityThe Group recorded a consolidated profit after tax for the year of Rs. 1.3 billion which was a 48% increase over the profit after tax for the year of Rs. 884 million of the previous year. Profit after tax from continuing operations was Rs. 1.1 billion which was an increase of 16%. Profit after tax from discontinued operations was Rs. 203 million which was an increase of 380% over the previous year. This includes the disposal gain on Asian Alliance General Insurance Limited of Rs. 314 million.

The Insurance sector contributed 58% and the NBFI sector contributed 18% to the Group profit after tax for the year from continuing operations by generating profit after tax of Rs. 1.2 billion and Rs. 374 million respectively.

The Group’s net profit attributable to the equity holders of the company amounted to Rs. 583 million from continuing operations and 248 million from discontinued operations. This was an increase of 4% and 679% over previous year’s profit of Rs. 559 million and loss of 43 million respectively. Total profit attributable to equity holders of the company amounted to Rs. 830 million, an increase of 61% over Rs. 517 million of previous year. The Group’s profit

attributable to non-controlling interest from continuing operations increased by 32% to Rs. 524 million for the year.

Earnings Per Share (EPS)The Group recorded earnings per share of Rs. 1.21 (from both continuing and discontinued operations) for the year in comparison to the earnings per share of Rs. 0.75 the previous year. During the year, there was no change in the number of issued shares. Hence the increase in the earnings per share of 61% is equal to the increase recorded in the net profit attributable to equity shareholders.

Dividends per ShareThe encouraging performance of the Company in the financial year under review backed by boosting performance of the subsidiaries has enabled the Board to declare an interim dividend of Rs. 0.50 per share which was paid in March 2017.

Total AssetsAs at end of the financial year under review, the Group recorded a total asset base of Rs. 35 billion. This was in comparison to the total asset base of Rs. 34 billion held at the end of the previous financial year. The total assets included Rs. 31 billion as financial assets and Rs. 4 billion as non-financial assets. The largest portion of the assets was attributable to financial assets – loans and receivable which amounted to Rs. 21 billion as at year end.

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59% of the total assets of the Group amounting to Rs. 22 billion were held by the NBFI sector. Insurance sector held a total asset base of Rs. 10 billion while the total asset base in the Stockbroking sector was Rs. 484 million.

Net Assets per Share (NAPS)The total equity attributable to equity holders of the parent company stood at Rs. 3.3 billion at end of the financial year under review. This indicated a net asset per share of Rs. 4.77 which was a 26% increase over the net assets per share of Rs. 3.87 as at end of the previous financial year. As the number of issued shares remain unchanged during the year, this increase is due in full to the increase of the equity attributable to the equity holders of the parent.

SECTOR REVIEWInsurance SectorVision To revolutionize insurance in Sri Lanka through world-class innovations, and deliver extraordinary stakeholder value.

ScopeSoftlogic Life Insurance PLC (SLI), a respected Life insurance solutions provider, has grown rapidly to become a force to be reckoned with in the insurance Industry. It is positioned as the fifth largest entity in the insurance industry. Softlogic Life is also considered to be the fastest-growing insurance company in the country. Its meteoric rise within a short period of 17 years has been nothing short of awe-inspiring. In the last five years, the company has consistently doubled its revenue growth benchmarks in comparison to industry average growth, which reflects the efficiency of its systems and processes.

Softlogic Life has introduced a new ethos in the market. More commonly, life insurance is known to be associated with death and other unfortunate circumstances, but Softlogic Life gave a new face to insurance business on the Wellness, Fitness and Nutrition platform, which benefits the customer in the “here and now’, so that they live

life with a greater purpose and enjoy life and be care free.

The Company has embraced creativity and disruptive innovation to elevate the standards of Sri Lanka by bringing together world-class solutions that enhance quality of life for customers. Its diverse solutions give customers the freedom and the opportunity to “Live life to the fullest”

Key indicators

(Rs Mn) 2016/17 2015/16 %

Total Assets 10,286 9,804 5%

Total Equity 1,492 1,628 -8%

Total Debt 160 272 -41%

Capital Employed 1,652 1,900 -13%

Revenue 6,038 4,975 21%

Operating Profit 3,195 3,291 -3%

PBT 1,186 1,009 18%

PAT 1,186 1,009 18%

No of Employees 535 463 16%

Operating Profit per employee 6 7 -16%

Financial Review 2016/17 was an exceptional year in which Softlogic Life crossed Rs. 5.8 billion Gross Written Premium and recorded a profitability of Rs. 1.2 billion.

Gross Written Premium (GWPThe Life Insurance GWP consists of First Year Premium (FYP), Renewal Premium (RP), Group Life premium and Single premium. GWP, which represents the premium charged to underwrite risk and which is the main source of income from the operations, reached Rs. 5,854 million in 2017, with an increase of 26% compared to Rs. 4,643 million recorded in 2016.

First-year premium includes the premium earned from the new business which recorded a very impressive growth of 49% which is well above the industry growth of 27%. Further, the

Renewal premiums continue the same trend compared to the year 2016, being the main contributor to the life GWP contributing 60% to the total GWP. The renewal premium grew by 29% during the period under review by recording Rs. 3,375million. The group life premium and single premium contributed to Life GWP by recording Rs. 189 million and Rs.22 million respectively. FYP and RP mix is 36% / 60% and 34% / 64% respectively for the year 2017 and 2016 respectively.

Net Earned Premium Premium received from customers less the amount paid to reinsurers is referred to as “Net Earned Premium”.

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In the year 2017, the Company’s net earned premium surpassed the Rs. 5 billion mark, recording a notable 26% growth from the Rs. 4.1 billion in 2016. The Net Earned premium steadily increased predominantly due to the robust performance in GWP. The growth of GWP at a higher rate positively impacted on the increase of NEP. Further NEP % to GWP increased to 89% from 88% due to the lower reinsurance outgo to reinsurers during the year 2017.

Investments and Other Operating Revenue This consists of finance income earned from Interest Income through Investment portfolio which grew mainly due to the growth of the Investment portfolio. However, realized/fair value gains reported loss of Rs. 37 million (Total of 59 and 96 million) loss during the period due to adverse price variation in the equity market portfolio compared to the Rs. 207 million gain in 2016.

Net Insurance Claims and BenefitsIn the Life insurance business, the main expense is claim expense. Insurance claim expense includes claims due to death, disability or hospitalisation. Further, Life insurance policyholders are entitled to maturity proceeds and interim payments (e.g. payments made before the expiry of the policy) etc. In addition, policyholders may need to surrender their policies.

During the year, Company’s net claim expenses of Rs. 1,230 million as the insurance claims which is an increase of 149% compared to the year 2016. This growth reflects the manner in which the Company diligently paid out policyholder claims while maximizing shareholder value.

Underwriting and Net Acquisition CostUnderwriting and policy acquisition costs (including reinsurance) represents the amount of commission payable by insurance companies to such intermediaries less any commission income due from reinsurers for placing

business with them. The acquisition costs include commissions and other variable costs directly connected with acquiring new business (from Agency channel) and renewal of insurance contracts.

The cost of underwriting and net acquisition is increased to Rs. 1,606 million, which is a 36% increase compared to the year 2016 mainly due to the increase of new business during the year. Further as a ratio to GWP this is 27% which is 1% higher than the last year due to the growth of new business volume during the year.

The new business of Life insurance is having a higher acquisition cost than the renewal cost of the policy. Details of analysis of the last 5 years are provided below.

expenses, brand development expense, depreciation and amortisation of assets and all other expenses, not including underwriting and net acquisition costs.

Operating, Administration and Other ExpensesThe Company experienced Rs. 1,914 million of operating and administration expenses, which reflect a 55% increase compared to last year’s Rs. 1,234 million. The Company spent 33% of its GWP as operational and an administration expenses which is 6% above the last year’s figure of 27% as a result of rebranding expenses as well as significant expansion which took place in the Company. These expenses comprise salaries, administration

0

1,000

2,000

3,000

4,000

5,000

6,000

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

Rs Mn %

Net Acquisition cost

First Year Premium Renewal PremiumFirst Year Premium GrowthAcquisition cost as a % of GWP

0

10

20

30

40

50

60

0

400

800

1,200

1,600

2,000

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

Rs Mn %

Operating Expenses as a % of GWP

Operating ExpensesOperating Expenses as a % of GWP

0

10

20

30

40

50

Profit after TaxationSoftlogic Life’s profit after tax surged to Rs. 1,186 million for the year 2017. This is exceptional achievement as current year the Company incurred significant expense on brand change.

During the year, Appointed Actuary recommended surplus of Rs. 1,080 million based on new valuation guidelines compared to Rs. 862 million recommended in year 2016.

0

500

1000

1500

2000

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

Rs Mn %

Pro�t After Taxation

Surplus Shareholder ProfitTotal Profit Growth

-80

-40

0

40

80

26



Investment and asset growthThe total assets crossed the Rs. 10.2 billion mark in March 2017, recording 4% marginal increase over Rs. 9.8 billion achieved in 2016. Total Investment portfolio reached Rs. 8.5 billion (including policyholder loans) which is 83% of total assets which shows the quality of the asset portfolio.

Life Insurance Contract LiabilitiesThe Life Insurance contract liabilities, which refer to the reserve amount to meet future claims and maturities of Life Insurance policyholders. The Life Insurance contract liabilities of the Company crossed Rs. 6.5 billion in 2017 and the Life Fund is stood at Rs. 6,516 million at the end of the year with a marginal increase of 1% in comparison with the previous year. The Life Insurance contract liabilities represent 80% of the total liabilities.

Change in Valuation MethodBased on the regulatory requirement valuation method of the Insurance contract liabilities revised from Net Premium Based (NPV) which was based on Solvency Margin Rule 2002 to Gross Premium Valuation, which was based on Solvency Margin Rule 2015 with effect from 1st January 2016.

The report on the valuation of the Life Fund, conducted by the appointed independent Consultant Actuary from Wills Towers and Watson (WTW). As recommended by the Consultant Actuary, adequate provisions, including those for bonuses and dividends to policyholders and solvency margins have been made.

Licensed Finance companies (LFCs) and specialized Leasing companies (SLCs) Sector VisionTo be the preferred non-banking financial Institution in Sri Lanka

Key Indicators

(Rs Mn) 2016/17 2015/16 %

Total Assets 22,198 20,280 9%

Total Equity 2,301 1,986 16%

Total Debt 3,309 3,862 -14%

Capital Employed 5,609 5,848 -4%

Revenue 4,328 4,081 6%

Operating Profit 1,652 1,366 21%

PBT 475 91 424%

PAT 374 73 411%

No of Employees 490 491 0%

Operating Profit per employees 3 3 21%

Financial ReviewProfitabilityFor the 2016/17 financial year, Softlogic Finance was able to produce a formidable financial performance, in the backdrop of a host of industry and macroeconomic challenges and post a Net Profit After Tax of Rs. 373 million. Key contributions originated from an increase in total revenue including other income, the effective management of operational expenses and a reduction in the impairment charge for the year. Overall, as a result of the careful execution of a number of corporate and operational strategies by the management of the company, we were able to ensure that the company continued its sustainable growth drive.

During the year, the company adopted a revised methodology for its impairment model used for the impairment of Loans, Leases and Hire Purchase facilities. In order to refine our financial reporting and ensure consistency throughout the reporting periods, we

made a number of adjustments to our impairment charges that have already been reported prior year and have restated them this year. The effects of these restatements have been extensively addressed in the Financial Statements and Notes thereto.

IncomeDuring the year under review, the company posted an impressive top line performance even with industry volatility as a result of rising policy rates, restrictive policies towards motor vehicle financing and the increased competition arising from other finance companies moving to business financing. The Total Gross Income of the company which consists of Interest Income, Fee and Commission Income, Net Trading Income and Other Operating Income, grew by 6 percent to reach Rs. 4.3 billion during this financial year.

0

900

1,800

2,700

3,600

4,500

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

Rs Mn

Total Gross Income

With regard to Interest Income growth, a significant year-on-year increase in disbursements of 17 percent served as a key contributor. More specifically, the 26 percent year-on-year increase in business financing loan disbursements played a vital role in interest income and customer acquisition fee income growth and served as a testament to the effectiveness of the proactive strategies adopted by the management in shifting towards business financing from leasing and hire purchase, in order to weather industry volatility. Additionally, our ability to organically increase our disbursements, even in the face of the


27

stifling of industry credit growth, can be seen in the 17 percent increase in the average monthly disbursements done by the Company. Further, in comparison to the previous financial year, it is noteworthy that Interest Income from the Revolving Loans portfolio increased by 49 percent, the Interest Income from SME working capital financing increased by 22 percent and the Interest Income from Gold Loans increased by 48 percent. Moreover, Interest Income from the company’s investment activities increased by 41 percent as a result of the effective utilization of excess cash and the increase in the market interest rates. When considering the Non-Interest Income of the company, there was a significant increase of 29 percent when compared to the previous year and a significant contribution to this increase originated from the customer acquisition fee income collected from our SME working capital product, where fee income increase is directly correlated to the increase in disbursements.

Interest CostDuring the year under review, the interest costs of the company increased by 14 percent as a result of the significant increase in policy interest rates by the Central Bank. The company was able to curtail the increase in its interest costs through its strategic decision to primarily focus on individual retail investors looking to invest for periods of over 1 year and shift its focus away from large-scale institutional

deposits. Further the company continued to negotiate with its banking partners to keep the finance costs of its funding lines at manageable levels.

Net Operating Income (After Impairment)During the year under review, the company undertook a major restructuring of its collections and recoveries management processes in order to ensure their efficient and effective functioning. These steps have helped in managing of the arrears positions and the reducing of the NPLs of the company. This is reflected in the reduction of the impairment charge of the company by 48 percent. Further, through this restructuring exercise, the company focused on the management control of arrears so as to minimize facilities from going to the NPL category. In effect, as a result of this 48 percent decrease in impairment charges, the Net Operating Income after Impairment increased by 21 percent.

the identification and elimination of operational wastage. Throughout the year, the management undertook the redesign and re-engineering of many operational processes and workflows in order to keep the support services lean.

When analysing the composition of operating expenses, it is seen that personnel costs amount to 39 percent of the total operating expenses. In order to ensure that this cost is effectively controlled, a management decision was taken to re-engineer existing job roles, conduct job redesign and also to give priority to internal staff whenever vacancies arise. The redesign of job roles and operational workflows are undertaken carefully so that it wouldn’t have an adversely affect on the customers. The internal recruitment initiative is carefully implemented by looking at the possibility of internal recruitment only when the requirements of the vacancy are matched by the skills of the internal resources.

Further, other operating expenses constitute 54 percent of total operating expenses and consist of administrative, marketing, maintenance and professional expenses, among others. Continuous action was taken to streamline and re-engineer internal processes, minimize wastage, renegotiate contractual terms with vendors and execute various cost saving initiatives in order to control 0

500

1,000

1,500

2,000

2,500

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

Rs Mn

Interest Expenses0

300

600

900

1,200

1,500

1,800

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

Rs Mn

Net Operating Income

Cost ManagementDuring the financial year under review, the company was able to effectively manage its operational expenses through the numerous cost management initiatives implemented. Thus when compared to the previous year, the company was actually able to reduce its Operating Expenses by 07 percent. This was as a result of an overarching and coordinated approach to cost management and

0

200

400

600

800

1,000

1,200

1,400

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

Rs Mn

Total Operating Expenses

28



these costs. The result being that the company was able to increase its efficiencies and productivity, whilst reducing its cost exposure.

16.3 billion in 2015/16. The significant growth in Net Customer Assets contributed to the 09 percent growth in the company’s Total Asset Base. During the year, in line with the company’s strategic decision to focus on business financing and decrease dependency upon the traditional Leasing and Hire Purchase products to weather industry volatility, the Business Loan portfolio grew by 30 percent to reach a Rs. 14.5 billion. Thus, when analysing the company’s portfolio mix, it is seen that the contribution from the Business Loans portfolio has been significantly increasing over the past few years. Additionally, the fact that the Gold Loan portfolio grew by 35 percent during the year, as a result of the company re-engineering its gold loan operations by improving the internal processes and controls.

Stockbroking SectorThe Group’s stockbroking arm experienced a challenging year, reflecting subdued market conditions. Despite these challenges, the Company focused on nurturing deeper relationships with its customers and strengthening its key competencies which includes best-in-class research

%

Composition of Operating Expenses-2016/17

Otheroperating expenses

54

Personnel costs39

Depreciation ofproperty, plantand equipment

6

Amortisationof intangibleassets

6

As a result of the cost management initiatives adopted during the year, the Cost-to-Income Ratio reduced to 56% for this financial year, compared to the previous year’s figure of 58%. This reduction occurred with the Total Operating Expenses reducing by 07 percent compared to the previous year, even with the Total Operating Income for this financial year decreasing slightly by 03 percent, compared to the previous year.

0

20

40

60

80

100

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

%

Cost to Income Ratio

Value created to employees

Happiness

Productivity

Customer satisfaction

Profitability

Value created to company

Talent acquisition and retention

Human Resource Governance

Training and professional development

Career development

Performance management

Reward and recognition

Fair pay and other benefits

Engagement activities

Wellness

capabilities. During the year, the Company ranked among the top 3 equity broking houses in the industry based on volumes traded as at end-March 2017.

SUSTAINABILITY REVIEWEmployeeWe are committed to driving a culture where our people feel valued, have a clear sense of belonging, know what is expected of them and are recognized and rewarded for their contribution towards achieving our ambition to place our clients at the center of everything we do. Current and future trends, ranging from digitalisation to working with a multi-generational workforce, are influencing how we shape our people, leadership and engagement strategies.

Our Human Capital Value Creation ModelGroup’s Human Capital Value Creation Model (Employee Engagement Model) has been built with the ultimate objective of creating productive and innovative workforce by caring for their wellness and live employee life to the fullest. The Group’s value creation model with regard to human capital is provided below:

Lending PortfolioThe total Net Lending Portfolio of the company grew by 14 percent during the year under review to reach Rs. 18.6 billion as at 31st March 2017 from Rs.


29

Talent Management“To deliver our strategy we need to ensure that we have enough of the right people, in the right roles, at the right time, with the required skills and capabilities”

We work in a fast-paced, highly competitive industry with ever-changing demands. Our people, therefore, must be equipped with the necessary skills

Composition of Workforce

Sector Male Female Total

Insurance 304 231 535

NBFI 338 152 490

Stockbroking 32 9 41

Total 674 392 1066

%

Sector wise composition of employees

Stockbroking4

Insurance50

NBFI

40

%

Gender wise composition of employees

Male63

Female37

to drive a client-focused approach now and into the future. We aim to do this by creating a culture of continuous professional development and adaptability.

Talent Management Enable Succession PlanningOur talent management philosophy and approach enable succession planning across key levels of leadership, supported by focused development propositions and engagement strategies for identified talent. Greater effort is being made to drive succession planning across our various product lines. We have achieved good depth in our talent pools to strengthen succession pipelines for key management positions, as evidenced by the number of internal moves and promotions into key leadership positions across the Group during the year.

Summary of the key training highlights are provided in following table;

Leadership & Strategic Knowledge Skill OtherManagement Development Programme for Senior management by MDA associate international, United State.

Advanced Excel Training Program

Outward- bound Training Table Etiquette

“Awakening the Leader Within” leadership development program

Business Writing Course Presentation Skills development program

Fraud Risk Training

30



We invest in young people towards scarce or specialized skills and who have the potential to become future leaders. It is evident that during the year, the Group made significant investment in its flagship leadership development program.

Talent AcquisitionThe Group has a robust recruitment process to select the best talent to our workforce. Depending on the position in question, the candidates go through a number of processes which involve panel interviews, tests and presentations in order to assess their technical skills, soft skills and attitude. Further, recruitment based on profile mapping was introduced at certain levels to ensure a better fit with the needs of the Group.

Talent RetentionThe Group is constantly looking for ways to improve the employee retention rate in order to retain the right talent of human capital. The Group continuously monitors its employee retention and in particular, seeks to address staff attrition through proactive initiatives that engage employees.

Training and Professional DevelopmentThe Group’s training and development initiatives play a pivotal role in talent retention and ensuring sustainable competitive advantage as well as that of generating motivation. During the year, the Group invested Rs. 35.3 million and generated a total of 8,800 hours in training and development initiatives for employees. The range of training encompassed technical, functional, language, information technology and general management. Further, the Group uses a wide variety of training resources and programmes locally and internationally to suit the needs of employees including the in-house panel of trainers.

Performance AppraisalThe Group fosters a strong performance driven culture by making the talent pool scale up in their career progression as well as ensure that

all employees of the Group undergo regular appraisal. Performance objectives/goals are set and informed to the employees to maintain a fair evaluation process. These goals are realistic and specific with regard to their job function. The main aim of our performance evaluation is to measure and improve performance of the staff and in turn, base rewards on their performance grading and to increase their future potential and value to the Group. It also includes providing feedback, understanding training needs, identifying poor performers and guiding them towards enhancing performance, clarifying job roles and responsibilities.

Reward and RecognitionA number of employee recognition schemes are in place, at Softlogic Life Insurance such as MD’s Award, Innovation Awards (Winovative Awards), “Employee of the Year” and Best Insurance Advisor Awards for field staff.

Remuneration and Other BenefitsThe remuneration policy is to attract, motivate, and retain qualified and

talented individuals that the Group needs in order to achieve its strategic and operational objectives, whilst acknowledging the societal context around remuneration and recognizing the interests of the stakeholders.

Key remuneration policy principles of the Group are as follows;

• Total remuneration is set at a level that can attract, motivate and retain high quality talent

• Remuneration to commensurate with each employee’s level of expertise and contribution and is aligned with the Group’s performance

• Executive remuneration is set so that a significant portion is linked to performance. The performance related element of remuneration is designed and tailored to align the employees’ and main stakeholders’ interests

• Remuneration levels are based on industry and market surveys


31

Benefits to EmployeesThe Group offers various benefits to its employees based on the category and job responsibilities other than benefits defined by relevant regulations. Adhering to the Group’s equal opportunity policy, the Group doesn’t discriminate employee benefits including remuneration, based on diversity including gender, age, race, etc. The benefits available to employees of the Group are summarised below;

• Life and Disability Insurance

• Safe and Healthy Workplace

• Maternity leave and holidays

• Staff medical plan

• Professional education assistance

• Reimbursement of selected professional memberships/ subscription payments

• Employee discounts at retail sales outlets, Asiri hospital chain and Centara Ceysands Resort & Spa

• Employee welfare

• Competitive remuneration

• Personal and career development

Employee Retirement BenefitsThe Group contributes to two compulsory defined contribution plans namely Employee Provided Fund (EPF) and Employee Trust Fund (ETF). As a responsible employer, the Group contributes 12% and 3% respectively to these funds on behalf of its employees to comply with the regulations. All contributions are paid to the EPF and ETF Boards on the due dates.

Further, all our permanent employees who have completed five years of service are entitled to gratuity as per the Payment of Gratuity Act No. 12 of 1983. The gratuity liability of the Company is valued annually by a Consultant Actuary and the Group settles gratuity liability in full when and where it occurs.

Engagement ActivitiesWe strive to offer a workplace in which people are engaged, motivated and

effectively contribute to the long term success of the Group. Numerous formal and informal engagement mechanisms are in place to identify and address employee concerns while ensuring that employees understand their role in the business. Key engagement mechanisms include induction program for new recruits, formal satisfaction surveys (Great Place to Work Survey), regular performance appraisals, multiple level staff meetings, the staff intranet and regular e-mails on the Group’s financial results. During the year Softlogic Life Insurance PLC ranked among Sri Lanka’s best companies to work based on the ‘Great Place to Work –

Sri Lanka’ survey. In addition to the formal engagement mechanisms described above, employees also engage in year-round work-life balance initiatives and CSR activities including the following;

• New Year Celebration• Annual Dinner Dance• Got Talent Competition • Donations for Cancer Hospital• Cricket Carnival• Dress Down Day• Urban challenge championship• Annual Trips• Halloween Party• Christmas Carol• Internal Photography Competition

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CommunityIn light of the close relationship between Softlogic and local communities, we engage and invest in activities that make a difference to those communities. The Group’s CSR and philanthropic initiatives governed by its CSR policy identify three specific areas for community investments. All sectors engage in year-round community engagement projects which are broadly aligned to these areas of community support. • Education• Youth Empowerment• Health and Wellness • Other Donations

EducationSchool Certificates ProjectSoftlogic Life Insurance has partnered with schools around the country to encourage and reward excellence for nearly a decade. Since 2006, the Company has partnered with nearly 100 underprivileged schools island-wide in an ongoing project to sponsor the cost of designing, printing and producing certificates which are distributed at annual award ceremonies, sports meets, inter-school competitions, prefect days, talent shows and other competitions. Through this initiative, Softlogic Life Insurance strives to give due recognition to high performing students in economically underprivileged areas and motivate them to excel in education and extracurricular activities. Over time, we have strengthened our collaboration with the schools and on realising the positive impact of the initiative we have continued our unstinted commitment to this project.

2016 2015

No. of certificates 97,823 73,055

No. of schools 97 73

from underprivileged areas in career guidance workshops and internship opportunities. These four-day workshops feature practical sessions which are focused towards developing communication and presentation skills. During the year, six workshops were conducted in four provinces with a total participant base of over 220 students. The objective of this initiative is to engage youth in underprivileged areas in valuable career guidance workshops, which will enhance their employability and boost their confidence in their preparation to enter the workplace.

The programme will be extended to all provinces of the country and as the next stage, will partner organisations, which are able to provide jobs and can spot talent from these workshops. Softlogic Life Insurance also offers a one-month internship to two of the best participants in each programme to provide them with the exposure to working in a corporate environment.

Province No. of participants

North Central 39

Central 102

Southern 40

Sabaragamuwa 40

Total 221

Youth EmpowermentThe WIN ProjectInitiated with the aim of enhancing the employability and corporate readiness of A/L qualified students, Softlogic Life Insurance PLC engages youth


33

Undergraduate ScholarshipsThe Group’s insurance sector has entered into a Memorandum of Understanding with the Department of Finance of the University of Kelaniya, to reward academic excellence. The Company annually awards a Gold Medal to the best student in the Risk and Insurance Service Management unit of the Finance Degree Program, which includes a Rs.100,000 scholarship. The Company was the main sponsor of the annual Idea Night 2016 organised by the Department of Accountancy at the University of Kelaniya and held at Hotel Galadari.

Health and WellnessHealth CampSoftlogic Life extended a helping hand to the people of the kidney disease-stricken Polpithigama area, by testing over 260 area residents for urological/kidney-related medical issues, as the first in a series of free health camps. The programme was held with the input of Urologists of Asiri Surgical Hospital, Medical Officers and Doctors from the area to identify those with urological conditions such as Haematuria (blood in the urine), Kidney Stones and infections.

Other Donations• Softlogic Life employees donation

to Cancer Hospital and Red Cross

roadside extent around each branch and mobilise public support for waste segregation and recycling. The Company hires people to clean the area thrice a day and the collected waste is segregated in bins and is directed to be cleared by the municipality. The programme also aims to increase awareness among communities in the vicinity on proper waste disposal. This strategy would promote road-side cleanliness while simultaneously contributing towards the eradication of diseases such as dengue in those areas.

Driven by the overwhelming response received for the ‘Clean Zone’ community initiative, it was decided to extend this campaign to cover a host of public spaces like places of worship, town centres, places of recreation, railway and bus stations and hospitals, in addition to the areas in the vicinity of our branch locations.

Community Education on Waste ManagementThe main feature of this project initiated by Softlogic Finance is to establish community education on proper waste disposal techniques in the vicinity of the branches. The program focuses on the importance of segregating recyclable and non-recyclable garbage and proper waste disposal. As enablers, informative leaflets and stickers to encourage and certify the residents as members of our “Clean Zone” program are distributed amongst the communities. To inculcate the habit of garbage segregation, separate bins are placed in front of the branch or designated public places to dispose plastic, glass and non-recyclable waste. Our primary role is in establishing an efficient system for collecting waste responsibly and with the support of the municipality, the waste is disposed or recycled. Furthermore, the company hires personnel to clean up the area thrice a day and the collected waste is segregated to the bins and is directed to be cleared away by the municipality.

• Contribution for the School Children Affected by Floods

Softlogic Life donated school bags for the children who have been affected by floods through Derana Media. In addition to the above, employees donated one-day pay to those who were badly affected by the floods and landslides.

EnvironmentAs we grow, we aspire to meaningfully contribute towards the environment whilst using our strong market presence to promote environmentally friendly produce. Our policies are always aligned towards conserving energy and resources whilst minimizing waste and disposing of it responsibly.

The “Clean Zone” InitiativeThe ‘Clean Zone’ campaign implemented by Softlogic Finance in March 2015 was first launched in the Nawala Branch and has been extended to 31 branches. The objective of the campaign was to improve the cleanliness of a 2-kilometer

34



Preserving BiodiversityProtect Your Beautiful World’: An ongoing programme by Softlogic Life Insurance via sponsored hoardings in several areas of rich biodiversity such as Yala National Park, Habarana, Minneriya, Galle and other areas in the Southern Coast. Tri-lingual banners carrying slogans such as ‘Drive Slow’ and ‘Be Watchful’ serve as reminders to sightseers.

Using e-App Insurance ApplicationsAs one of the Company’s best practices, Softlogic Life has introduced an automated underwriting system process called ‘E-advisor’ and ‘LifeUp’ applications to minimize paper usage. As at 31st December 2016, 1,595 customers registered for using these new applications and 9,374 e-documents were sent via these apps by customers. Further, a significant number of our customers actively used online payments to settle their premiums during the year under review.


35

StewardshipBoard of Directors / 36Corporate Governance / 38Board Sub Committee Reports- Audit Committee Report / 48- Remuneration Committee Report / 50- Nominations Committee Report / 51- Related Party Transactions Review Committee Report / 52

36


BOARD OF DIRECTORS

MR. ASHOK PATHIRAGE MR. RANJAN PERERA

Chairman Director

MR. IFTIKAR AHAMED

Managing Director

Mr. Ashok Pathirage is one of the co-founders of Softlogic and was appointed as Chairman of Softlogic in 2000. He is also Chairman/Managing Director of the Asiri Hospital chain, Softlogic Capital PLC, Softlogic Finance PLC, Softlogic Life Insurance PLC and Odel PLC which are listed, in addition to the private companies of the Group operating in sectors of Leisure & Restaurants, Retail, Automobile and ICT industries. He is also Deputy Chairman of the National Development Bank PLC and Chairman of NDB Capital Holdings PLC. Due to his business acumen and corporate leadership he is recognized as one of the top business leaders in the country in the modern day.

Mr. Ranjan Perera is a co-founder of Softlogic and heads the Group’s Mobile Phone Business and is the Managing Director of Softlogic International (Pvt) Ltd, which has a Business Partnership with Dialog Axiata PLC.

He possesses extensive knowledge from his many years of experience in Senior Managerial positions handling world renowned brands in the Mobile Telecommunication Industry.

Mr. Iftikar Ahamed heads the Financial Services Sector of the Softlogic Group and is the Managing Director of Softlogic Capital PLC, which is the financial services holding company of the group that has interests in Insurance, Leasing and Finance and Stockbroking. He is also the Managing Director of Softlogic Life Insurance PLC, Non-Executive Director of Softlogic Finance PLC and Executive Director of Softlogic Stockbrokers (Pvt) Ltd. He counts over 30 years of experience in a wide range of metiers within the financial services industry and has extensive banking experience both in Sri Lanka and overseas, having held senior management positions as Deputy Chief Executive Officer at Nations Trust Bank PLC and Senior Associate Director at Deutsche Bank AG. He holds an MBA from University of Wales, UK.

STRATEGICALLY taking your company forward with lasting

value creation.


37

MR. LUCILLE WIJEWARDENA

MR. AJITA MAHES PASQUAL

MR. HARRIS PREMARATNE

MR. RUWAN WIJERATNE

MR. AARON RUSSELL-DAVISON

Director

Director

Director

Director

Director

Mr. Lucille Wijewardena is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and holds a Masters Degree in Business Administration (MBA) from the Post Graduate Institute of Management, University of Sri Jayawardenapura.

In his career spanning 35 years he has held many Senior Management positions in areas of Finance and General Management. He served as the Managing Director of Hayleys Plantations, Talawakelle Plantations Ltd and Pussellawa Plantations Ltd. He also held the post of Chairman of Mahaweli Marine Cement Company Ltd and Group Chief Accountant of Carson Cumberbatch & Co. Ltd.,

Currently he is the chairman of Softlogic Stockbrokers (Pvt) Ltd., Managing Director of Anuga Holdings (Pvt) Ltd., and Founder Director of Regency Teas (Pvt) Ltd. He also serves on the Press Complaint Commission of Sri Lanka as a member of the Dispute Resolution Committee.

Mr. Ajita Mahes Pasqual possesses 31 years experience in the Banking Sector

Mr. Harris Premaratne has over 40 years of banking experience with Commercial Banks. Mr. Premaratne is an Associate of the Chartered Institute of Bankers of London. He served as Senior Deputy General Manager of Commercial Bank of Ceylon and as the Managing Director of Sampath Bank PLC from 2009 to December 2011. He also served as the Chief Executive Officer of Cargills Bank Limited from 2012 to December 2014.

He held the position of Chairman of Sri Lanka Banker’s Association. Currently he serves as the Deputy Chairman of Softlogic Finance PLC and Pan Asia Banking Corporation PLC. He also serves in the Board of Softlogic Holdings PLC, Asiri Hospitals Holdings PLC, Asiri Surgical Hospital PLC, and Central Hospital Limited.

Mr. Ruwan Wijeratne, is a Fellow of the Institute of Chartered Accountants of Sri Lanka and an Associate of the Chartered Institute of Management Accountants (CIMA), UK. He has previous experience in finance at several public quoted companies and presently functions as the Group Chief Financial Officer of Softlogic Holdings PLC.

Mr. Russell-Davison has over twenty years of international banking experience, and was most recently the Global Head of Debt Capital Markets for Standard Chartered Bank, based in Singapore.

Other senior positions in Origination, Syndicate, Trading, Sales, Portfolio Management and Brokerage were held in Hong Kong, Singapore and London during his career.

He holds a Bachelor of Arts (Asian Politics and History) from the University of Western Australia.

with 22 years in Senior Management positions with HSBC Bank in Corporate Banking, Trade Finance & Treasury. He held the position of Director/General Manager/CEO of Seylan Bank PLC from January 2004 to December 2012. the also he held the position of Consultant of Nations Lanka Finance PLC. Currently he serves as the Chairman of Adam Investment PLC, Adam Capital PLC, Adam Capital Micro Credit (Pvt) Ltd and Adam Carbons (Pvt) Ltd.

He possesses a B.Sc in Business Administration & Economics from Manchester College, N Manchester, Indiana, USA.

38


CORPORATE GOVERNANCE

GOVERNANCE FRAMEWORKSoftlogic Capital has a well-defined and well-structured corporate governance framework in place to support the Board’s aim of achieving long term and sustainable shareholder value. But however robust the framework, it is imperative that it is supported by the right culture, values and behaviors, both at the top and throughout the entire organisation.

The Company places strong emphasis on complying with the requirements of the Code of Best Practices on Corporate Governance Code jointly issued by the Securities And Exchange

Commission (SEC) and the Institute of Chartered Accountants of Sri Lanka (CASL) as well as the rules on Corporate Governance issued by the Colombo Stock Exchange (CSE). Although the organization monitors its compliance with these mandatory requirements, our corporate governance process is intensified further as a system of checks and balances in order to ensure that the Company’s sound corporate governance practices are in the best interests of all our stakeholders and the organisation as a whole.

The Company’s approach to manage financial and non-financial issues ensures the alignment of Company

objectives with the long-term interests of its stakeholders. This creates an environment where every transaction with every stakeholder can be seen as an opportunity to support the sustainable development of the economy in which the Company operates.

Our corporate governance framework is structured in a manner which reflects both the governing body and the system in which it operates. While it is closely connected to the assignment of rights and responsibilities across the organization and other partners, the framework strives to provide challenge, clarity and accountability to all stakeholders.

Code of Best Practice on Corporate Governance(Issued jointly by the SEC & CASL)

The Company Shareholders Sustainability

The Board Directors’Remuneration

Relations withShareholders

Accountability &Audit

InstitutionalInvestors

OtherInvestors

PrincipleA1- A11

PrincipleB1-B3

PrincipleC1-C3

PrincipleD1-D5

Principle E

PrincipleF

PrincipleG

THE BOARDAn Effective Board(Principle A.1)The Board of Softlogic Capital PLC comprises of 8 renowned professionals whose profiles are given on pages 36 to 37. Directors are elected by shareholders at the Annual General

Meeting with the exception of the Managing Director who is appointed by the Board and remain as Executive Directors until expiry or termination of such appointments. Casual vacancies are filled by the Board, based on the recommendations of the Board Nomination Committee as provided for in the Articles of Association.

The Board provides strategic direction and sets in place a sufficiently robust governance structure and policy framework to facilitate value creation to stakeholders in accordance with applicable laws and regulations.

Governance Framework

Owners VIA AGM

Nominations Committee External Auditor

Remuneration Committee

Business Segments according to the Organizational Structure

Audit Committee

Related Party Transactions Review Committee

Internal Auditor

Board of Directors

Managing Director


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Board Sub-CommitteesThere are 4 Board Sub-Committees that have been established considering the business needs of the Company and best practices in corporate governance as described below.

Board Sub-Committee Areas of Oversight Composition

Board Audit Committee - BAC Financial ReportingInternal ControlsInternal AuditExternal Audit

Refer the Report of the BAC onpages 48 to 49 for more information

Comprises 03 Independent Non-Executive Directors and 01 Non-Executive Director.

The MD, Group Head of Finance and Group Head of Internal Audit attend the meetings by invitation together with other relevant Key Management Personnel (KMP).

The Company Secretary acts as theSecretary to the Committee.

Board NominationsCommittee - BNC

Selection and appointment of Directors and KMPSuccession planningEvaluating the effectiveness of the Board and its Committees

Refer the Report of the BNC on page 51 for more information.

Comprises 02 Independent Non-Executive Directors and 01 Non-Executive Director.

Executive support is provided by the Human Resources Department whenever Required.


Board Remuneration Committee - BRC

Remuneration of Managing Director and KMPHR Policies including Remuneration PolicyOrganisational structure

Refer the Report of the BRC on page 50 for more information.

Comprises 02 Independent Non-Executive Directors and 01 Non- Executive Director.


Board Related Party Transactions Review Committee - BRPTRC

Related Party Transactions Policy and Processes Market disclosures on related party transactions Quarterly and annual disclosures of related party transactions

Refer the Report of the BRPTRC on page 52 for more information.

Comprises 02 Independent Non-Executive Directors and 01 Non- Executive Director


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Regular Meetings (Principle A 1.1)During 2015/16 the Board held 04 scheduled meetings. The Board Committees also met regularly as summarized below.

Details of the Main Board and Board Sub-Committees as at March 31, 2017

Main Board Board Audit Committee

Board NominationCommittee

Board Remuneration

Committee

Board Related Party Transactions Review Committee

Status DOA Status DOA Status DOA Status DOA Status DOA

Mr. A.K. Pathirage C 30-Aug-10 C 03-May-11 C 03-May-11

Mr. T.M.I. Ahamed M 30-Aug-10 I I

Mr. R.J. Perera M 30-Aug-10 M 06-Feb-14

Mr. W.L.P. Wijewardena M 04-Mar-11 C 03-May-11 M 03-May-11 M 03-May-11 C 06-Feb-14

Mr. A. M. Pasqual M 17-Mar-11 M 03-May-11 M 03-May-11 M 03-May-11 M 06-Feb-14

Mr. H. Premaratne M 28-Oct-14 M 04-Nov-14

Mr. J. L. R. Wijeratne M 18-Nov-16

Mr. A. R. Davison M 24-Jan-17 M 16-Feb-17

DOA – Date of Appointment Status – C – Chairman/ M – Member/ I – Participated by Invitation

Number of Meetings Held and Attendance

Main Board Board Audit Committee

Board NominationCommittee

Board Remuneration

Committee

Board Related Party Transactions Review Committee

Eligible to

Attend

Attended Eligible to

Attend


Attend


Attend


Attend

Attended

Mr. A.K. Pathirage 4 4 2 2 1 1

Mr. T.M.I. Ahamed 4 4 4 4

Mr. R.J. Perera 4 4 4 3

Mr. W.L.P. Wijewardena 4 4 4 4 2 2 1 1 4 4

Mr. A. M. Pasqual 4 3 4 3 2 2 1 1 4 3

Ms. E. Wickremaarachchi* 1 1

Mr. H. Premaratne 4 4 4 4

Mr. J. L. R. Wijeratne 1 0

Mr. A. R. Davison 1 1

*resigned with effect from 31st July 2016


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Composition of the Main Board and Board Sub-Committee as at March 31, 2017

ExecutiveMembers

Non-ExecutiveMembers

IndependentMembers

Non- Independent

Members

Gender Age Group

Male Female Below 50

Years

Over 50Years

Main Board 1 7 3 5 8 Nil 2 6

Board Audit Committee 1* 4 3 1 4 Nil 1 3

Board Nominations Committee Nil 3 2 1 3 Nil Nil 3

Board Remuneration Committee

Nil 3 2 1 3 Nil Nil 3

Board-Related PartyTransactions Review Committee

1* 3 2 1 3 Nil Nil 3

* attended by invitation

Board Responsibilities (Principle A 1.2)Role of the Board

• Represent and serve the interests of the shareholders by overseeing and appraising the Company’s strategies, policies and performance

• Optimise performance and build sustainable value for shareholders in accordance with the regulatory framework and internal policies

• Establishing an appropriate governance framework encompassing compliance with the Company’s values

• Ensure regulators are apprised of the Company’s performance and any major developments

Key Board Responsibilities• Selection, appointment and

evaluation of the performance of the Managing Director

• Setting strategic direction and monitoring its effective implementation

• Establishing systems of risk management, internal control and compliance

• Integrity of financial reporting process

• Developing a suitable corporate governance framework and policies

• Appointment and oversight of External Auditors

Powers reserved for the Board• Approving major capital

expenditure, acquisitions, divestitures and monitoring capital management

• Appointment of Board Secretary

• Power to seek professional advice in appropriate circumstance at the expense of the Company

• Review, amend and approval of governance structures and policies

The Board provides guidance in formulating the Company’s 3 year strategic plan which is prepared and presented by the Corporate

Management to the Board who reviews and approves the same at a Special Board meeting convened for the purpose. Performance vis-à-vis the strategic plan is monitored at Quarterly Board meetings whilst specialised areas identified for oversight by Board Sub-Committees are monitored and progress and concerns reported to the Board.

The Board is assisted by the following Sub-Committees in fulfilling their role:

• The Board Audit Committee assists the Board in ensuring effective systems to secure integrity of information, internal controls and adopting appropriate accounting policies and fostering compliance with financial regulation.

• The Board Nomination Committee supports the Board in ensuring that the Managing Director and other Key Management Personnel have the necessary skills, experience and knowledge to implement strategy and also reviews succession plans for the Company and for the Managing Director and Key Management Personnel.

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• The Board Remuneration Committee assists the Board in formulating formal and transparent procedures for developing policy on remuneration for executive directors, senior management and other staff of the company. They recommend annual increments, bonuses and changes in prerequisites and incentives and ensure that no director is involved in setting his own remuneration package.

• Board Related Party Transactions Review Committee updates the Board on the related party transactions of the company on a quarterly basis.

Act in Accordance with Laws(Principle A.1.3)The Board is collectively and individually committed to meet all compliance requirements applicable to the Company. Furthermore the Board is empowered to seek independent professional advice from external parties whilst performing their duties for effective directorship functions at the Company’s expense.

Access to advice and services of Company Secretary(Principle A.1.4)All Directors are able to obtain the advice and services of the Company Secretary and the appointment and removal of the Company Secretary are matters involving the whole Board under recommendation of the Board Nomination Committee, as it is a Key Management Position. The Company Secretary’s responsibilities are summarised below:

• Matters pertaining to the conduct of Board Meetings and General Meetings

• Conduct of proceedings in accordance with the Articles of Association and relevant legislation

• Co-ordinating the publication and distribution of the Company’s Annual Report

• Maintaining registers of shareholders, company charges, Directors and secretary, Directors’ interests in shares and debentures, interests in voting shares, debenture holders, interests register and the seal register

• Filing statutory returns/information with the Registrar General of Companies

• Adoption of best practice on corporate governance including facilitating and assisting the Directors with respect to their duties and responsibilities, in compliance with relevant legislation and best practice

• Acting as a channel of communication and information for Non-Executive Directors and shareholders

• Disclosures on related parties and related party transactions as required by laws and regulations

• Monitoring and ensuring compliance with the listing rules and managing relations with the CSE

• Obtaining legal advice in consultation with the Board on company law, SEC, CSE and other relevant legislations in ensuring that the Company complies with all applicable laws and regulations

Independent judgment(Principle A.1.5)The Board comprises of senior professionals who are personalities in their respective fields and collectively contribute their skills, perspectives and experience to the Board enriching the discussion and

debate on matters set before them. As experienced professionals, they use their independent judgment on issues of strategy, performance, resources, key appointments and standards of business conduct. The composition of the Board ensures that there is a sufficient balance of power and contribution by all Directors and minimises the tendency for one or few members of the Board to dominate the Board processes or decision-making.

Dedicate Adequate Time and Effort to Matters of the Board and the Company(Principle A.1.6)Board meetings and Board Sub-Committee meetings are scheduled well in advance and the relevant papers are circulated a week prior to the meeting to ensure that Directors have sufficient time to review the same and call for additional information or clarifications, if required. While there is provision to circulate board papers closer to the meetings, in exceptional circumstances, this is generally discouraged. Members of the Corporate Management and external experts make representations to the Board and Board Sub-Committees on the business environment, regulatory changes, operations and other developments on a regular basis to facilitate enhancing the knowledge of the Board on matters relevant to the Company’s operations.

Furthermore the directors on a regular basis are involved in evaluating Board memorandums and circular resolutions.

Training for Directors(Principle A.1.7)All directors have adequate knowledge, skill and experience and are continuously updated with the latest developments in the Business Environment. In addition, directors engage in continuous professional development in relation to their respective fields of expertise.


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Division of Responsibilities between the Chairman and CEO/MD(Principle A.2)The positions of the Chairman and the Managing Director have been separated in-line with best practice in order to maintain a balance of power and authority. The Chairman is a Non-Executive Director whilst the Managing Director is an Executive Director appointed by the Board. The roles of the Chairman and the Managing Director are clearly defined in the Board Charter.

The Chairman’s Role(Principle A.3)The Chairman provides leadership to the Board, preserving order and facilitating the effective discharge of the duties of the Board and is responsible for ensuring the effective participation of all Directors and maintaining open lines of communication with Key Management Personnel, acting as a sound board on strategic and operational matters. The agenda for Board Meetings are determined by the Chairman in consultation with the Company Secretary and Directors wishing to include items on the agenda may request the Chairman to discuss the same.

Financial Acumen(Principle A.4)The Board consists of two Fellow members of the Institute of Chartered Accountants of Sri Lanka, ensuring a sufficiency of financial acumen within the Board on matters of finance. Additionally, other Directors on the Board are luminaries in their respective field with sufficient financial acumen.

Board Balance(Principle A.5)The Board comprises 7 Non-Executive Directors and one Executive Director. Three Non-Executive Directors are independent of management and free of business dealings that may be perceived to interfere with the exercise of their unfettered and independent judgment. They submit annual declarations to this effect which

are evaluated to ensure compliance with the criteria for determining independence which are based on the requirements of the Code.

The Chairman holds a meeting at least once a year with only the Non-Executive Directors without the presence of the Executive Director. Directors’ concerns regarding matters which are not resolved unanimously are recorded in the minutes.

Supply of Relevant Information(Principle A.6)Board members receive information regarding matters set before the Board 7 days prior to the meetings, and the Chairman ensures that all Directors are properly briefed on same by requiring the presence of KMP, when deemed necessary. Management also makes presentations on regular agenda items to the Board and its Sub-Committees. Additionally, the Directors have access to KMP, to seek clarifications or additional information on matters presented to the Board. Directors who are unable to attend a meeting are updated on proceedings through formally documented minutes which are also discussed at the next meeting to ensure follow up and proper recording.

Appointments to the Board and Re-Election(Principles A.7)The Board Nomination Committee is responsible for setting in place a formal and transparent procedure for the appointment of new Directors and further information regarding the operations of this committee are given on page 51. They receive resumes of the potential candidates recommended by the Board in the event of a vacancy of a Non-Executive Director and review same in order to make recommendations to the Board which may include an interview with the candidate. The process for appointment of Executive Directors is similar with the exception being that candidates may be selected from amongst the Key Management Personnel of the

Company. The Board Nomination Committee also assesses annually the combined knowledge and experience of the Board in relation to the Company’s strategic plans to identify additional requirements which are addressed when incumbent Directors come up for re-election. Appointments of new Directors are promptly communicated to the CSE and shareholders through press releases. The communications typically includes a brief resume of the Director, relevant expertise, key appointments, shareholding, and directorships in other entities and whether he is independent or not.

Re-Election(Principle A.8)Newly appointed directors resign at the first Annual General Meeting (AGM) following their appointment, but are available for re-election by the shareholders at the same meeting. One third of the non-executive directors are required to resign by rotation, but may stand for re-election at the AGM.

Appraisal of Board Performance(Principle A.9)The Board and its Sub-Committees annually appraise their own performances to ensure that they are discharging their responsibilities satisfactorily in accordance with the Board Charter.

Disclosure of Information in Respect of Directors(Principle A.10)Information specified in the Code with regard to Directors are disclosed in this Annual Report as follows:

• Name, qualifications, expertise, material business interests, key appointments and brief profiles on pages 36 to 37.

• Other business interests on page 55.

• Membership of committees, status of Directors attendance at Board Meetings and Board Sub-Committee meetings are on pages 40 and 41.

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• Remunerations under Note 41 to the Financial Statements on page 132.

Appraisal of Managing Director(Principle A.11)The Board agrees the criteria for assessing performance with the Managing Director at the beginning of the year and assesses performance based on same at the close of the financial year. The evaluation is formally approved within 3 months of the close of the financial year. This takes in to account performance vis-à-vis the targets, the operating environment and considers explanations provided for areas where performance has been below agreed targets. The Board is supported by the Board Remuneration Committee in this process.

DIRECTORS’ REMUNERATIONDirectors’ and Executive Remuneration(Principle B.1)The Board Remuneration Committee is responsible for making recommendations to the Board regarding the remuneration of Executive Directors. This vibrant committee comprises entirely of Non-Executive Directors and majority of them also meet the criteria for independence as set out in the Code. They consult the Chairman and the Managing Director regarding the same and also seek professional advice whenever deemed necessary. Remuneration for Non-Executive Directors is set by the Board as a whole. Remuneration for Executive Directors is set with reference to the Remuneration and Benefit Policy. The above processes ensure that no individual Director is involved in determining his or her own remuneration.

The Level and Make Up of Remuneration(Principle B2)It is the responsibility of the Board Remuneration Committee to ensure that the remuneration of both Executive and Non-Executive

Directors is sufficient to attract well-known professionals to the Board and retain them as contributing members in driving the performance of the Company. Remuneration and benefits of the Executive Directors and Key Management Personnel are determined in accordance with the remuneration policies of the Company which are designed to be attractive, motivating and capable of retaining high performing, qualified and experienced employees in the Company.

Disclosure of Remuneration(Principle B.3)The remuneration policy is disclosed on the Report of the Board Remuneration Committee appearing on page 50. The names of the Board Remuneration Committee members are set out on page 50 and the aggregate remuneration paid to Executive and Non-Executive Directors is given in Note 41 to the Financial Statements on page 132.

RELATIONS WITH SHAREHOLDERSConstructive use of the AGM(Principle C.1)The AGM provides a forum for all shareholders to participate in decision-making matters reserved for the shareholders, which typically include proposals to adopt the Annual Report and Accounts, Appointment of Directors and Auditors as well as other matters requiring special resolutions as defined in the Articles of Association or the Companies Act No. 07 of 2007. The Chairman ensures the presence of the Chairman of the Board Audit Committee, Board Remuneration Committee and Board Nomination Committee to respond to any questions that may be directed to them by the shareholders. Notice of the AGM is circulated 15 working days in advance together with the Annual Report and Accounts which includes information relating to any other resolutions that may be set before the shareholders at the AGM.

Communication with Shareholders(Principle C.2.)The Company will engage with shareholders and the investment community at large codifying its current practices which are in compliance with the Companies Act, SEC and CSE requirements and the Code of Best Practice on Corporate Governance.

The Company has multiple channels of communication with its shareholders which include a dedicated investor relations website at http://www.softlogiccapital.lk, press releases and notices in English, Sinhala and Tamil newspapers and required disclosures to the CSE which are published on the CSE website. The Interim Financial Statements are published on the CSE website within 45 days except in the fourth quarter in which it is done within two months. It is also the intention of the Board to ensure that the Annual Report provides a balanced review of the Company’s performance which is comprehensive but concise.

Major and Material Transactions(Principle C.3)There were no transactions which would materially alter the Company’s or Group’s net asset base nor any major related party transactions apart from those disclosed in the Directors’ Report on pages 54 to 56 and Note 41 to the Financial Statements on pages 132 to 133.

ACCOUNTABILITY AND AUDITFinancial Reporting(Principles D.1)The Annual Report presents a balanced review of the Company’s financial position, performance and prospects which have been presented combining both narrative and visual elements to ensure that the content is understandable. Care has been exercised to ensure that all statutory requirements are complied with in the Annual Report and in the issue of interim communications on financial performance which are reviewed by the


45

Audit Committee and approved prior to publication. The following disclosures as required by the Code are included in this Report:

• Annual Report of the Board of Directors presented on pages 54 to 56 includes the disclosures required as per Principle D.1.3 of the Code

• Statement of Directors’ Responsibility on page 57 contains a statement setting out the responsibilities of the Board for the preparation and presentation of Financial Statements

• Independent Auditors’ Report on page 59 includes a statement of their responsibilities

• Statement of going concern of the Company is set out on page 57 in the Statement of Directors’ Responsibility and page 55 of the Annual Report of the Board of Directors.

• Related Party transactions are disclosed on pages 57 of the Directors’ Report and in Note 41 in the Financial Statements on pages 132 to 133. The process in place is described in the Report of the Board Related Party Transactions Review Committee on page 52.

In the unlikely event of the net assets of the Company falling below 50% of Stated Capital the Board will summon an Extraordinary General Meeting to notify the shareholders of the position and to explain the remedial action being

taken. The Financial Statements clearly explain the movement of net assets during the year. Refer pages 65 and 66 for details.

Internal Control and Audit Committee(Principle D.2 and D.3)The Board is responsible for formulating and implementing appropriate processes for risk management and internal control systems to safeguard shareholder interests and assets of the Company. Board Audit Committee assists the Board in the discharge of its duties in relation to internal controls. Their responsibilities are summarised in the respective Committee reports appearing on pages 48 to 49 and have been formulated with reference to the requirements of the Code.

The Board Audit Committee comprises 4 Non-Executive Directors and majority of them are independent. A summary of their responsibilities and activities are given in the Report of the Board Audit Committee on pages 48 to 49. It is supported by the Internal Audit function of the Company who report directly to the Audit Committee. The Chairman of the Board Audit Committee is Mr. W.L.P. Wijewardena, a Fellow member of The Institute of Chartered Accountants of Sri Lanka.

Code of Business Conduct & Ethics and Corporate Governance Report(Principles D.4 and D.5)The Company has an internally developed Code of Conduct and Business Ethics which is applicable to all employees. The Code of Business Conduct and Ethics is in compliance with the requirements of the Schedule

I of the Code of Best Practice on Corporate Governance. The Board Remuneration Committee reviews the Code of Business conduct and Ethics to ensure that it is sufficient and relevant with reference to the current operations of the Company.

This Section on corporate governance from pages 38 to 47 complies with the requirement to disclose the extent of compliance with the Code of Best Practice on Corporate Governance as specified in Principle D5.

SHAREHOLDERSShareholder Relations(Principles E & F)The Company has 1,249 voting ordinary shareholders of which 97.25% are institutional shareholders. We have a regular structured dialogue with the large institutional shareholders and any concerns of these institutional shareholders expressed at the meetings are communicated to the Board as a whole. All shareholders are encouraged to exercise their voting powers at the AGM.

Additionally, the information on Investor Relations on pages 138 to 145 has key information required by shareholders and analysts.

SUSTAINABILITYSustainability Reporting(Principle G)Sustainability principles are formed as part of the operations of the Company and our subsidiaries. They are considered in formulating our business strategy and reported in a concise manner throughout this Report.

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Statement of Compliance under section 7.10 of the Rules of the Colombo Stock Exchange (CSE) on Corporate Governance (Mandatory Provisions)

Rule Requirement Status of Compliance

Comments

7.10.1 Non-Executive Directors (NED)At least 2 members or 1/3 of the Board, whichever is higher should be NEDs

Yes 7 out of 8 Board members are NEDs

7.10.2(a) Number of independent directors2 or 1/3 of NEDs, whichever is higher shall be “independent”

Yes 3 out of the 7 non-executive directors are deemed as independent directors

7.10.2(b) Declaration of independenceEach NED to submit a signed and dated declaration of his/her independence or non-independence

Yes Independence of the Directors has been determined in accordance with CSE Listing Rules and all Independent NEDs have submitted signed confirmations of their independence

7.10.3 Disclosures relating to directors

(a) The names of non-executive directors determined to be ‘independent’

Yes Please refer Annual Report of the Board of Directors on the Affairs of the Company on pages 54 to 56

(b) In the event a director does not qualify as ‘independent’ against any criteria set out in the Rules and the Board however is of the opinion that the director is nevertheless ‘independent’, the Board shall specify the criteria not met and the basis for its determination


(c) A brief resume of each director including information on the nature of his/her expertise in relevant functional areas

Yes Please refer Board of Directors section of the Annual Report on pages 36 to 37

(d) In the event of an appointment of a new director, a brief resume of such director shall be submitted immediately to the CSE for dissemination to the public

Yes Detailed resumes of the new Directors appointed during the financial year were submitted to the CSE

7.10.5 Remuneration Committee

7.10.5(a) CompositionRemuneration Committee shall comprise of NEDs, a majority of whom will be independent

Yes The Remuneration Committee comprises of three non-executive directors, of which two are independent and Mr. Ashok Pathirage, who is a non-executive director and acts as the Chairman

7.10.5(b) FunctionsThe Committee shall recommend to the Board the remuneration payable to the executive directors and Chief Executive Officer/MD.

Yes Please refer the Remuneration Committee Report on page 50

7.10.5(c) Disclosures in the Annual Report

Names of directors comprising the Remuneration Committee

Yes Please refer the Remuneration Committee Report on page 50

Statement of the remuneration policy Yes


47

Rule Requirement Status of Compliance

Comments

The aggregate remuneration paid to executive and non-executive directors


7.10.6 Audit Committee

7.10.6(a) CompositionNon-executive directors, a majority of whom shall be independent and one non-executive director shall be appointed as Chairman by the Board;

Unless otherwise determined by the Audit Committee, the Chief Executive Officer and the Chief Financial Officer shall attend audit committee meetings;

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

Yes The Audit Committee comprises of three independent non-executive directors and one non-executive Director. Mr. L. Wijewardena (INED) acts as the Chairman of the Committee.

The Managing Director and CFO attend meetings of the Committee by invitation

The Chairman is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka (CASL)

7.10.6(b) FunctionsOversee the preparation, presentation and adequacy of disclosures in the financial statements in accordance with Sri Lanka Accounting Standards;

Oversee compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements; Oversee processes to ensure internalcontrols and risk management are adequate to meet the requirements of the Sri Lanka Auditing Standards;

Assessment of the independence and performance of the external auditors;

Make recommendations to the Board on appointment, re-appointment and removal of external auditors and approve remuneration and terms of engagement

Yes Please refer the Audit Committee Report on pages 48 to 49

7.10.6(c) Disclosures in the Annual Report

The names of the directors comprising the Audit committee

Yes Please refer the Audit Committee Report on pages 48 to 49

The Committee shall make a determination of the independence of the auditors and shall disclose the basis for such determination

Yes

A report by the Committee setting out the manner of compliance in relation to the above

Yes

48


AUDIT COMMITTEE REPORT

Composition of the Audit CommitteeThe Board Audit Committee is appointed by the Board of Directors and as at the end of the year, comprised of following Non-Executive Directors of the Company.

Mr. W.L.P. Wijewardena (Chairman)Mr. A.M. PasqualMr. H. PremaratneMr. A.Russel-Davison

The Managing Director, the Head of Finance, the Manager Finance and Group Head of Internal Audit attended the meetings by invitation. The Company secretaries Messrs Softlogic Corporate Services (Pvt) Ltd acted as secretaries to the Audit committee.

Brief profiles of the member of the Board are given on pages 36 to 37.

Charter of the CommitteeThe Charter of the Audit Committee approved by the Board clearly defines the terms of Reference of the Committee and is annually reviewed to ensure that new developments relating to the Committee’s functions are addressed. The Committee assists the Board in discharge of its responsibilities and exercises oversight over financial reporting, internal audit, internal controls and external audit.

Rules on Corporate Governance under Listing Rules of the CSE and Code of Best Practice on Corporate Governance issued jointly by CA Sri Lanka and the SEC of Sri Lanka, further regulate the composition, roles and functions of the Board Audit Committee.

The Committee is empowered by the Board of Directors to:

• Ensure that financial reporting systems in place are effective and well-managed in order to provide accurate, appropriate and timely information to the Board of Directors, Regulatory Authorities,

the Management and other Stakeholders.

• Review the appropriateness of accounting policies and ensure adherence to statutory and regulatory compliance requirements and applicable Accounting Standards.

• Ensure that the Company adopts and adheres to high standards of Corporate Governance practices, conforming to the highest ethical standards and good industry practices in the best interests of all stakeholders.

• Evaluate the adequacy, efficiency and effectiveness of Risk Management measures, Internal Controls and Governance Processes in place to avoid, mitigate or transfer current and evolving risks.

• Monitor all aspects of Internal and External Audit and Inspection programmes of the Company. Review Internal and External Audit Reports for follow up with the Management on their findings and recommendations.

• Review the Interim Financial Statements and Annual Financial Statements of the Company in order to monitor the integrity of such statements prepared for publication prior to submission to the Board of Directors.

Activities during the yearThe Committee held 04 meetings during the financial year ended March 31, 2017. The proceedings of these meetings, with adequate details of matters discussed, were regularly reported to the Board of Directors. Representatives of the Company’s External Auditors M/s Ernst & Young also attended meetings as and when required.

The Committee also invited members of the Senior Management of the Company to participate in the meetings from time to time, based on necessity.

The attendance of Committee members is stated on page 40.

Reporting of Financial Position and PerformanceThe Committee supports the Board in its oversight on the preparation of Financial Statements that evidences a true and fair view on financial position and performance. This process is based on the Company’s accounting records and in accordance with the stipulated requirements of the Sri Lanka Accounting Standards.

The prevailing Internal Controls, Systems and Procedures were assessed by the Committee and it expressed the view that adequate controls and procedures were in place to provide reasonable assurance to the effect that the Company’s assets are safeguarded and the financial position of the Company is well monitored and accurately reported.

Oversight on Regulatory ComplianceThe Committee closely scrutinizes compliance with mandatory statutory requirements and the systems and procedures that are in place to ensure compliance with such requirements. The quarterly reports submitted by the Finance Manager are being used by the Committee to monitor compliance with all such legal and statutory requirements. The Company’s Inspection Function has been mandated to conduct independent test checks, covering all regulatory compliance requirements, as a further monitoring measure.

Internal Audit and InspectionThe Committee ensures that the Internal Audit function is independent of the activities it audited and that it was performed with impartiality, proficiency and due professional care.


49

External AuditWith regard to the External Audit function of the Company, the role played by the Committee is as follows:

• Assisting the Board of Directors in engaging External Auditors for audit services in compliance with the provisions of the Direction and agrees on their remuneration with the approval of the Shareholders.

• Monitoring and evaluating the independence and objectivity of the External Auditor.

• Reviewing non-audit services provided by the Auditors, with a view to ensuring that such functions do not fall within the restricted services and provision of such services will not impair the External Auditors’ independence and objectivity.

• Discussing the audit plan, scope and the methodology proposed to be adopted in conducting the audit with the Auditors, prior to commencement of the Annual Audit.

• Discussing all relevant matters arising from the interim and final audits and any matters the Auditor may wish to discuss, including matters that may need to be discussed in the absence of Key Management Personnel.

• Reviewing the External Auditors Management Letter and the management’s responses thereto.

The Auditors were provided with the opportunity of meeting Non-Executive Directors separately, without any Executive being present, to ensure that the Auditors had the independence to discuss and express their opinions on any matter. It provided the assurance to the Committee, that the Management

has fully provided all information and explanations requested by the Auditors.

At the conclusion of the audit, the Committee also met the Auditors to review the Auditor’s Management Letter before it is submitted to the Board of Directors.

Corporate GovernanceThe Company is fully compliant with the applicable rules on Corporate Governance under the listing rules of the Colombo Stock Exchange. In addition, the Company is compliant with the Code of Best Practice on Corporate Governance issued jointly by the Securities & Exchange Commission of Sri Lanka (SEC) and the Institute of Chartered Accountants of Sri Lanka (CASL).

Sri Lanka Accounting StandardsThe committee reviewed the revised policy decisions relating to adoption of new and revised Sri Lanka Accounting Standards (SLFRS/LKAS) applicable to the Company and made recommendation to the Board of Directors.

The committee would continue to monitor the compliance with relevant Accounting Standards and keep the Board of Directors informed at regular intervals.

Evaluation of the CommitteeAn independent evaluation of the effectiveness of the Committee was carried out by the other Members of the Board during the year. Considering the overall conduct of the Committee and its contribution on the overall performance of the Company, the Committee has been rated as highly effective.

(Sgd.)W.L.P. WijewardeneChairman-Audit Committee10 July 2017

50


REMUNERATION COMMITTEE REPORT

Composition of the Remuneration CommitteeThe Committee, as of 31st March 2017, consisted of three Non Executive Directors.

Mr. Ashok Pathirage (Chairman)Mr. Lucille WijewardenaMr. Ajitha Pasqual

Terms of Reference of the Board Remuneration CommitteeAs per the Charter of the Remuneration Committee of the Company, the Committee is responsible for setting the remuneration policy of the Company and determining remuneration packages of all Senior Managers and Directors.

The Committee also discusses and advises the Managing Director on structuring remuneration packages for the corporate management. This enables the Company to attract, retain and motivate high caliber individuals with the skills and abilities required to lead the organization.

Board Remuneration Committee MeetingsThe Committee meets at least once during every financial year.

Professional AdviceThe Committee has the authority to seek external professional advice on matters within its purview whenever required.

(Sgd.)Ashok PathirageChairman - Remuneration Committee10 July 2017


51

NOMINATIONS COMMITTEE REPORT

Composition of the Nominations CommitteeThe Committee, as of 31st March 2017, consisted of three Non Executive Directors.

Mr. Ashok Pathirage (Chairman)Mr. Lucille WijewardenaMr. Ajitha Pasqual

Terms of Reference of the Board Nominations CommitteeThe Nominations Committee was established to ensure the Board’s oversight and control over the selection of Directors. The committee has the authority to discuss the issues under its purview and report back to the Board of Directors with recommendations, enabling the Board to take a decision on the matter. The Committee focuses on the following objectives in discharging its responsibilities;

• To implement a procedure to select Directors to the Board

• Provide advice and recommendations to the Board or the Chairman on any such appointment

• To ensure that the Directors are fit and proper persons to hold office

• To consider and recommend the re-election of current Directors, taking into account the performance and contribution made by them towards the overall discharge of the Board’s responsibilities.

• Any member of Nominations Committee opts out in decisions relating to his own appointment.

Board Nominations Committee MeetingsThe Committee meets as and when required. During the year under review the committee met two times.

Professional AdviceThe committee has the authority to seek external professional advice on matters within its purview whenever required.

ConclusionThe Committee continues to work closely with the Board of Directors in relation to the structure, size and composition of the Board ensuring the diversity and balance of skills, knowledge and experience. The Committee is satisfied that the representation of skills, knowledge and experience on the Board is appropriate for the company’s current needs at Board level.

(Sgd.)Ashok PathirageChairman - Nominations Committee10 July 2017

52


RELATED PARTY TRANSACTIONS REVIEW COMMITTEE REPORT

The Board appointed the Related Party Transactions Review Committee (BRPTRC) as stipulated by the Code of Best Practices on Related Party Transactions, issued by the Colombo Stock Exchange (CSE) and as at the end of the year comprised of following Non-Executive Directors of the Company.

Mr. W.L.P. Wijewardena (Chairman)Mr. A.M. PasqualMr. R.J. Perera

The Managing Director, the Head of Finance and the Manager Finance attended the meetings by invitation. The Company secretaries Messrs Softlogic Corporate Services (Pvt) Ltd acted as secretaries to the Audit committee.

Brief profiles of the member of the Board are given on pages 36 to 37.

Terms of Reference of the CommitteeThe BRPTRC was formed by the Board in 2014 to assist the Board in reviewing all Related Party Transactions (RPT) carried out by the Company, by early adoption as the Code of Best Practice on Related Party Transactions as issued by the CSE, which is mandatory from January 01, 2016.

The mandate of the Committee includes inter-alia the following:

• Developing and recommending for adoption by the Board of Directors of the Company, a RPT Policy consistent with that proposed by the CSE

• Updating the Board of Directors on the RPT of each of the listed companies of the Group

• Making immediate market disclosures on applicable RPT, as required by Section 9 of the Continuing Listing Requirements of the CSE

• Making appropriate disclosures on RPT in the Annual Report, as required by Section 9 of the Continuing Listing Requirements of the CSE

The Committee will schedule quarterly meetings to review and report to the Board, on matters involving RPT falling under its terms of Reference.

Activities during the yearA Committee meeting was held during the year, to review and to recommend the RPT Policy to the Board. The attendance of the Committee members at the meeting is given on page 40. Proceedings of the Committee meetings were regularly reported to the Board of Directors. In addition, the Board of Directors was updated on the RPT of each of the listed companies of the Group, on a quarterly basis. Any member of the Committee, who has an interest in a RPT under discussion, shall abstain from voting on the approval of such transaction, but may, if so requested by the Chairman of the Committee, participate in some or all Committee’s discussions on such transactions. Upon completion

of its review of the transaction, the Committee may determine to permit or to prohibit the RPT.

A RPT entered into without pre-approval of the Committee, shall not be deemed to violate this Policy, or be invalid or unenforceable, so long as the transaction is brought to the Committee as promptly as reasonably practical, after it is entered into or after it becomes reasonably apparent that the transaction is covered by this Policy. As such all RPT, other than the exempted transactions will be reviewed either prior to the transaction being entered into or if the transaction is expressed to be conditional on such review, prior to the completion of the transaction.

(Sgd.)W.L.P. WijewardeneChairmanAudit Committee10 July 2017


53

FinancialStatementsAnnual Report of the Board of Directors / 54Statement of Director’s Responsibility / 57Statement of CEO’s and CFO’s Responsibility / 58Independent Auditors’ Report / 59Income Statement / 60Statement of Comprehensive Income / 61Statement of Financial Position / 62Statement of Changes in Equity / 64Statement of Cash Flows / 66Notes to the Financial Statements / 68


54

ANNUAL REPORT OF THE BOARD OF DIRECTORS

The Directors of Softlogic Capital PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements of the Company for the year ended 31st March 2017.

General The Company was incorporated as a limited liability company on 21st April 2005 under the Companies Act No. 17 of 1982 as Capital Reach Holdings Limited. It was re-registered under the Companies Act No. 07 of 2007 on 27th November 2008 under Registration No. PB 779. The name of the Company was changed to Softlogic Capital Limited on 26th November 2010. The ordinary shares of the Company were listed on the Diri Savi Board of the Colombo Stock Exchange on 21st September 2011 and consequent thereto its name was changed to Softlogic Capital PLC on 22nd May 2012 and was assigned with PB 779 PQ as its new number.

Principal activities of the Company and review of performance during the year The principal activities of the Company and its subsidiaries are making investments, fund management and provision of financial and management consultancy services, insurance, leasing, hire purchase, granting loans, pawn broking and stock broking.

A review of the business of the Company and its performance during the year with comments on financial results, future strategies and prospects are contained in the Chairman’s review on pages 8 to 10.

This Report together with the Financial Statements, reflect the state of affairs of the Company and its subsidiary companies.

Summarized Financial Results Group Company

31.03.2017Rs.

31.03.2016Rs.

Revenue 10,432,553,872 729,638,784

Profit for the year 1,310,034,349 475,577,458

Financial Statements The Financial Statements of the Company and the consolidated Financial Statements of the Company and its subsidiaries, duly signed by two Directors on behalf of the Board of Directors and the Auditors are included in this Annual Report and forms part and parcel hereof.

Independent Auditors’ Report The Report of the Auditors on the consolidated Financial Statements of the Company is given on page 59.

Accounting Policies The Financial Statements of the Company have been prepared in accordance with the revised Sri Lanka Accounting Standards and the policies adopted thereof are given on pages 68 to 136. Figures pertaining to the previous periods have been re-stated where necessary to conform to the presentation for the year under review.

Directors The names of the Directors who held office at the end of the accounting period are given below:

Executive Director Mr. T M I Ahamed - Managing Director

Non-Executive Directors Mr. A K Pathirage - ChairmanMr. R J Perera - Director Mr. W L P Wijewardena - Director* Mr. A M Pasqual - Director* Mr. G L H Premaratne - DirectorMr. P D J L R Wijeratne - DirectorMr. A Russell-Davison - Director *

*Independent Non-Executive Directors

Mr. A M Pasqual retires by rotation at the conclusion of the Annual General Meeting in terms of Articles 88 and 89 of the Articles of Association and being eligible is recommended by the Directors for re-election. Messrs P D J L R Wijeratne and A Russell-Davison who were appointed to the Board on 18th November 2016 and 24th January 2017 respectively retire in terms of Article 95 of the Articles of Association and being eligible are recommended by the Directors for re-election.

Directors’ responsibility for Financial Reporting The Directors are responsible for the preparation of the Financial Statements of the Company to reflect a true and fair view of the state of its affairs.

Remuneration of Directors The Directors’ remuneration is disclosed under Key Management Personnel in Note 41 to the Financial Statements on page 132.


55

Directors’ Shareholding The relevant interests of Directors in the shares of the Company are as follows:

Group Company

31.03.2017Rs.

31.03.2016Rs.

Mr. A K Pathirage - Chairman 1,122,841 -

Mr. T M I Ahamed - Managing Director - -

Mr. R J Perera - Director -

Mr. W L P Wijewardena - Director 99,900 99,900Mr. A M Pasqual - Director 10,000 -

Mr. G L H Premaratne - Director - -

Mr. P D J L R Wijeratne - Director - -

Mr. A Russell-Davison - Director - -

Mr. A K Pathirage is the Chairman and major shareholder of Softlogic Holdings PLC which held 510,952,743 shares constituting 74.25% of the issued shares of the company. Messrs R J Perera, G L H Premaratne and A Russell-Davison also serve as Directors of Softlogic Holdings PLC.

Interests RegisterThe Company maintains an Interests Register in terms of the Companies Act No. 07 of 2007, which is deemed to form part and parcel of this Annual Report and available for inspection upon request.

All related party transactions which encompasses the transactions of Directors who were directly or indirectly interested in a contract or a related party transaction with the Company during the accounting period are recorded in the Interests Register in due compliance with the provisions of the Companies Act.

Auditors Messrs Ernst & Young, Chartered Accountants served as the Auditors of the Company with effect from 1st July 2016. They do not have any interest in the Company other than that of Auditor.

A total amount of Rs. 786,500/- and Rs. 646,991/- is payable by the Company to the Auditors for the year under review as audit fees and non-audit fees respectively. A sum of Rs. 11,032,361/- is payable by the Group to the Auditors for the year under review comprising Rs. 9,344,217/- as audit fees and Rs. 1,688,144/- for non-audit services.

A resolution to re-appoint Messrs Ernst & Young as the Auditors and to authorize the Directors to determine their remuneration will be proposed at the Annual General Meeting.

Stated Capital The Stated Capital of the Company as at 31st March 2017 is Rs. 2,880,000,000.00 represented by 688,160,000 Ordinary Shares.

Major Shareholders, Distribution Schedule and other information

Information on the twenty (20) largest shareholders of the Company, the distribution of shareholding, percentage of shares held by the public, market values per share as per the listing rules of the Colombo Stock Exchange are given on

pages 138 to 143 under shareholder Information.

Property, Plant & EquipmentDetails and movements of property, plant and equipment are given in note 24 to the Financial Statements on page 114.

DividendsThe directors declared an interim dividend of Rs. 0.50 per share for the year under review which was paid on 30th March 2017. The Directors do not recommend a Final dividend for the year under review.

Donations The Company did not make any donations during the year under review.

Land Holdings The Company does not own any land or buildings. The land and buildings owned by subsidiaries are reflected in their respective Statements of Financial Position at their market values.

Events after the date of the Statement of Financial Position No circumstances have arisen and no material events have occurred after the date of Statement of Financial Position, which would require adjustments to, or disclosure in the accounts other than those disclosed in Note 39 to the Financial Statements.

Material Foreseeable Risk Factors The Directors are of the opinion that the major risk factor affecting the Group is the Interest Rate Risk.

Going Concern The Board is satisfied that the Company has adequate resources to continue its operations in the foreseeable future. The Directors have adopted the going concern basis in preparing the accounts.

Corporate Governance The Directors confirm that, as at the applicable financial period the Company is in compliance with the Corporate Governance Rules contained in the


56

Annual Report of the Board of Directors

Listing Rules of the Colombo Stock Exchange.

The Corporate Governance Statement on pages 38 to 47 explains the practices within the Company in this respect.

Messrs W L P Wijewardena, A M Pasqual and A Russell-Davison function as independent directors of the Company.

As per the Rules issued by the Colombo Stock Exchange, Messrs W L P Wijewardena and A M Pasqual meet all the criteria of independence. Mr. A Russell-Davison meets all the criteria of independence except one.

Mr. A Russell-Davison is a Director of Softlogic Holdings PLC which has a significant shareholding in the Company. The Board having evaluated all the factors concluded that their independence have not been impaired due to him serving on the Board of another company which has a significant shareholding in the Company.

An Audit Committee, Remuneration Committee, Nomination Committee and Related Party Transaction Review Committee, function as Board Sub Committees, with Directors who possess the requisite qualifications and experience.

The composition of the said Committees is as follows:

Audit CommitteeMr. W L P Wijewardena - Independent Non-Executive Director (Chairman)

Mr. A M Pasqual - Independent Non-Executive Director

Mr. G L H Premaratne - Non-Executive Director

Mr. A Russell-Davison – Independent Non-Executive Director

Remuneration Committee Mr. A K Pathirage - Non-Executive Director (Chairman)

Mr. W L P Wijewardena - Independent Non-Executive Director


Nominations Committee Mr. A K Pathirage - Non-Executive Director (Chairman)

Mr. W L P Wijewardena - Independent Non-Executive Director


Related Party Transaction Review CommitteeMr. W L P Wijewardena - Independent Non-Executive Director (Chairman)


Mr. R J Perera - Non-Executive Director

Annual General MeetingThe Annual General Meeting of the Company will be held at the Auditorium of Central Hospital Limited, No. 114, Norris Canal Road, Colombo 10 on Thursday the 17th day of August 2017 at 10.00 a.m. The Notice of the Annual General Meeting is on page 151 of the Annual Report.

For and on behalf of the Board

(Sgd.) (Sgd.)A K Pathirage T M I AhamedChairman Managing Director (Sgd.)Softlogic Corporate Services (Pvt) Ltd Secretaries

10 July 2017Colombo


57

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The responsibilities of the Directors, in relation to the financial statements of the Company differ from the responsibilities of the Auditors, which are set out in the Report of the Auditors on page 59.

The Companies Act No. 07 of 2007 stipulates that the Directors are responsible for preparing the Annual Report and the financial statements. Company law requires the Directors to prepare financial statements for each financial year, giving a true and fair view of the state of affairs of the Company at the end of the financial year, and of the statement of comprehensive income of the Company for the financial year, which comply with the requirements of the Companies Act.

The Directors consider that, in preparing financial statements set out on pages 60 to 136 of the Annual Report, appropriate accounting policies have been selected and applied in a consistent manner and supported by reasonable and prudent judgments and estimates, and in compliance with the Sri Lanka Accounting Standards (SLFRSs/LKASs), Companies Act No. 07 of 2007 and Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995. The Directors confirm that they have justified in adopting the going concern basis in preparing the financial statements since adequate resources are available to continue operations in the foreseeable future.

The Directors are responsible for keeping proper accounting records, which disclose reasonable accuracy, at any time, the financial position of the Company and to enable them to ensure the financial statements comply with the Companies Act No. 07 of 2007.

They are also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities. In this regard the Directors have instituted an effective and comprehensive system of internal control.

The Directors are required to prepare financial statements and to provide the external auditors with every opportunity to take whatever steps and undertake whatever inspections they may consider to be appropriate to enable them to give their independent audit opinion.

The directors are of the view that they have discharged their responsibilities as set out in this statement.

Compliance ReportThe Directors confirm that to the best of their knowledge, all taxes, duties and levies payable by the Company, all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company and other known statutory dues as were due and payable by the Company as at the date of the statement of financial position have been paid or, where relevant provided for, in arriving at the financial results for the year under review.

Compliance with Related Party Transactions RulesTransactions of related parties (as defined in LKAS 24 – Related Parties Disclosure) with the Company are set out in Note 41 to the Financial Statements.

There are no related party transactions which exceed the threshold of 10% of the equity or 5% of the total assets, whichever is lower in relation to non-recurrent related party transactions or 10% of the gross revenue in relation to recurrent related party transactions. The Company has complied with the requirements of the Listing Rules of the Colombo Stock Exchange on Related Party Transactions

For and on behalf of the Board of

SOFTLOGIC CAPITAL PLC

(Sgd.)SOFTLOGIC CORPORATE SERVICES (PVT) LTDSecretaries 10 July 2017Colombo


58

CEO’S AND CFO’S RESPONSIBILITY STATEMENT

The Financial Statements of the Softlogic Capital PLC as at 31st March 2017 are prepared and presented in conformity with the requirements of the following:

• Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka);

• Companies Act No. 07 of 2007;

• Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995;

• Listing Rules of the Colombo Stock Exchange CSE and;

• Code of Best Practice on Corporate Governance issued jointly by CA Sri Lanka and the Securities and Exchange Commission of Sri Lanka (SEC).

The Significant accounting policies used in the preparation of the Financial Statements are appropriate and are consistently applied unless otherwise stated in the notes accompanying the Financial Statements. Application of Significant Accounting Policies and Estimates that involve a high degree of judgment and complexity were discussed with the Audit Committee and Company’s External Auditors.

The Board of Directors and the Management of the Company accept responsibility for the integrity and objectivity of these Financial Statements. The best estimates and judgments’ were made in order that these Financial Statements are presented 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 recognized in weighing the assurances provided by any system of internal controls and accounting.

Comparative information has been restated to comply with the current presentation, where applicable. We confirm that to the best of our knowledge, the financial statements, significant accounting policies and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of the operations and cash flows of the Company during the year under review.

We also confirm the Company has adequate resources to continue in operation and have applied the Going Concern basis in preparing these Financial Statements.

The Financial Statements of the Company were audited by Messrs Ernst and Young, Chartered Accountants and their Report is given on page 59. The Audit Committee pre-approves the audit and non-audit services provided by Messrs Ernst and Young, in order to ensure that the provision of such services does not impair their independence and objectivity.

The Audit Committee of the 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.

We confirm that the Company has complied with all applicable laws and

regulations and guidelines and that there are no material litigations that are pending against the Company other than those arising in the normal course of conducting insurance business.

Also taxes, duties and all statutory payments by the Company and in respect of the employees of the Company as at the reporting date have been paid or where relevant accrued.

(Sgd.)Iftikar AhamedManaging Director

(Sgd.)Dilan ChristostomHead of Finance 10 July 2017Colombo


59

INDEPENDENT AUDITORS’ REPORT

TO THE SHAREHOLDERS OF SOFTLOGIC CAPITAL PLC

Report on the Financial StatementsWe have audited the accompanying financial statements of Softlogic Capital PLC (“the Company”), and the consolidated financial statements of the Company and its Subsidiaries (“Group”), which comprise the statement of financial position as at 31 March 2017, and the income statement and statement of comprehensive income, statement of changes in equity and, statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Board’s Responsibility for the Financial StatementsThe Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards and for such internal control as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s ResponsibilityOur 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Board, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 March 2017, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Emphasis of MatterWe draw attention to Note 34.5 to the financial statements, which describes

the adjustment made to the retained earnings of the Group in relation to Insurance Provision as of 31 December 2015. Our opinion is not qualified in respect of this matter.

Report on Other Legal and Regulatory RequirementsAs required by Section 163(2) of the Companies Act No. 7 of 2007, we state the following:

a) The basis of opinion, scope and limitations of the audit are as stated above.

b) In our opinion :

- we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company,

- the financial statements of the Company give a true and fair view of its financial position as at 31 March 2017, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards, and

- the financial statements of the Company and the Group comply with the requirements of section 151 and 153 of the Companies Act No. 07 of 2007.

10 July 2017Colombo


60

INCOME STATEMENT

Group CompanyFor the year ended 31 March Note 2017 2016 2017 2016

In LKR Restated

Continuing OperationsInterest income 7 4,311,661,943 4,096,161,348 231,551 131,843

Fee and trading income 8 5,906,350,600 4,773,558,886 144,043,825 126,666,429 Other income and gains 9 92,783,645 103,196,628 941,866 3,242,579 Net realized gains/(losses) 10 (2,572,299) 31,264,226 - - Net fair value gains 11 38,850,582 155,491,342 - - Dividend income 12 85,479,401 103,744,742 584,421,541 66,020,158 Total operating income 10,432,553,872 9,263,417,172 729,638,783 196,061,009

Direct expenses Interest expenses 13 (2,487,157,687) (2,083,896,430) (172,324,026) (93,557,356)Other direct expenses (2,892,759,468) (1,737,672,723) (4,767,888) (6,113,632)Impairment of loans and receivables 14 (368,754,483) (711,845,582) - - Net operating income 4,683,882,234 4,730,002,437 552,546,869 96,390,021

Administrative expenses (2,489,617,578) (2,159,550,009) (74,379,882) (63,234,435)Distribution costs (601,500,459) (366,773,804) - (773,763)Change in insurance contract liabilities (82,439,974) (1,028,927,838) - - Other operating expenses (236,180,216) (186,997,063) (2,547,387) (4,165,033)Profit before tax for the year from Continuing Operations 15 1,274,144,007 987,753,723 475,619,600 28,216,790

Tax expense 16 (167,217,263) (31,451,946) (42,142) (23,995)

Profit after tax for the year from Continuing Operations 1,106,926,744 956,301,777 475,577,458 28,192,795

Profit for the year from Discontinuing Operations 37 203,107,606 (72,514,640) - -

Profit for the Year 1,310,034,350 883,787,137 475,577,458 28,192,795

Profit from Continuing Operations attributable to;Equity holders of the parent 582,504,658 559,427,400 Non-controlling interests 524,422,086 396,874,377

1,106,926,744 956,301,777

Profit from Discontinued Operations attributable to;Equity holders of the parent 248,412,020 (42,919,542)Non-controlling interests (45,304,414) (29,595,098)

203,107,606 (72,514,640)

Basic earnings per share (Rs.) 17Continuing Operations 0.85 0.81 Discontinued Operations 0.36 (0.06)

Dividend per share (Rs.) 18 0.50 -

Figures in brackets indicates deductions.The accounting policies and notes from pages 68 to 136 form an integral part of these financial statements.


61

Group CompanyFor the year ended 31 March Note 2017 2016 2017 2016

In LKR Restated

Profit for the year from Continuing Operations 1,106,926,744 956,301,777 475,577,458 28,192,795

Profit/(loss) for the period from Discontinued Operations 203,107,606 (72,514,640) - -

1,310,034,350 883,787,137 475,577,458 28,192,795

Other comprehensive income from Continuing Operations

Other comprehensive income to be reclassified to income statement in subsequent periods from Continuing Operations

Net (loss) / gain on available-for-sale financial assets (311,002,645) (1,303,982,730) 10,753 (917,179)

Available for sale financial assets reclassified to income statement 2,572,299 (31,264,226) - -

Net other comprehensive income/(loss) income to be reclassified to income statement in subsequent periods (308,430,346) (1,335,246,956) 10,753 (917,179)

Other comprehensive income not to be reclassified to income statement in subsequent periods

Gains on revaluation of land and buildings 30,000,000 83,168,283 - -

Re-measurement gain/(loss) on retirement benefits (17,217,462) 6,725,472 - -

Net other comprehensive income not to be reclassified to income statement in subsequent periods 12,782,538 89,893,755 - -

Tax on other comprehensive income (31,697) (634,431) - -

Total Other comprehensive income/(loss) for the year, net of tax from Continuing Operations (295,679,505) (1,245,987,632) 10,753 (917,179)

Other comprehensive income/(loss) for the year, net of tax from Discontinued Operations 37.1 72,882,792 (195,703,589) - -

Total comprehensive income/(loss) for the year 1,087,237,637 (557,904,084) 475,588,211 27,275,616

Attributable to :

Equity holders of the parent 700,521,812 (332,827,717)

Non-controlling interests 386,715,825 (225,076,367)

1,087,237,637 (557,904,084)


STATEMENT OF COMPREHENSIVE INCOME


62

STATEMENTS OF FINANCIAL POSITION

Group CompanyAs at 31 March Note 2017 2016 01 April 2015 2017 2016

In LKR Restated Restated

ASSETS

Cash and cash equivalents 19 1,209,502,700 800,411,100 737,234,429 40,284,332 40,362,714

Inventories 20 115,944,123 512,207,691 625,827,151 - -

Amounts due from related companies 41 - - - 3,906,232 3,504,148

Other non financial assets 21 796,543,521 1,135,196,580 986,772,750 4,242,167 2,886,941

Income tax receivables 30 25,712,574 - - - -

Financial Assets - Fair value through profit or loss 22.1 642,423,617 675,118,383 2,751,282,607 - -

Financial Assets - Available for sale at fair value 22.2 6,830,800,112 6,911,925,729 4,979,386,853 12,037,518 11,955,965

Financial Assets - Loans and receivables 22.3 21,212,384,727 18,994,027,144 14,119,013,732 - -

Financial Assets - Held to maturity 22.4 230,473,484 225,093,733 1,704,400,462 - -

Lease and hirepurchase receivables 22.5 949,316,675 1,444,230,593 3,082,873,752 - -

Investment in subsidiaries 22 - - - 4,379,616,474 4,377,013,625

Deferred tax assets 36.1 14,759,960 111,908,568 14,953,055 14,759,960 14,759,960

Property, plant and equipment 24 881,421,606 905,691,404 797,579,238 - 338,774

Intangible assets 25 2,431,365,146 2,570,853,575 2,688,950,653 - -

TOTAL ASSETS 35,340,648,245 34,286,664,500 32,488,274,682 4,454,846,683 4,450,822,127

EQUITY AND LIABILITIES

Capital and reserves

Stated capital 2,880,000,000 2,880,000,000 2,880,000,000 2,880,000,000 2,880,000,000

Reserve fund 266,020,101 193,060,124 119,267,968 - -

Available for sale reserve (1,010,688,724) (870,274,893) 35,939,065 (2,860,354) (2,871,107)

Revaluation reserve 75,190,729 54,617,644 - - -

Retained earnings 1,074,091,447 407,619,330 248,904,525 268,188,631 136,691,173

Shareholders' funds 3,284,613,552 2,665,022,205 3,284,111,558 3,145,328,277 3,013,820,066

Non-controlling interest 1,892,633,768 2,052,219,907 2,478,067,733 - -

Total equity 5,177,247,320 4,717,242,112 5,762,179,291 3,145,328,277 3,013,820,066


63

Group CompanyAs at 31 March Note 2017 2016 01 April 2015 2017 2016


Liabilities

Bank overdrafts 19 1,228,013,221 1,350,523,495 876,300,347 5,917,819 311,323,068

Trade payables 28 1,285,435,149 2,247,800,621 2,286,259,622 - -

Amounts due to related companies 41 - 473,763 - - 473,763

Other non financial liabilities 29 150,107,210 186,631,375 460,009,559 3,943,880 2,841,220

Income tax liabilities 30 - 72,869,051 23,541,697 - -

Put option liability 31 9,356,708 9,356,708 6,260,352 9,356,708 9,356,708

Interest bearing borrowings 32 4,758,843,538 5,175,606,015 5,891,108,818 1,290,300,000 1,113,007,302

Public deposits 33 16,048,473,927 14,004,134,735 12,061,594,000 - -

Insurance provision 34 6,516,567,060 6,434,118,177 5,029,272,339 - -

Employee benefit liabilities 35 99,508,151 84,774,085 71,639,429 - -

Deferred tax liabilities 36.2 67,095,961 3,134,363 20,109,228 - -

Total Liability 30,163,400,925 29,569,422,388 26,726,095,391 1,309,518,407 1,437,002,061

TOTAL EQUITY AND LIABILITIES 35,340,648,245 34,286,664,500 32,488,274,682 4,454,846,683 4,450,822,127

The Financial Statements are in compliance with the requirements of Companies Act No. 07 of 2007.

(Sgd.)Dilan Christostom Head of Finance

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

(Sgd.) (Sgd.)Ashok Pathirage Iftikar AhamedChairman Managing Director

The accounting policies and notes from pages 68 to 136 form an integral part of these financial statements.

10 July 2017Colombo


64

STATEMENTS OF CHANGES IN EQUITY - GROUP

Att

ribut

able

to e

quity

hol

ders

of t

he p

aren

t N

onCo

ntro

lling

In

tere

st

Tot

aleq

uity

In

LKR

Sta

ted

capi

tal

Res

erve

fu

nd A

vaila

ble

for s

ale

rese

rve

Rev

alua

tion

Rese

rve

Ret

aine

d ea

rnin

gs

Tota

l

As a

t 01

Apri

l 201

5 2

,880

,000

,000

7

3,66

2,85

8 3

5,93

9,06

5 -

413

,961

,626

3

,403

,563

,549

2

,619

,260

,988

6

,022

,824

,537

Pr

ior y

ear a

djus

tmen

t (no

te 4

2)

- 4

5,60

5,11

0 -

- (1

65,0

57,1

01)

(119

,451

,991

) (1

41,1

93,2

55)

(260

,645

,246

)As

at 0

1 Ap

ril 2

015,

as

rest

ated

2,8

80,0

00,0

00

119

,267

,968

3

5,93

9,06

5 -

248

,904

,525

3

,284

,111

,558

2

,478

,067

,733

5

,762

,179

,291

Profi

t for

the

year

from

Con

tinui

ng O

pera

tions

- -

- -

559

,427

,403

5

59,4

27,4

03

396

,874

,377

9

56,3

01,7

80

Oth

er c

ompr

ehen

sive

inco

me

for t

he y

ear f

rom

Con

tinui

ng

Ope

ratio

ns -

- (7

93,4

32,8

83)

54,

617,

644

5,3

11,5

57

(733

,503

,682

) (5

12,4

83,9

51)

(1,2

45,9

87,6

33)

Tota

l com

preh

ensi

ve in

com

e fr

om C

ontin

uing

Ope

ratio

ns -

- (7

93,4

32,8

83)

54,

617,

644

564

,738

,960

(1

74,0

76,2

79)

(115

,609

,574

) (2

89,6

85,8

53)

Profi

t for

the

perio

d fr

om D

isco

ntin

ued

Ope

ratio

ns -

- -

- (4

2,91

9,54

2) (4

2,91

9,54

2) (2

9,59

5,09

8) (7

2,51

4,64

0)O

ther

com

preh

ensi

ve in

com

e fo

r the

per

iod

from

D

isco

ntin

ued

Ope

ratio

ns -

- (1

12,7

81,0

75)

- (3

,050

,822

) (1

15,8

31,8

97)

(79,

871,

692)

(195

,703

,589

)To

tal c

ompr

ehen

sive

inco

me

from

Dis

cont

inue

d O

pera

tions

- -

(112

,781

,075

) -

(45,

970,

364)

(158

,751

,439

) (1

09,4

66,7

90)

(268

,218

,229

)

Subs

idia

ry d

ivid

end

paid

to n

on-c

ontr

ollin

g in

tere

st -

- -

- -

- (2

7,96

2,03

0) (2

7,96

2,03

0)Tr

ansf

erre

d to

rese

rve

fund

- 7

3,79

2,15

6 -

- (7

3,79

2,15

6) -

- To

tal t

rans

actio

ns w

ith o

wne

rs, r

ecog

nise

d di

rect

ly in

equ

ity

- -

- -

(63,

755,

771)

(63,

755,

771)

(19,

397,

296)

(83,

153,

067)

As a

t 31

Mar

ch 2

016

as r

esta

ted

2,8

80,0

00,0

00

193

,060

,124

(8

70,2

74,8

93)

54,

617,

644

630

,125

,194

2

,887

,528

,069

2

,205

,632

,043

5

,093

,160

,112

Prio

r ye

ar a

djus

tmen

t mad

e as

dir

ecte

d by

Insu

ranc

e Bo

ard

of S

ri L

anka

(Not

e 34

.5)

- -

- -

(222

,505

,864

) (2

22,5

05,8

64)

(153

,412

,136

) (3

75,9

18,0

00)

As a

t 31

Mar

ch 2

016,

as

rest

ated

2,8

80,0

00,0

00

193

,060

,124

(8

70,2

74,8

93)

54,

617,

644

407

,619

,330

2

,665

,022

,205

2

,052

,219

,907

4

,717

,242

,112

Profi

t for

the

year

from

Con

tinui

ng O

pera

tions

- -

- -

582

,504

,658

5

82,5

04,6

58

524

,422

,086

1

,106

,926

,744

O

ther

com

preh

ensi

ve in

com

e fo

r the

yea

r fro

m C

ontin

uing

O

pera

tions

- -

(183

,551

,272

) 2

0,57

3,08

5 (1

0,55

4,12

1) (1

73,5

32,3

08)

(122

,147

,197

) (2

95,6

79,5

05)

Tota

l Com

preh

ensi

ve In

com

e fr

om C

ontin

uing

Ope

ratio

ns -

- (1

83,5

51,2

72)

20,

573,

085

571

,950

,537

4

08,9

72,3

50

402

,274

,889

8

11,2

47,2

39

Profi

t for

the

perio

d fr

om D

isco

ntin

ued

Ope

ratio

ns -

- -

- 2

48,4

12,0

20

248

,412

,020

(4

5,30

4,41

4) 2

03,1

07,6

06

Oth

er c

ompr

ehen

sive

inco

me

for t

he p

erio

d fr

om

Dis

cont

inue

d O

pera

tions

- -

43,

137,

441

- -

43,

137,

441

29,

745,

351

72,

882,

792

Tota

l Com

preh

ensi

ve In

com

e fr

om D

isco

ntin

ued

Ope

ratio

ns -

- 4

3,13

7,44

1 -

248

,412

,020

2

91,5

49,4

61

(15,

559,

063)

275

,990

,398

Div

iden

d Pa

id -

- -

- (3

44,0

80,0

00)

(344

,080

,000

) -

(344

,080

,000

)Su

bsid

iary

div

iden

d pa

id to

non

-con

trol

ling

inte

rest

- -

- -

- -

(435

,508

,790

) (4

35,5

08,7

90)

Tran

sfer

red

to re

serv

e fu

nd -

72,

959,

977

- -

(72,

959,

977)

- -

Tota

l tra

nsac

tions

with

ow

ners

, rec

ogni

sed

dire

ctly

in e

quity

-

- -

- 2

63,1

49,5

36

263

,149

,536

(1

10,7

93,1

75)

152

,356

,361

As a

t 31

Mar

ch 2

017

2,8

80,0

00,0

00

266

,020

,101

(1

,010

,688

,724

) 7

5,19

0,72

9 1

,074

,091

,447

3

,284

,613

,552

1

,892

,633

,768

5

,177

,247

,320

Figu

res

in b

rack

ets

indi

cate

s de

duct

ions

. Th

e ac

coun

ting

polic

ies

and

note

s fr

om p

ages

68

to 1

36 fo

rm a

n in

tegr

al p

art o

f the

se fi

nanc

ial s

tate

men

ts.


65

In LKR Stated capital

Available for salereserve

Retained earnings

Total

As at 01 April 2015 2,880,000,000 (1,953,928) 108,498,378 2,986,544,450

Profit for the year - - 28,192,795 28,192,795

Other comprehensive income - (917,179) - (917,179)

Total comprehensive income - (917,179) 28,192,795 27,275,616

As at 31 March 2016 2,880,000,000 (2,871,107) 136,691,173 3,013,820,066

Profit for the year - - 475,577,458 475,577,458

Other comprehensive income - 10,753 - 10,753

Total comprehensive income - 10,753 475,577,458 475,588,211

Dividend paid - - (344,080,000) (344,080,000)

As at 31 March 2017 2,880,000,000 (2,860,354) 268,188,631 3,145,328,277

Figures in brackets indicates deductions. The accounting policies and notes from pages 68 to 136 form an integral part of these financial statements.

STATEMENTS OF CHANGES IN EQUITY - COMPANY

Att

ribut

able

to e

quity

hol

ders

of t

he p

aren

t N

onCo

ntro

lling

In

tere

st

Tot

aleq

uity

In

LKR

Sta

ted

capi

tal

Res

erve

fu

nd A

vaila

ble

for s

ale

rese

rve

Rev

alua

tion

Rese

rve

Ret

aine

d ea

rnin

gs

Tota

l

As a

t 01

Apri

l 201

5 2

,880

,000

,000

7

3,66

2,85

8 3

5,93

9,06

5 -

413

,961

,626

3

,403

,563

,549

2

,619

,260

,988

6

,022

,824

,537

Pr

ior y

ear a

djus

tmen

t (no

te 4

2)

- 4

5,60

5,11

0 -

- (1

65,0

57,1

01)

(119

,451

,991

) (1

41,1

93,2

55)

(260

,645

,246

)As

at 0

1 Ap

ril 2

015,

as

rest

ated

2,8

80,0

00,0

00

119

,267

,968

3

5,93

9,06

5 -

248

,904

,525

3

,284

,111

,558

2

,478

,067

,733

5

,762

,179

,291

Profi

t for

the

year

from

Con

tinui

ng O

pera

tions

- -

- -

559

,427

,403

5

59,4

27,4

03

396

,874

,377

9

56,3

01,7

80

Oth

er c

ompr

ehen

sive

inco

me

for t

he y

ear f

rom

Con

tinui

ng

Ope

ratio

ns -

- (7

93,4

32,8

83)

54,

617,

644

5,3

11,5

57

(733

,503

,682

) (5

12,4

83,9

51)

(1,2

45,9

87,6

33)

Tota

l com

preh

ensi

ve in

com

e fr

om C

ontin

uing

Ope

ratio

ns -

- (7

93,4

32,8

83)

54,

617,

644

564

,738

,960

(1

74,0

76,2

79)

(115

,609

,574

) (2

89,6

85,8

53)

Profi

t for

the

perio

d fr

om D

isco

ntin

ued

Ope

ratio

ns -

- -

- (4

2,91

9,54

2) (4

2,91

9,54

2) (2

9,59

5,09

8) (7

2,51

4,64

0)O

ther

com

preh

ensi

ve in

com

e fo

r the

per

iod

from

D

isco

ntin

ued

Ope

ratio

ns -

- (1

12,7

81,0

75)

- (3

,050

,822

) (1

15,8

31,8

97)

(79,

871,

692)

(195

,703

,589

)To

tal c

ompr

ehen

sive

inco

me

from

Dis

cont

inue

d O

pera

tions

- -

(112

,781

,075

) -

(45,

970,

364)

(158

,751

,439

) (1

09,4

66,7

90)

(268

,218

,229

)

Subs

idia

ry d

ivid

end

paid

to n

on-c

ontr

ollin

g in

tere

st -

- -

- -

- (2

7,96

2,03

0) (2

7,96

2,03

0)Tr

ansf

erre

d to

rese

rve

fund

- 7

3,79

2,15

6 -

- (7

3,79

2,15

6) -

- To

tal t

rans

actio

ns w

ith o

wne

rs, r

ecog

nise

d di

rect

ly in

equ

ity

- -

- -

(63,

755,

771)

(63,

755,

771)

(19,

397,

296)

(83,

153,

067)

As a

t 31

Mar

ch 2

016

as r

esta

ted

2,8

80,0

00,0

00

193

,060

,124

(8

70,2

74,8

93)

54,

617,

644

630

,125

,194

2

,887

,528

,069

2

,205

,632

,043

5

,093

,160

,112

Prio

r ye

ar a

djus

tmen

t mad

e as

dir

ecte

d by

Insu

ranc

e Bo

ard

of S

ri L

anka

(Not

e 34

.5)

- -

- -

(222

,505

,864

) (2

22,5

05,8

64)

(153

,412

,136

) (3

75,9

18,0

00)

As a

t 31

Mar

ch 2

016,

as

rest

ated

2,8

80,0

00,0

00

193

,060

,124

(8

70,2

74,8

93)

54,

617,

644

407

,619

,330

2

,665

,022

,205

2

,052

,219

,907

4

,717

,242

,112

Profi

t for

the

year

from

Con

tinui

ng O

pera

tions

- -

- -

582

,504

,658

5

82,5

04,6

58

524

,422

,086

1

,106

,926

,744

O

ther

com

preh

ensi

ve in

com

e fo

r the

yea

r fro

m C

ontin

uing

O

pera

tions

- -

(183

,551

,272

) 2

0,57

3,08

5 (1

0,55

4,12

1) (1

73,5

32,3

08)

(122

,147

,197

) (2

95,6

79,5

05)

Tota

l Com

preh

ensi

ve In

com

e fr

om C

ontin

uing

Ope

ratio

ns -

- (1

83,5

51,2

72)

20,

573,

085

571

,950

,537

4

08,9

72,3

50

402

,274

,889

8

11,2

47,2

39

Profi

t for

the

perio

d fr

om D

isco

ntin

ued

Ope

ratio

ns -

- -

- 2

48,4

12,0

20

248

,412

,020

(4

5,30

4,41

4) 2

03,1

07,6

06

Oth

er c

ompr

ehen

sive

inco

me

for t

he p

erio

d fr

om

Dis

cont

inue

d O

pera

tions

- -

43,

137,

441

- -

43,

137,

441

29,

745,

351

72,

882,

792

Tota

l Com

preh

ensi

ve In

com

e fr

om D

isco

ntin

ued

Ope

ratio

ns -

- 4

3,13

7,44

1 -

248

,412

,020

2

91,5

49,4

61

(15,

559,

063)

275

,990

,398

Div

iden

d Pa

id -

- -

- (3

44,0

80,0

00)

(344

,080

,000

) -

(344

,080

,000

)Su

bsid

iary

div

iden

d pa

id to

non

-con

trol

ling

inte

rest

- -

- -

- -

(435

,508

,790

) (4

35,5

08,7

90)

Tran

sfer

red

to re

serv

e fu

nd -

72,

959,

977

- -

(72,

959,

977)

- -

Tota

l tra

nsac

tions

with

ow

ners

, rec

ogni

sed

dire

ctly

in e

quity

-

- -

- 2

63,1

49,5

36

263

,149

,536

(1

10,7

93,1

75)

152

,356

,361

As a

t 31

Mar

ch 2

017

2,8

80,0

00,0

00

266

,020

,101

(1

,010

,688

,724

) 7

5,19

0,72

9 1

,074

,091

,447

3

,284

,613

,552

1

,892

,633

,768

5

,177

,247

,320

Figu

res

in b

rack

ets

indi

cate

s de

duct

ions

. Th

e ac

coun

ting

polic

ies

and

note

s fr

om p

ages

68

to 1

36 fo

rm a

n in

tegr

al p

art o

f the

se fi

nanc

ial s

tate

men

ts.

66


STATEMENTS OF CASH FLOWS

Group CompanyFor the Year ended 31 March Note 2017 2016 2017 2016

In LKR Restated

Cash flow from operating activities

Profit before tax from continuing operations 1,274,144,007 987,753,724 475,619,600 28,216,790

Profit/(loss) before tax from discontinued operations 37 (109,589,289) (103,169,864) - -

Profit before tax 1,164,554,718 884,583,860 475,619,600 28,216,790

Adjustments for

Dividend income 12 (85,479,401) (103,744,742) (584,421,541) (66,020,158)

Profit on disposal of property, plant and equipment 15 (4,938,187) (12,052,248) 44,652 -

Loss on disposal of vehicles - 1,869,242 - -

Fair Value Gain/(loss) 10, 11 (36,278,284) (186,755,568) - -

Impact on derivative financial instruments - 3,096,356 - 3,096,356

Amortization of intangible assets 25 144,247,510 149,480,625 - 571,263

Impairment / derecognition of property, plant and equipments 24 (127,117) - - -

Interest expenses 13 2,487,157,687 2,083,896,430 172,324,026 93,557,356

Gratuity provision and related costs 35 26,359,067 22,647,519 - -

Impairment of Loans and Receivable 14 368,754,483 711,845,582 - -

Impairment of Brand Name 25 67,349,400 -

Depreciation 24 155,137,091 154,956,428 119,765 199,106

Operating profit before working capital changes 4,286,736,967 3,709,823,484 63,686,502 59,620,713

(Increase)/decrease in inventories 389,411,200 113,619,461 - -

(Increase)/decrease in amounts due form related companies - - (402,084) 514,101

(Increase)/decrease in other non financial assets 265,761,543 (148,423,830) (1,355,226) 7,148,380

(Increase)/decrease in Financial Assets - Fair value through profit or loss 71,545,349 132,920,828 - -

(Increase)/decrease in Financial Assets - Available for sale at fair value (136,960,081) (1,366,768,060) - -

(Increase)/decrease in Financial Assets - Loans and receivables (5,169,946,565) (5,586,858,994) - -

(Increase)/decrease in Financial Assets - Held to maturity (5,379,751) 1,479,306,730 - -

(Increase)/decrease in Lease and hirepurchase receivables 494,913,917 1,638,643,159 - -

Increase/(decrease) in trade payables 879,317,628 (38,459,003) - -

Increase /(decrease) in amount due to related companies 294,971 473,763 (473,763) 473,763

Increase /(decrease) in Other non financial liabilities (5,730,952) (273,378,185) 1,102,660 196,067

Increase/(decrease) in insurance provision - Life 82,448,883 1,028,927,838 - -

Increase/(decrease) in public deposits 2,044,339,192 1,942,540,735 - -

Cash generated from operations 3,196,752,302 2,632,367,927 62,558,088 67,953,024


67

Group CompanyFor the Year ended 31 March Note 2017 2016 2017 2016

In LKR Restated

Tax paid (154,908,181) (29,470,940) (42,142) (23,995)

Interest paid (2,487,157,687) (2,083,896,430) (172,324,026) (93,557,356)

Gratuity paid (11,483,723) (7,941,903) - -

Net cash generated from / (used in) operations 543,202,711 511,058,654 (109,808,080) (25,628,327)

Cash flows from investing activities

Dividend Income 12 85,479,401 103,744,742 584,350,742 66,020,158

Investment in subsidiaries (2,602,849) (371,245,352) (2,602,849) (371,245,352)

Proceeds from non controlling interest - 288,092,285 - -

Proceeds from disposal of subsidiary 1,313,736,227 -

Proceeds on disposal of property, plant and equipment 49,431,599 25,235,432 174,357 -

Purchase of property, plant and equipment and intangible assets (261,293,948) (224,467,406) -

Net cash (used in) / generated from investing activities 1,184,750,430 (178,640,299) 581,922,250 (305,225,195)

Cash flows from financing activities

Dividend paid (344,080,000) - (344,080,000) -

Subsidiary dividend paid to non-controlling interest (435,508,790) (27,962,030) - -

Proceeds from/repayment of borrowings (416,762,478) (715,502,803) 177,292,698 279,412,981

Net cash used in /generated from financial activities (1,196,351,268) (743,464,832) (166,787,302) 279,412,981

Net Increase/(Decrease) in cash and cash equivalents 531,601,873 (411,046,477) 305,326,868 (51,440,540)

Cash and cash equivalents at the beginning of the year (550,112,395) (139,065,918) (270,960,354) (219,519,814)

Cash and cash equivalents at the end of the Year - Continuing Operations (Note A) (18,510,521) (550,112,395) 34,366,513 (270,960,354)

Net Cash Flows from Discontinued Operations

Cash and cash equivalents

Cash and bank balances 1,209,502,700 800,411,100 40,284,332 40,362,714

Bank Overdrafts (1,228,013,221) (1,350,523,495) (5,917,819) (311,323,068)

(18,510,521) (550,112,395) 34,366,513 (270,960,354)


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NOTES TO THE FINANCIAL STATEMENTS

1. CORPORATE INFORMATION1.1 Reporting Entity Softlogic Capital PLC (the “Company”) is a public limited liability company incorporated and domiciled in Sri Lanka. The registered office and principal place of business of the Company is located at No 14, De Fonseka Place, Colombo 05. Ordinary shares of the company are listed on the Colombo stock exchange.

1.2 Consolidated Financial Statements The Financial statements for the year ended 31st March 2017, comprise “the company” referring to Softlogic Capital PLC, as the holding company “The Group” referring to the companies that have been consolidated therein.

1.3 Approval of the Financial StatementsThe Financial Statements for the year ended 31 March 2017 were authorized for issue by the Board of Directors on 10 July 2017.

1.4 Responsibility for financial statementsThe responsibility of the Board of Directors in relation to the financial statements is set out in the Statement of Directors’ Responsibility report in the Annual report.

1.5 Statements of complianceThe financial statements which comprise the income statement, statement of comprehensive income, statement of financial position, statement of changes in equity and the statement of cash flows, together with the accounting policies and notes (the “financial statements”) have been prepared in accordance with Sri Lanka Accounting Standards (SLFRS/ LKAS) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and in compliance with the Companies Act No. 7 of 2007.

1.6 Principal activities and nature of operationsThe principal activities of the Company and its subsidiaries (together referred to as the “Group”) are Investment Management, Insurance, leasing, hire purchase, granting loans, pawn broking, Stock Brokering and providing management consultancy and financial advisory services.

1.7 Parent enterprise & ultimate parent enterpriseIn the opinion of the Directors the parent and ultimate parent undertaking and controlling party is Softlogic Holdings PLC, which is incorporated Sri Lanka.

2. BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES2.1 Basis of preparationThe consolidated financial statements have been prepared on an accrual basis and under the historical cost convention except for land and buildings, derivative financial instruments, fair value through profit or loss financial assets and available-for-sale financial assets that have been measured at fair value.

2.1.1 Functional and presentation currencyThe consolidated financial statements are presented in Sri Lankan Rupees (LKR), which is the primary economic environment in which the holding Company operates. Each entity in the Group uses the currency of the primary economic environment in which they operate as their functional currency.

2.1.2 Going ConcernThe Directors have made an assessment of the Group’s ability to continue as a going concern and they do not intend either to liquidate or to cease operations.

2.1.3 Comparative InformationThe presentation and classification of the financial statements of the previous years have been amended, where relevant for better presentation and to be comparable with those of the current year.

An additional statement of financial position as at 01 April 2015 is presented in these financial statements due to the error correction retrospectively.

2.1.4 Basis of consolidation(a) SubsidiariesSubsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.

The group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets.

Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with LKAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the group’s accounting policies.

(b) Changes in ownership interests in subsidiaries without change of controlTransactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded


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in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(c) Disposal of subsidiariesWhen the group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

Softlogic Finance PLC (SF), Softlogic Life Insurance PLC (SLI), Softlogic Stockbrokers (Pvt) Ltd (SSB) & Capital Reach Portfolio Management (Pvt) Ltd (CRPM) have been included in the consolidated financial statements using an acquisition method of accounting. Accordingly consolidated financial statements include the results of SF, SLI, SSB & CRPM for the year ended 31st March 2017.

2.1.5 Segment ReportingOperating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions.

2.1.6 Foreign currency translation(a) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or cost’. All other foreign exchange gains and losses are presented in the income statement within ‘other (losses)/gains - net’.

Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income.

2.1.7 Sri Lanka Accounting Standards issued but not yet effective as at 31st March 2017 The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

SLFRS 9 – Financial InstrumentsSLFRS 9 replaces the existing guidance in LKAS 39 Financial Instruments: Recognition and Measurement. SLFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from LKAS 39.

SLFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

SLFRS 15 – Revenue from contracts with customersSri Lanka Accounting Standard SLFRS 15 – (Revenue from Contracts with Customers) establishes a comprehensive framework for

determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including Sri Lanka Accounting Standard LKAS 18 – (Revenue), Sri Lanka Accounting Standard LKAS 11 – (Construction Contracts) and IFRIC 13 (Customer Loyalty Programmes). Sri Lanka Accounting Standard SLFRS 15 – (Revenue from Contracts with Customers) is effective for annual reporting periods beginning on or after 1st January 2018, with early adoption permitted.

SLFRS 16 – LeasesSri Lanka Accounting Standard SLFRS 16 – Leases provides a single lessee accounting model, requiring leases to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value even though lessor accounting remains similar to current practice. Those currently classified as operating leases will create on balance sheet long-term asset and lease creditor. This supersedes: Sri Lanka Accounting Standard LKAS 17 – Leases, IFRIC 4 determining whether an arrangement contains a Lease, SIC 15 Operating Leases - Incentives; and SIC 27 Evaluating the substance of Transactions Involving the legal form of a lease. Earlier application is permitted for entities that apply Sri Lanka Accounting Standard SLFRS 15 –Revenue from Contracts with Customers. Sri Lanka Accounting Standard SLFRS 16 – Leases is effective for annual reporting periods beginning on or after 1st January 2019.

The following amendments and improvements are not expected to have a significant impact on the Group’s financial statements.

LKAS 7 Disclosure Initiative – Amendments to LKAS 7The amendments to LKAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of amendments will result in additional disclosure provided by the Group.

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Notes to the Financial Statements

LKAS 12 Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to LKAS 12The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

SLFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to SLFRS 2

The Institute of chartered Accountants issued amendments to SLFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted.

2.2 Significant accounting judgmentsThe Group’s consolidated financial statements and its financial result are influenced by accounting policies, assumptions, estimates and management judgement, which necessarily have to be made in the course of preparation of the consolidated financial statements.

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next reporting period. All estimates and assumptions required in conformity with SLFRS are best estimates undertaken in accordance with the applicable standard.

Estimates and judgements are evaluated on a continuous basis, and are based on past experience and other factors, including

expectations with regard to future events. Accounting policies and management’s judgements for certain items are especially critical for the Group’s results and financial situation due to their materiality.

a. Impairment Losses on Lease and Hire Purchase Receivables and Loans and ReceivablesThe Group reviews it’s individually significant Leases, Hire Purchase, Loans and Receivables at each reporting date to assess whether an impairment loss should be recorded in the Statement of profit or loss. In particular, management judgement is required in the estimation of the amount and timing of future cash flow when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ from the estimate, resulting in future changes to the allowance.

Leases, Hire Purchase, Loans and Receivables that have been assessed individually and found not to be impaired and all insignificant Leases, Hire Purchase, Loans and Receivables are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment take account of data from the Leases, Hire Purchase, Loans and Receivables portfolio (such as level of arrears, characteristics of assets, evaluations by marketing staff etc.).

b. Impairment of available-for-sale equity investmentsThe Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. In making this judgement, the Group evaluates among other factors, the volatility in share price. In addition, objective evidence of impairment may be deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows.

Had all the declines in fair value below cost been considered significant or prolonged, the Group would have recognized an additional loss in its consolidated financial statements.

c. Fair value of financial instrumentsThe fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, the fair values are estimated from observable data in respect of similar financial instruments or using models. Where market observable inputs are not available, they are estimated based on appropriate assumptions

d. Held-to-maturity investmentsIn accordance with LKAS 39 guidance, the Group classifies some non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the Group evaluates its intention and ability to hold such investments to maturity. If the Group were to fail to keep these investments to maturity other than for the specific circumstances – for example, selling an insignificant amount close to maturity – the Group is required to reclassify the entire category as Available for Sale. Accordingly, the investments would be measured at fair value instead of amortized cost.

e. Deferred tax assetsDeferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

f. Income TaxThe Group is subject to income taxes and other taxes. Significant judgment was required to determine the total provision for current, deferred and other taxes.

g. Useful life-time of the Property, plant and equipmentThe Group reviews the residual values, useful lives and methods of depreciation of assets at each reporting date. Judgment of the management estimate these values, rates, methods and hence they are subject to uncertainty.

h. Fair value of Land and BuildingsLand and buildings are measured at fair value less accumulated depreciation


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on buildings and impairment losses are recognised after the date of the revaluation. Valuations are performed every two years to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

i. Defined Benefit PlansThe cost of defined benefit plans are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates etc. Refer Note No 2.3.9 to understand how these rates have been determined.

j. Valuation of Insurance Contract Liabilities – Life InsuranceThe valuation of the Long Term insurance business as at 31 March 2017 was carried out by the Consultant Actuary.

All Life Insurance contracts are subject to the Liability Adequacy Test (LAT) as required by SLFRS 4 – Insurance Contracts. The LAT was carried out by Mr. Kunj Behari Maheshwari, FIA, FIAI, of Messrs. Wills Towers Watson.

k. Valuation of Insurance Contract liabilities – General InsuranceFor General Insurance contracts, estimates have to be made both for the expected ultimate cost of claims reported at the Reporting Date and for the expected ultimate cost of claims incurred, but not yet reported, at the Reporting Date (IBNR). It can take a significant period of time before the ultimate claims cost can be established with certainty. The main assumption underlying estimating the amounts of outstanding claims is the past claims development experience. Large claims are usually separately addressed, either by being reserved at the face value of loss adjuster estimates or separately projected in order to reflect their future development. In most cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. All General Insurance contracts are subject to a Liability Adequacy Test (LAT). The LAT was carried out by Messrs. NMG Consulting Pte Ltd, Singapore.

l. Deferred Acquisition Cost (DAC)An impairment review is performed on DAC at each Reporting Date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss

is recognised in the Income Statement. No such indication of impairment was experienced during the year.

DAC is derecognised when the related contracts are either settled or disposed of.

2.3 Summary of significant accounting policies2.3.1 Property, plant & equipmentBasis of recognitionProperty plant & equipment are recognised if it is probable that future economic benefits associates with the assets will flow to the group and the cost of the asset can be reliabily measured.

Basis of measurementLand and buildings are shown at fair value, based on valuations by external independent valuers, less subsequent depreciation for buildings. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as other reserves in shareholders’ equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against other reserves directly in equity; all other decreases are charged to the income

statement. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the income statement, and depreciation based on the asset’s original cost is transferred from ‘other reserves’ to ‘retained earnings’.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:

Buildings 20 Years

Furniture and fittings 10 Years /5 Years

Computers and printers 5 Years

Office equipment 5 Years

Motor vehicles 4 Years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘Other (losses)/gains – net’ in the income statement.

When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings.

2.3.2 LeasesLeases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

The group leases certain property, plant and equipment. Leases of property, plant and equipment where the group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

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Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other longterm payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.

2.3.3 Intangible assets(a) GoodwillGoodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognised directly in the income statement.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs, or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.

(b) Trademarks and licensesSeparately acquired trademarks and licenses are shown at historical cost. Trademarks and licenses acquired in a business combination are recognised at fair value at the acquisition date. Trademarks and licenses have a infinite useful life.

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives which does not exceed four years.

(c) Computer softwareCosts associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the group are recognised as intangible assets when the following criteria are met:

• it is technically feasible to complete the software product so that it will be available for use;

• management intends to complete the software product and use or sell it;

• there is an ability to use or sell the soft-ware product;

• it can be demonstrated how the software product will generate probable future economic benefits;

• adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

• the expenditure attributable to the soft-ware product during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software product include

the software development employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred.

Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed four years.

(d) Present Value of acquired in-force long term Insurance Business (PVIB) The present value of future profits on a portfolio of long term life insurance contracts as at the acquisition date of Asian Alliance Insurance PLC is recognized as an intangible asset based on a valuation carried out by an independent actuary. Subsequent to initial recognition, the intangible asset is carried at cost less accumulated amortization and accumulated impairment losses.

The PVIB is amortized over the average useful life of the related contracts in the portfolio. The amortization charge and any impairment losses would be recognized in the consolidated income statement as an expense.

A summary of the policies applied to the Group’s intangible assets is as follows:

In-force Long-term Insurance Business

Brand Name Computer Software

Stock-Broker License

Useful lives Finite Infinite Finite Infinite

Method used Based on the tenure of existing policies

- 4 years -

Internally generated or acquired

Acquired Acquired Acquired Acquired

Impairment testing

When & where an indication of impairment exists

Annually & when & where an indication of impairment exists

When & where an indication of impairment exists

Annually & when & where an indication of impairment exists


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2.3.4 Impairment of non-financial assetsIntangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal at each reporting date.

2.3.5 Financial assets and liabilitiesIn accordance with LKAS 39, all financial assets and liabilities – which include derivative financial instruments – have to be recognised in the statement of financial position and measured in accordance with their assigned category

2.3.5.1 Financial assetsThe Company allocates financial assets to the following LKAS 39 categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the classification of its financial instruments at initial recognition.

(a) Financial assets at fair value through profit or lossFinancial instruments included in this category are recognized initially at fair value; transaction costs are taken directly to the income statement. Gains and losses arising from changes in fair value are included directly in the income statement and are reported as ‘Net gains/(losses) on financial instruments classified as held for trading’. Interest income and expense and dividend income and expenses on financial assets held for trading are included in ‘Net interest income’ or ‘Dividend income’, respectively. The instruments are derecognized when the rights to receive cash flows have expired or the Group has transferred substantially all the risks and rewards of ownership and the transfer qualifies for derecognising.

Financial assets for which the fair value option is applied are recognized in the

statement of financial position as ‘Financial assets designated at fair value’. Fair value changes relating to financial assets designated at fair value through profit or loss are recognized in ‘Net gains on financial instruments designated at fair value through profit or loss’.

(b) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

• those that the Group intends to sell imme-diately or in the short term, which are clas-sified as held for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss;

• those that the Group upon initial recogni-tion designates as available- for- sale; or

• those for which the holder may not recov-er substantially all of its initial investment, other than because of credit deterioration.

Loans and receivables are initially recognised at fair value – which is the cash consideration to originate or purchase the loan including any transaction costs – and measured subsequently at amortised cost using the effective interest rate method. Loans and receivables are reported in the statement of financial position as loans and advances to banks or customers or as investment securities. Interest on loans is included in the income statement and is reported as ‘Interest and similar income’. In the case of impairment, the impairment loss is reported as a deduction from the carrying value of the loan and recognised in the income statement as ‘Loan impairment charges.

They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.

(c) Held-to-maturity financial assetsHeld-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity, other than:

• those that the Group upon initial recog-nition designates as at fair value through profit or loss;

• those that the Group designates as availa-ble for sale; and

• those that meet the definition of loans and receivables.

Interest on held-to-maturity investments is included in the statement of comprehensive income statement and reported as ‘Interest and similar income’. In the case of an impairment, the impairment loss is been reported as a deduction from the carrying value of the investment and recognised in the statement of comprehensive income statement as ‘Net gains/(losses) on investment securities’.

(d) Available-for-sale financial assetsAvailable-for-sale investments are financial assets that are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, or equity prices or that are not classified as loans and receivables, held-to- maturity investments or financial assets at fair value through profit or loss.

Available-for-sale financial assets are initially recognised at fair value, which is the cash consideration including any transaction costs, and measured subsequently at fair value with gains and losses being recognised as a part of equity, except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognised. If an available-for-sale financial asset is determined to be impaired, the cumulative gain or loss previously recognised in the statement of other comprehensive income is recognised in the income statement. However, interest is calculated using the effective interest method, and foreign currency gains and losses on monetary assets classified as available for sale are recognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement in ‘Dividend income’ when the Group’s right to receive payment is established. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.

2.3.5.2 Reclassification of Financial assetsThe Group may reclassify financial assets within the frame work of LKAS 39 at the election of management.

01. Reclassify FVTPL financial assets other than those designated at FVTPL upon

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initial recognition, only in limited circum-stances as per para 50B or 50D of LKAS 39 Out of the FVTPL category and into the available for sale, loans and receivable or held to maturity.

02. As per para 50E of LKAS 39, a financial asset classified as available for sale may be reclassified out of the available for sale cat-egory to loans and receivable if the entity has the intention and ability to hold the financial asset for the foreseeable future.

2.3.5.3 Derivative financial instruments Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re measured at their fair value. The method of recognising the resulting gain or loss depends on the whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives either,

(a) Hedges of the fair value of recognised assets or liabilities or a firm commitment (Fair value hedge)

(b) Hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (Cash flow hedge)

(c) Hedges of a net investment in a foreign operation (Net investment hedge)

The group documents at the inception of the transaction the relationship between hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking various hedging transactions. The company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

2.3.5.4 Financial liabilitiesThe Group’s holding in financial liabilities is in financial liabilities at Fair Value Through Profit or Loss and financial liabilities at amortized cost. Financial liabilities are derecognized when extinguished.

All financial liabilities are recognized initially at fair value and in the case of borrowings, plus directly attributable transaction costs.

The Group’s financial liabilities include borrowings, public deposits, derivative

financial instruments, trade and other payables and bank overdrafts.

Financial liabilities at Fair Value Through Profit or LossFinancial liabilities at FVTPL include financial liabilities held-for-trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at FVTPL are measured at fair value, and changes there in recognized in profit or loss. Upon initial recognition, transaction cost are directly attributable to the acquisition are recognised in profit or loss as incurred. The criteria for designation of financial liabilities at FVTPL upon initial recognition are the same as those of financial assets at FVTPL.

Financial liabilities measured at amortized costFinancial liabilities that are not classified as at fair value through profit or loss fall into this category and are subsequently measured at amortized cost. Financial liabilities measured at amortized cost are deposits from customers and debt securities in issue for which the fair value option is not applied.

2.3.5.5 Determination of fair value For financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

For all other financial instruments, fair value is determined using valuation techniques. In these techniques, fair values are estimated from observable data in respect of similar financial instruments, using models to estimate the present value of expected future cash flows or other valuation techniques, using inputs existing at the reporting dates for more complex instruments, the Group uses internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry.

The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation

techniques employed may not fully reflect all factors relevant to the positions the Group holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risks, liquidity risk and counterparty credit risk.

Based on the established fair value model governance policies, and related controls and procedures applied, management believes that these valuation adjustments are necessary and appropriate to fairly state the values of financial instruments carried at fair value in the statement of financial position. Price data and parameters used in the measurement procedures applied are generally reviewed carefully and adjusted, if necessary – particularly in view of the current market developments.

In cases when the fair value of unlisted equity instruments cannot be determined reliably, the instruments are carried at cost less impairment. The fair value for loans and advances as well as liabilities to banks and customers are determined using a present value model on the basis of contractually agreed cash flows, taking into account credit quality, liquidity and costs.

The fair values of contingent liabilities and irrevocable loan commitments correspond to their carrying amounts.

2.3.5.6 Recognition of differed day one profit and lossThe best evidence of fair value at initial recognition is the transaction price (that is, the fair value of the consideration given or received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (that is, without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.

The Group has entered into transactions, some of which will mature after significant period of time, where fair value is determined using valuation models for which not all inputs are market observable prices or rates. Such financial instruments are initially recognised at the transaction price, although the value obtained from the relevant valuation model may differ. The difference between the transaction price and the model value, commonly referred to as ‘day one profit and loss’, is not recognised immediately in the income statement.


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The timing of recognition of deferred day one profit and loss is determined individually. It is either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable inputs, or realised through settlement. The financial instrument is subsequently measured at fair value, adjusted for the deferred day one profit and loss. Subsequent changes in fair value are recognised immediately in the income statement without immediate reversal of deferred day one profits and losses.

2.3.5.7 Derecognition of financial instrumentsFinancial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred. Financial liabilities are derecognised when they have been redeemed or otherwise extinguished.

Collateral furnished by the Group under standard repurchase agreements and securities lending and borrowing transactions is not derecognised because the Group retains substantially all the risks and rewards on the basis of the predetermined repurchase price, and the criteria for derecognition are therefore not met. This also applies to certain securitisation transactions in which the Group retains a portion of the risks.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange o modification is treated as a derecognition of the original liability and the recognition of a new liability and the difference in the respective carrying amounts is recognised in the Income Statement.

Investment sold together with a deep in the money put option are not derecognised from the Statement of Financial Position as the Group retains substantially all of the risks and rewards o ownership. The corresponding cash received is recognised in the consolidated Statement of Financial Position as an asset with a corresponding obligation to return it, including accrued

interest as financial liability, reflecting the transaction’s economic substance as a loan to the Group. The difference between the sale and put option exercise price is treated as interest expense and is accrued over the life of agreement using the EIR.

2.3.6 Impairment of financial assetsThe Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

a. Financial assets carried at amortized costFor financial assets carried at amortized cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at

the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

Individual assessment of loans and receivable for impairmentThe Company first assess individually whether objective evidence of impairment exists for financial assets that are individually significant

The criteria used to determine whether there is objective evidence of impairment include:

– Known cash flow difficulties experienced by the borrower

– Past due contractual payments of either principal or interest

– Breach of loan covenants or conditions

– The probability that the borrower will enter bankruptcy or other financial realizations, and

– Legal action instigated against the borrower.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred).This encompasses re assessment of the enforceability of any collateral held and the timing and amount of actual and anticipated receipts. The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised

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or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to income statement.

Collective assessment of impairmentCollective impairment is based on the statistical model of net flow rate method which takes in to consideration of all historical loss experience in similar credit risk and it is based on the customer credit risk patterns. Based on the asset type total portfolio has segmented into similar credit risk groups. Under this methodology the movements in the outstanding balances of customers in to arrears buckets over the periods are used to estimate the amount of loans that will eventually be written off as a result of the events occurring before the balance sheet date which the Company is not able to identify on an individual loan basis, and that can be reliably estimated. In arriving at ultimate loss ratios Company has considered the past trend in collateral realization and management judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical data.

Under above methodology, loans are grouped in to ranges according to the number of days in arrears and statistical analysis is used to estimate the likelihood that loans in each range will progress through the various stages of delinquency and ultimately prove irrecoverable.

Write off of loans and advancesThe Group write offs certain loans and advances when they are determined to be uncollectible.

b. Available-for-sale financial investmentsFor available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the

period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated income statement— is removed from other comprehensive income and recognized in arriving the net income for the period. Impairment losses on equity investments are not reversed through the consolidated income statement; increases in their fair value after impairments are recognized directly in other comprehensive income.

In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated income statement.

Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated income statement, the impairment loss is reversed in arriving net income for the period.

2.3.7 Insurance and Investments Contracts SLFRS 4 – Insurance Contracts, requires contracts written by insurer to be classified as either “Insurance” or “Investment” depending on the level of insurance risk transferred.

2.3.7.1 Product classification Insurance ContractsSLFRS 4 requires contracts written by insurers to be classified as either “insurance contracts” or “investment contracts” depending on the level of insurance risk transferred.

Insurance contracts are contracts under which one party (the Insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain

future event (the insured event) adversely affects the policyholder. Significant insurance risk exists if an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance (i.e. have no discernible effect on the economics of the transaction). The classification of contracts identifies both the insurance contracts that the company issues and reinsurance contracts that the company holds.

The classification of contracts identifies both the insurance contracts that the company issues and reinsurance contracts that the company holds.

Investment ContractsInvestment contracts are those contracts that transfer financial risk with no significant insurance risk.

Financial risk is the risk of a possible future change in one or more of a specified interest rate, price of the financial instrument, commodity price, foreign exchange rate, index of price or rates, credit rating or credit index or other variable, provided in the case of a non financial variable that the variable is not specific to a party to the contract.

Subsequent ClassificationOnce a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if insurance risk becomes significant. Insurance and investment contracts are further classified as being either with or without discretionary participating features (“DPF”).

Discretionary Participating Features (DPF)DPF is a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are:

(a) Likely to be a significant portion of the total contractual benefits;

(b) The amount or timing of which is contractually at the discretion of the issuer;

(c) That are contractually based on:

The performance of a specified pool of contracts or a specified type of contract


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Realised and or unrealised investment returns on a specified pool of assets held by the issuer

The profit or loss of the company, fund or other entity that issues the contract

Derivatives embedded in an insurance contract or an investment contract with DPF are separated and fair valued Statement of Income unless the embedded derivative itself is an through the insurance contract or investment contract with DPF. The derivative is also not separated if the host insurance contract and/or investment contract with DPF is measured at fair value through the income statement.

IBSL regulations and the terms and conditions of these contracts set out the bases for the determination of the amounts on which the additional discretionary benefits are based (the DPF eligible surplus) and within which the company may exercise its discretion as to the quantum and timing of their payment to contract holders. At least 90% of the eligible surplus must be attributed to contract holders as a group (which can include future contract holders) and the amount and timing of the distribution to individual contract holders is at the discretion of the company, subject to the advice of the appointed actuary. All DPF liabilities including unallocated surpluses, both guaranteed and discretionary, at the end of the reporting period are held within insurance contract liabilities, as appropriate.

Product Portfolio of the GroupAll product sold by the Group are insurance contracts and therefore classified as Insurance Contracts thus the Group does not have any investment contracts within its portfolio as at reporting date.

2.3.8 Reinsurance Receivables The Group cedes insurance risk in the normal course of business for all of its businesses. Reinsurance receivables represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contract.

These assets consist of short-term balances due from reinsurers that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts.

2.3.9 Premium Receivable Insurance receivables from General Insurance are recognised when due and measured on initial recognition at the fair value of the consideration receivable. Collectability of premiums is reviewed on an ongoing basis. According to the Premium Payment Warranty (PPW) directive issued by the Insurance Board of Sri Lanka (IBSL), all general insurance policies are issued subject to PPW and are cancelled upon the expiry of 60 days if not settled.

Due Life Insurance premiums (only the premiums due in the 30 day grace period) are recognized at each Reporting Date and will be reversed if the premiums are not settled during the subsequent month, and thus the policies will be lapsed as per the Company policy.

2.3.10 Deferred acquisition costs (DAC) Deferred acquisition costs comprise commissions and other variable costs directly connected with acquisition or renewal of insurance contracts, are deferred to the extent that these costs are recoverable out of future premiums. All other acquisition costs are recognised as an expense when incurred. DAC is not calculated for Life Insurance Contracts as the acquisition costs are incurred in line with the revenues earned.

DAC is amortised over the period in which the related revenues are earned. In line with the available regulatory guidelines from the Insurance Board of Sri Lanka (IBSL), the DAC is calculated based on the 1/365th basis for non marine and 60:40 basis for marine class. The re-insurers share of deferred acquisition costs is amortised in the same manner as the unearned premium reserve is amortised. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period and are treated as a change in an accounting estimate.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. DAC is reviewed for recoverability based on the profitability of the underlying insurance contracts and when the recoverable amount is less than the carrying value, an impairment loss is recognised in the Statement of Income.

DAC are derecognised when the related contracts are either settled or disposed.

2.3.11 Reinsurance Commission - Unearned commission reserve (UCR) - General Commissions receivable on outwards reinsurance contracts are deferred and amortised on a straight line basis over the term of the expected premiums payable.

2.3.12 Lease rentals receivable and hire purchase rentals receivable Assets leased to customers under agreements, which transfer substantially all the risks and rewards associated with ownership other than legal title, are classified as finance leases. Lease rentals receivable in the Statement of financial position represents total minimum lease payment due, net of unearned income and provision for doubtful recoveries.

Assets sold to customers under fixed rate hire purchase agreements, which transfer all risks and rewards as well as the legal title at the end of such contractual period are classified as hire purchase rentals receivable. Such assets are accounted for similar manner as finance leases.

The accounting for lease income is on the basis of the financing method.

The excess of aggregate rental receivable over the cost of the leased assets constitutes the total income at the commencement of the contract. The unearned income is taken into account over the period of lease, commencing from the month in which the lease is executed, in proportion to the declining receivable balance of the lease.

Income arising from the residual interest on hire purchase agreements is credited to the Income Statement as it accrues in proportion to the declining receivable balance of the agreement.

However, accrual of income from leases and hire purchase agreements cease when the account is impaired specifically.

2.3.13 Other non-financial assets Inventories Inventories are valued at lower of cost and net realizable value, after making due allowances for obsolete and slow moving items. Net realizable value is the estimated price at which inventories can be sold in the ordinary course of business less the

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estimated cost of completion and the estimated cost necessary to make the sale.

The cost incurred in bringing inventories to it’s present location and conditions accounted for as follows;

Vehicle stock - at purchase cost on a specific identification basis

Real estate stocks - at purchase values of properties acquired and at value of related asset extinguished for properties repossessed and any subsequent expenditure incurred on such development including the borrowing costs up to the completion of developments

Repossessed Vehicle - based on the valuation obtained as at the date of repossession.

Consumables - at the lower of cost and net realizable value, after making due allowances for obsolete and slow moving items

Cost is determined on a weighted average basis.

Net realizable value is the price at which inventories can be sold in the ordinary course of business.

2.3.14 Cash and cash equivalents Bank balances and cash in the consolidated statement of financial position comprise cash in hand, demand deposits and liquid investments readily convertible to identified amounts of cash and subject to insignificant change in value with an original maturities of three months or less.

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consists of bank balances and cash as defined above, net of outstanding bank overdrafts.

The consolidated cash flow statement has been prepared using the indirect method.

2.3.15 Retirement benefit costs a. Defined benefit plans – gratuityAll the employees of the group are eligible for gratuity under the Gratuity Act No. 12 of 1983.The Company measures the present value of the promised retirement benefits of gratuity which is a defined benefit plan with the advice of an actuary using the Projected Unit Credit Method. The actuarial valuation

involves making assumptions about discount rate, expected rates of return on assets, future salary increases and mortality rates. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed at each reporting date.

Actuarial gains and losses arising from the experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the year in which they arise.

Past service costs are recognised immediately in income, unless the change to the pension plans is conditional on the employees remaining in service for a specified period of time (the vesting period). In this case the past service costs are amortised on straight line basis over the vesting period.

The gratuity liability is not externally funded. This item is grouped under ‘Deferred liabilities’ in the consolidated statement of financial position.

b. Defined contribution plans -Employees’ Provident Fund and Employees’ Trust FundAll Employees are eligible for Employees’ Provident Fund Contributions and Employees’ Trust Fund Contributions by the Group in line with respective statutes and regulations. The Group contributes 12% to the respective provident fund and 3% to the Employees Trust Fund of such employees’ gross emoluments.

2.3.16 Interest Bearing Borrowings Interest bearing loans are subsequently measured at amortised cost using, the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the income statement.

2.3.17 Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation

and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain the expense relating to any provision is presented in the consolidated income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and where appropriate, the risks specific to the liability. Where discounting is used the increase in the provision due to the passage of time is recognized as an interest expense in the consolidated income statement.

2.3.18 Insurance contract liabilities (a) Life insurance contract liabilitiesMeasurement Life insurance liabilities are recognised when contracts are entered into and premiums are charged. These liabilities are measured on a market consistent basis on accordance with the Solvency Margin (Risk Based Capital) Rules 2015 with effect from 01st January 2016, issued under Sections 105 and 26 (1) of the Regulation of Insurance Industry Act, No. 43 of 2000. However period up to 31st December 2015, the Company used Net Premium Valuation (NPV) methodology to calculated insurance liability in accordance with Solvency Margin (Long Term Insurance) Rules 2002.

The value of the life insurance liabilities are determined as follows;

Life insurance liabilities = Best Estimate long term liability (BEL) + Risk Margin for adverse deviation (RM)

Best estimate liability is measured sum of the present value of all future best estimate cash flows calculated using risk free interest rate yield curve issued by Insurance Board of Sri Lanka (IBSL). Further A discounted cash flow approach, equivalent to Gross Premium Valuation (GPV) valuation methodology has been used to calculate the liabilities as at 31st December 2016.

Measurement is usually based on the prospective method, by determining the difference between the present values of future benefits and future premiums. The actuarial assumptions used for their calculation includes, in particular,


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assumptions relating to;• Mortality Rates• Morbidity Rates• Expense Assumptions• Lapse Ratios• Dividend Rates• Participating fund yield

Assumptions are estimated on a realistic basis at the time the insurance contracts are concluded and they include adequate provision for adverse deviation to make allowance for the risks of change and random fluctuations. Further in valuing the policy liabilities, provisions for reinsurance have been allowed for according to the applicable reinsurance terms as per current reinsurance arrangements.

There are No implicit or explicit surrender value floor has been assumed for the value of liabilities for a contract. Instead, in accordance with the guidelines, the impact of surrender value deficiency is captured in the risk charge capital calculation through the Surrender Value Capital Charge (SVCC).

De - recognition The liability is derecognised when the contract expires, is discharged or is cancelled.

At each reporting date, an assessment is made of whether the recognized life insurance liabilities are adequate net by using an existing liability adequacy test.

(b) General insurance contract liabilities Measurement General insurance contract liabilities include the outstanding claims provision (Reserve for gross outstanding and Incurred but not reported, and Incurred but not enough reported - IBNR / IBNER) and the provision for unearned premium and the provision for premium deficiency.

Gross Claims Payable including IBNRThe outstanding claims provision is based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore, the ultimate cost of these cannot be known with certainty at the reporting date. The liability is calculated at the reporting date using a range of standard actuarial claim projection techniques, based

on empirical data and current assumptions that may include a margin for adverse deviation. The liability is not discounted for the time value of money. No provision for equalisation or catastrophe reserves is recognised.

The liabilities are derecognised when the obligation to pay a claim expires, is discharged or is cancelled.

The liabilities are derecognised when the obligation to pay claim expires, is discharged or is cancelled.

IBNR reserve is decided by an independent external actuary.

Reserve for Unearned Premium (UPR) The reserve for unearned premium represents that portion of premium received or receivable that relates to risks that have not yet expired at the reporting date. The provision is recognised when contracts are entered and is brought to account as premium income over the term of the contract in accordance with the pattern of insurance service provided under the contract.

Provision for unearned premium is calculated on a 1 /365 basis except for marine / cargo class which is subject to 60 / 40 basis.

Liability Adequacy Test (LAT)At the end of each reporting period the company reviews its unexpired risk and a liability adequacy test is performed as laid out in SLFRS 4 to determine whether there is any overall excess of expected claims and deferred acquisition costs over unearned premium. The calculation uses current estimates of future cash flows after taking account of the investment return expected to arise from assets relating to the relevant general insurance technical provisions.

If the assessments show that the carrying amount of the unearned premium (less related Deferred Acquisition Costs) is inadequate, the deficiency shall be recognised in the Statement of Income by setting up a provision for liability adequacy.

Title Insurance ReserveTitle insurance reserve is maintained by the Company to pay potential claims arising from the Title Insurance policies. Title Insurance policies are normally issued for a long period such as 5 years or more. Thus, no profit is recognised in the first year of the policy

given the relatively higher probability of claims occurring in the first year. From the 2nd year onwards, profit is recognised by amortising the premium received and will be distributed throughout the remaining period of the policy using the straight line method. Profit in the first year will be recognised in the 2nd year and thereafter it is periodically recognised. If the corresponding loan of the Title Insurance Policy issued is settled before the maturity, full premium of such policies remaining as at the date of settlement of such loan is recognised in profits upon confirmation of the same by the respective Bank.

2.3.19 Reserve fund Reserve fund is a statutory reserve created in compliance with the direction No. 1 of Central Bank Regulations of 2003. The amount transferred is not less than 20% of the net profit after taxation.

2.3.20 Taxation a. Income taxCurrent income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

The provision for income tax is based on the elements of income and expenditure as reported in the consolidated financial statements and computed in accordance with the provisions of the relevant tax legislations.

Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated income statement.

b. Deferred taxDeferred income tax is provided, using the liability method, on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

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Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilized except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted at the reporting date.

Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated income statement.

2.3.21 VAT on financial services VAT on financial services is calculated based on VAT Act No 14 of 2002 and subsequent amendments thereto.

2.3.22 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that the group incurs in connection with the borrowing of funds.

2.3.23 Revenue recognition Revenue represents the amounts derived from the provision of goods and services and lending activities to customers outside the Group which fall within the Group’s ordinary activities net of trade discounts and turnover related taxes. All intra group transactions have been eliminated.

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

The following specific criteria are used for the purpose of recognizing revenue.

a. Professional fee income Revenue associated with rendering service s recognized by reference to the stage of completion. Where the contract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses incurred are eligible to be recovered.

b. Income from hire rental and operating leasesIncome from hire rental and operating leases is recognized on a straight line basis over the term of hire rental and operating lease agreements.

c. Overdue chargesOverdue charges of leasing / hire purchase have been accounted for on cash received basis.

d. Dividend incomeDividend income is recognized when the Group’s right to receive the payment is established.

e. Interest incomeFor all financial assets measured at amortised cost and interest bearing financial assets classified as available-for-sale, interest income is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR. Interest income is included in ‘gross income’ in the income statement.

f. Fee and commission incomeGroup earns fee and commission income from services it provides to its customers. Mainly documentation and processing fee for the service provided in processing of loan facilities to customers.

g. Net trading incomeNet trading income includes all gains and losses from changes in fair value and related dividends for financial assets held for trading other than interest income.

h. Gross written premium (GWP) General Insurance GWPGross written premium comprise the total premium receivable for the whole period of cover provided by contracts entered into during the accounting period. They are recognised on the date on which the policy commences.

Rebates that form part of the premium rate, such as no-claim rebates, are deducted from the gross written premium.

Unearned Premium Reserve (UPR) Unearned premiums are those proportions of premium written in a year that relate to periods of risk after the reporting date. UPR represents the portion of the premium written in the year but relating to the unexpired term of coverage.

Unearned premiums are calculated on the 365 basis except for the marine and title policies which are computed on a 60 - 40 basis in accordance with the Regulation of Insurance Industry Act, No. 43 of 2000. However, for those contracts for which the period of risk differs significantly from the contract period, premiums are earned over the period of risk in proportion to the amount of insurance protection provided. The proportion attributable to subsequent periods is deferred as a provision for unearned premium which is included under liabilities.

Life Insurance GWPGross recurring premium on life insurance contracts are recognised as revenue when payable by the policyholder (policies within the 30 day grace period are considered as due). Premiums received in advance are not recorded as revenue and recorded as liability until the premium is due unless otherwise the relevant policy conditions require such premiums to be recognized as income. Benefits and expenses are provided against such revenue to recognize profits over the estimated life of the policies. For single premium business, revenue is recognised on the date on which the policy is effective.

i. Reinsurance PremiumGross reinsurance premium on insurance contracts are recognised as an expense


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on the earlier of the date when premiums are payable or when the policy becomes effective. Reinsurance premiums are decided based on rates agreed with reinsurers.

General Insurance reinsurance Premium Reinsurance premium written comprise of total premiums payable for the whole cover provided by contracts entered into the period and are recognised on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period in respect of reinsurance contracts incepting in prior Accounting periods.

Unearned Reinsurance PremiumUnearned reinsurance premiums are those proportions of premium written in a year that relate to periods of risk after the reporting date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-attaching contracts and over the term of the reinsurance contract for losses occurring contracts. Unearned reinsurance premiums are calculated on the 365 basis except for the marine policies which are computed on a 60-40 basis.

The proportion attributable to subsequent periods is deferred as a provision for unearned premium which is included under Insurance contract liabilities - General.

Life Insurance Reinsurance Premium Reinsurance premium on life and investment contracts are recognised as an expense on the earlier of the date when premiums are payable or when the policy becomes effective.

j. Investment incomeInterest income is recognized in the Statement of Comprehensive Income as it accrues and is calculated by using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial asset or liability are recognized as an adjustment to the effective interest rate of the instrument. Investment income also includes dividends when the right to receive payment is established. For listed securities, this is the date the security is listed as ex dividend.

k. Realized gains and lossesRealized gains and losses recorded in the Statement of Comprehensive Income on investments include gains and losses on financial assets and investment properties.

Gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortized cost and are recorded on occurrence of the sale transaction.

l. Other IncomeOther income is recognized on an accrual basis.

m. Reinsurance Commission IncomeGeneral Insurance Reinsurance commission income on outwards reinsurance contracts are recognised as revenue when receivable. Subsequent to initial recognition, reinsurance commission income on outwards reinsurance contracts are deferred and amortised on a straight line basis over the term of the expected premium payable.

Life Insurance Reinsurance premiums on life and investment contracts are recognised as an expense on the earlier of the date when premiums are payable or when the policy becomes effective.

2.3.24 Benefits, claims and expenses recognition 2.3.24.1 Gross benefits and claims General Insurance Gross claims expense include all claims occurring during the year, whether reported or not, related internal and external claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.

Claims outstanding are assessed by review of individual claim files and estimating changes in the ultimate cost of settling claims.

Gross claims expense includes gross claims expense reported but not yet paid, incurred but not reported claims (IBNR). The provision in respect of IBNR is actuarially valued to ensure a more realistic estimation of the future liability based on past experience and trends.

Actuarial valuations are performed on an annual basis. While the Directors consider that the provision for claims is fairly stated on the basis of information currently available, the ultimate liability will vary as a result of subsequent information and events. This may result in adjustment to the amounts

provided. Such amounts are reflected in the financial statements for that period. The methods used and the estimates made are reviewed regularly.

Life Insurance Gross benefits and claims for life insurance contracts include the cost of all claims arising during the year including internal and external claims handling costs that are directly related to the processing and settlement of claims and policyholder bonuses declared on DPF contracts, as well as changes in the gross valuation of insurance. Death claims and surrenders are recorded on the basis of notifications received. Maturities and annuity payments are recorded when due. Interim payments and surrenders are accounted at the time of settlement.

Changes in the valuation of insurance contract liabilities are disclosed in the statement of financial position under Change in insurance contract liabilities.

2.3.24.2 Reinsurance claims Reinsurance claims are recognized when the related gross insurance claim is recognized according to the terms of the relevant contract.

2.3.24.3 Actuarial Valuation of Life Insurance Fund The Directors agree to the long term insurance provision for the Group at the year-end on the recommendations of the Independent Consultant Actuary following his annual investigation of the Life Insurance business. The actuarial valuation takes into account all liabilities and is based on assumptions recommended by the Independent Consultant Actuary.

2.3.24.4 Net Deferred Acquisition Expenses Acquisition expenses, representing commissions, which vary with and are directly related to the production of business, are deferred and amortised over the period in which the related written premiums are earned.

2.3.24.5 Expenditure Recognition a) Expenses are recognised in the Statement of Comprehensive Income 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 and in maintaining the Property, Plant and Equipment in a state


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of efficiency has been charged to Statement of Comprehensive Income in arriving at the profit for the year.

b) For the purpose of presentation of the Statement of Comprehensive Income the directors are of the opinion that function of expenses method presents fairly the elements of the Company expenditure incurred events. Touch presentation method is adopted.

3. DIRECTORS RESPONSIBILITY STATEMENTSDirectors acknowledge the responsibility for the true and fair presentation of the consolidated financial statements in accordance with the books of accounts and Sri Lanka Accounting Standards and the requirements of the Companies Act No 07 of Sri Lanka.

4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES4.1 Introduction and overviewThe Group’s principal financial liabilities, comprise of public deposits, borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Group’s operations and to provide guarantees to support its operations. The Group financial assets comprise loans and advances, Rental receivable on lease assets and hire purchase, trade & other receivables and cash and short-term deposits that flows directly from its operations. The Group also holds other financial instruments such as investments in equity instruments.

The Group is exposed to market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. Risk management is carried out under 3 lines of defense in the order of senior management officials under policies approved by the Group’ s operating segments and units. The Group’s overall risk management program seeks to minimise potential adverse effect on the Group’s financial performance.

The Board of Directors of the Group and Boards of directors of individual components manage each of these risks, which are summarised below.

Risk management frameworkThe Group’s board of directors has overall responsibility for the establishment and oversight of the Group’s risk management

frame work. The Board of Directors has established the Risk Management Committee for developing and monitoring the Group’s Risk Management policies. The Committee reports regularly to the Board of Directors on its activities.

The Group risk management policies are established to identify and analyze the risks face by the group, to set appropriate risk limits and controls and to monitor risks and adherence to the limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the groups activities. The Group, through its training and management standards and procedures, aims to maintain a discipline and constructive control environment in which all employees understand their roles and obligations.

The Group Audit Committee oversees how management monitors compliance with the group risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risk face by the group. The Group Audit Committee is assisted in its oversight role by the internal audit undertake both regular and ad-hoc review of risk management controls and procedures, the results of which are reported to the Audit Committee.

4.2 Market riskMarket risk is the risk that changes in market prices, such as interest rates and equity price will affect the Company’s profit, equity or value of its holding of financial instruments. The objective of market risk management is to manage and control the market risk exposure within acceptable parameters, while optimizing return.’

Management of market risk Group separates its exposure to market risk between trading and non-trading portfolios. Trading portfolio of the group include position arising from market making and proprietary position taking, together with financial assets and liabilities that are managed on a fair value basis.

The Group employs a range of tools to monitor and limit market risk exposures. These are discussed below, separately for trading and non-trading portfolios.

The table below sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios.


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Market risk measure Market risk measureFor the Year ended 31 March

In LKR

Carrying amount

2017

Trading portfolio

2017

Non-tradingportfolio

2017

Carrying amount

2016

Tradingportfolio

2016


2016

Group Restated Restated Restated

Assets subject to market risk

Cash in hand and at bank 1,209,502,700 - 1,209,502,700 800,411,100 - 800,411,100

Financial Assets - Fair value through profit or loss 642,423,617 642,423,617 - 675,118,383 675,118,383 -

Financial Assets - Available for sale 6,830,800,113 - 6,830,800,113 6,911,925,729 - 6,911,925,729

Financial Assets - Loans and receivables 21,212,384,726 - 21,212,384,726 18,994,027,144 - 18,994,027,144

Financial Assets - Held to maturity 230,473,484 - 230,473,484 225,093,733 - 225,093,733

Lease and hirepurchase 949,316,675 - 949,316,675 1,444,230,593 - 1,444,230,593

Liabilities subject to market risk

Bank overdraft 1,228,013,221 - 1,228,013,221 1,350,523,495 - 1,350,523,495

Trade and other payables 1,285,435,148 - 1,285,435,148 2,247,800,619 - 2,247,800,619

Amounts due to related companies - - - 473,763 - 473,763

Put option liability 9,356,708 - 9,356,708 9,356,708 - 9,356,708

Interest bearing borrowings 4,758,843,537 - 4,758,843,537 5,175,606,015 - 5,175,606,015

Public deposits 16,048,473,927 - 16,048,473,927 14,004,134,735 - 14,004,134,735

Market risk measure Market risk measureFor the Year ended 31 March

In LKR

Carrying amount

2017

Trading portfolio

2017


2017

Carrying amount

2016

Tradingportfolio

2016


2016

Company

Assets subject to market risk

Cash in hand and at bank 40,284,332 - 40,284,332 40,362,714 - 40,362,714

Amounts due from related companies 3,906,232 - 3,906,232 3,504,148 - 3,504,148

Financial Assets - Available for sale 12,037,518 - 12,037,518 11,955,965 - 11,955,965

Liabilities subject to market risk

Bank overdraft 5,917,819 - 5,917,819 311,323,068 - 311,323,068


Put option liability 9,356,708 - 9,356,708 9,356,708 - 9,356,708

Interest-bearing loans and borrowings 1,290,300,000 - 1,290,300,000 1,113,007,302 - 1,113,007,302

4.2.1 Interest rate riskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s debt obligations with floating interest rates.

The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.


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4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Contd.)4.2.1.1 Exposure to interest rate riskThe interest rate profile of Group’s interest bearing financial instruments as reported to the management of the Group is as follows;

Group CompanyFor the Year ended 31 March 2017 2016 2017 /2016

In LKR Restated

Fixed interest rate instruments:

Financial assets 27,426,941,128 25,248,168,036 - -

Financial liabilities 18,005,376,430 16,762,962,693 1,494,750 273,640,650

Floating interest rate instruments:

Financial assets - - - -

Financial liabilities 4,016,201,200 3,062,791,260 1,294,723,069 1,150,689,720

4.2.1.2 Interest rate sensitivityThe following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings. Provided all other variables held constant, the Group’s profit before tax is affected through the impact on floating rate borrowings, as follows:

Increase in basis points Effect on profit before taxIn LKR Rupee borrowings Group Company

2017 +200 b.p (80,324,024) (25,894,461)

-200 b.p 80,324,024 25,894,461

2016 +200 b.p (61,255,825) (23,013,794)

-200 b.p 61,255,825 23,013,794

The assumed spread of basis points for the interest rate sensitivity analysis is based on the currently observable market environment changes to base floating interest rates.

4.2.2 Foreign currency riskForeign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of adverse fluctuations in foreign exchange rates. The Group’s exposure to the risk of fluctuations in foreign exchange rates relates primarily to the Group’s operating activities and foreign currency borrowings.

Management has set up a policy that requires Company and subsidiaries to manage their foreign exchange risk and strict limits on maximum exposure that can be entered into.

4.2.3 Equity price riskThe Group expose to equity price risk which arises from available for sale equity securities and investments measured at fair value through Profit or loss. Management of the group monitors the proportion of equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by risk management committee.

The Group holds listed and unlisted equity securities and put option over quoted equity instruments which are susceptible to market-price risk arising from uncertainties about future values of these securities.

The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Periodic reports on equity investment portfolio are submitted to the senior management of individual business segment based on the relevance. The respective Board of Directors reviews and approves all equity investment decisions. To manage its price risk arising from investments in equity securities, the group diversifies its equity investment portfolio.


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Financial assets at fair value through profit or loss

Available-for-sale investments

2017 2016 2017 2016

Group Rs % Rs % Rs % Rs %

Bank, Finance and Insurance 217,164,067 33.8 158,989,989 30.4

1,287,473,317 90.0

1,467,339,445 91.7

Beverage, Food and Tobacco 1,403,808 0.2 2,580,336 0.5 - - - -Diversified Holdings 262,576,753 40.9 250,842,619 48.0 1,426,350 0.1 1,141,080 0.1Health Care 3,874,193 0.6 2,318,970 0.4 141,900,000 9.9 132,000,000 8.2Land and Property - - 2,340,000 0.4 - - - -Manufacturing 94,995,190 14.8 86,963,825 16.6 - - - -Power and Energy 9,270,000 1.4 9,888,000 1.9 - - - -Telecommunications 53,139,606 8.3 8,859,720 1.7 - - - -

642,423,616 100.0 522,783,459 100.0 1,430,799,667 100.0 1,600,480,525 100.0

Available-for-sale investments

2017 2016

Company Rs % Rs %

Bank, Finance and Insurance 10,611,167 88.2 10,814,884 90.5Diversified Holdings 1,426,350 11.8 1,141,080 9.5

12,037,517 100.0 11,955,964 100.0

Investments in unquoted investments are made after obtaining the board approval.

4.2.3.1 Sensitivity analysisThe following table demonstrate the sensitivity of cumulative change in fair value to reasonably possible changes in equity prices provided all other variables are held constant. The effect of a decrease in equity prices is expected to be equal and opposite to the effect of the increase shown.

This table consider only equity shares classified under short term and long term financial assets.

Change in equity price

Effect on profitbefore tax Group

Effect on othercomprehensiveIncome Group

Effect on EquityGroup

2017

Quoted equity investments listed in Colombo Stock Exchange 10% 64,242,362 143,079,967 197,632,279

2016

Quoted equity investments listed in Colombo Stock Exchange 10% 52,278,346 160,048,053 212,326,398

Change in equity price

Effect on profitbefore taxCompany

Effect on othercomprehensive

Income Company

Effect on EquityCompany

2017

Quoted equity investments listed in Colombo Stock Exchange 10% - 1,203,752 1,203,752

2016

Quoted equity investments listed in Colombo Stock Exchange 10% - 1,195,596 1,195,596


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4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Contd.)4.3 Credit riskCredit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables and customer lending) and from its investing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all clients who wish to trade on credit terms are subject to credit evaluation procedures. In addition, receivable balances are monitored on an ongoing basis with that the Group’s exposure to bad debt is not significant.

Hire purchase and lease portfolio is broad and risk of non payment is mitigated by stringent standard of credit approval process. There is no concentration risk on any single region, customer or sector in particular collection of dues from customers is robust with the delinquency rate being better than the financial industry average.

With respect to credit risk arising from other financial assets of the Group, such as cash and cash equivalents, available for sale financial investments, financial assets measured at fair value through profit or loss, held to maturity financial assets, the Group’s exposure to credit risk arise from default of the counterparty. The Group manages its operations to avoid any excessive concentration of counterparty risk.

4.3.1 Credit Risk - Default riskDefault risk is the risk that one party to financial instruments will fail to discharge an obligation and cause the other party to incur financial loss. It arises from lending, trade finance, treasury and other activities undertaken by the Group. The Group has in place standards, policies and procedures for the control and monitoring of all such risks.

4.3.2 Credit Risk - Concentration riskThe Group seeks to manage its credit concentration risk exposure through diversification of its lending, investing and financing activities to avoid undue concentrations of risks with individuals or group of customers in specific businesses. It also obtains security when appropriate. The types of collateral obtained include cash margins, mortgages over properties and pledge over equity instruments.

The requirement for an impairment is analysed at each reporting date on an individual basis for major clients. Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on actual incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 4.3.3.

The tables below show the maximum exposure to credit risk for the components of financial position. The maximum exposure is shown gross before the effect of mitigation through the use of collateral agreements.


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As at 31 March 2017 Cash in hand and at banks

FinancialAssets-

Fair value through profit

or loss

Financial Assets-

Available for sale

Financial Assets-

Loans and receivables

Financial Assets- Held to

maturity

Financial Assets-

Lease and hirepurchase

Total % of allocation

Risk Exposure - Group

Government securities - - 3,376,101,533 2,418,821,400 233,973,484 - 6,028,896,417 21

Corporate debt securities - - 1,554,868,312 154,002,338 - - 1,708,870,651 6

Deposits with regulator - - - 3,500,000 - - 3,500,000 -

Deposits with bank - - - 139,026,767 - - 139,026,767 -

Loans and advances - - - 17,810,237,120 - - 17,810,237,120 62

Lease and hirepurchase - - - - - 949,316,675 949,316,675 3

Trade debtors - - - 353,429,259 - - 353,429,259 1

Premium Recievables - - - 142,670,060 - - 142,670,060 1

Reinsurance receivables - - - 190,697,783 - - 190,697,783 1

Cash in hand and at bank 1,209,502,700 - - - - - 1,209,502,700 4

Total credit risk exposure 1,209,502,700 - 4,930,969,845 21,212,384,726 230,473,484 949,316,675 28,532,647,431 100

Equity Securities - Quoted - 642,423,617 1,430,799,667 - - 2,073,223,284 82

Equity Securities - Un-quoted - - 469,030,600 - - 469,030,600 18

Total equity risk exposure - 642,423,617 1,899,830,267 - - - 2,542,253,884 100

Total 1,209,502,700 642,423,617 6,830,800,113 21,212,384,726 230,473,484 949,316,675 31,074,901,315 100


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4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Contd.)4.3 Credit risk (Contd.)

As at 31 March 2016 Cash in hand and at banks

FinancialAssets-

Fair value through profit

or loss

Financial Assets-

Available for sale

Financial Assets-

Loans and receivables

Financial Assets- Held to

maturity

Financial Assets-

Lease and hirepurchase


Risk Exposure - Group

Government securities - - 3,561,116,320 2,675,364,429 228,593,733 - 6,465,074,482 24

Corporate debt securities - 85,881,938 1,281,298,284 444,427 - - 1,367,624,650 5

Deposits with regulator - - - 3,500,000 - - 3,500,000 -

Deposits with bank - - - 324,118,343 - - 324,118,343 1

Loans and advances - - - 14,883,040,858 - - 14,883,040,858 56

Lease and hirepurchase - - - - - 1,444,230,593 1,444,230,593 5

Trade debtors - - - 228,314,414 - - 228,314,414 1

Premium recievables - - - 679,116,882 - - 679,116,882 3

Reinsurance receivables - - - 200,127,791 - - 200,127,791 1

Cash in hand and at bank 800,411,100 - - - - - 800,411,100 3

Total credit risk exposure 800,411,100 85,881,938 4,842,414,605 18,994,027,144 225,093,733 1,444,230,593 26,392,059,112 100

Equity Securities -Quoted - 522,783,459 1,600,480,525 - - - 2,123,263,984 80

Equity Securities -Un-quoted - - 469,030,600 - - - 469,030,600 18

Investments in Units - 66,452,986 - - - - 66,452,986 2

Total equity risk exposure - 589,236,445 2,069,511,125 - - - 2,658,747,569 100

Total 800,411,100 675,118,383 6,911,925,729 18,994,027,144 225,093,733 1,444,230,593 29,050,806,681 100

As at 31 March 2017Financial Assets-Available for sale

Financial Assets- Loans and

receivables


Risk Exposure - Company

Government securities - 40,000,000 40,000,000 91

Amounts due from related parties - 3,906,232 3,906,232 9

Cash in hand and at bank - 284,332 284,332 1

Total credit risk exposure - 44,190,564 44,190,564 100

Equity Securities - Listed 12,037,518 - 12,037,518 100

Total equity risk exposure 12,037,518 - 12,037,518 100

Total 12,037,518 44,190,564 56,228,082 100



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As at 31 March 2016Financial Assets-Available for sale

Financial Assets- Loans and

receivables


Risk Exposure - Company

Government securities - 40,000,000 40,000,000 91

Amounts due from related parties - 3,504,148 3,504,148 8

Cash in hand and at bank - 362,714 362,714 1

Total credit risk exposure - 43,866,862 43,866,862 100

Equity Securities - Listed 11,955,965 - 11,955,965 100

Total equity risk exposure 11,955,965 - 11,955,965 100

Total 11,955,965 43,866,862 55,822,827 100

4.3.3 Government securitiesAs at 31 March 2017 as shown in the table above, 21% (2016 - 24%) and 91% (2016 - 91%) of debt securities comprise investments in government securities which consist of treasury bonds, bills and reverse repo investments for the Group and Company respectively. Government securities are usually referred to as risk free due to the sovereign nature of the instrument.

4.3.4 Corporate debt securitiesAs at 31 March 2017, corporate debt securities comprise 6% (2016 - 5%) of the total investments in debt securities, out of which 57% (2016 – 42%) were rated “A” or better, or guaranteed by a banking institution with a rating of “A” or better.

GroupAs at 31 March 2017 2016

Rs Rating % of total Rs Rating % of total

AA+ 154,002,338 9 - -

AA - - 50,316,563 4

AA- 486,372,483 28 302,288,405 22

A+ 51,510,167 3 - -

A 196,872,928 12 116,281,615 9

A- 93,590,860 5 111,214,633 8

BBB+ 232,187,964 14 226,415,056 17

BBB 61,652,193 4 312,275,941 23

BBB- 208,886,852 12 248,832,437 18

BB+ 31,699,874 2 - -

B+ 192,094,989 11 - -

Total 1,708,870,651 100 1,367,624,650 100


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4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Contd.)4.3.5 Deposits with banks Deposits with banks mainly consist of fixed and call deposits. As at 31 March 2017, 100% (2016 - 85%) of the fixed and call deposits were rated “A-” or better for the Group.


Rs Rating % of total Rs Rating % of total

AA+ 25,750 - - -

AA- 139,001,017 100 275,581,049 85

A - - 7,214,266 2

BBB - - 41,323,028 13

Total 139,026,767 100 324,118,343 100

4.3.6 Management of credit riskThe board of directors has delegated responsibility for the oversight of credit risk to its Credit Committee and Credit Risk Committee. Group Credit Risk monitoring Unit reporting to Risk Committee through the Chief Risk Officer who is responsible for management of the Group’s credit risk, including:

Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting.

Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated to business unit Credit Officers. Larger facilities require approval by Heads of Credit, Board Credit Committee or the board of directors as appropriate.

Reviewing and assessing credit risk. Heads of Credit assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process.

Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances), and by issuer.

Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. Regular reports on the credit quality of local portfolios are provided to Heads of Credit who may require appropriate corrective action to be taken.

Providing advice, guidance and specialist skills to business units to promote best practice throughout the Company in the management of credit risk.

Regular audits of business units and credit processes are undertaken by Internal Audit.

4.3.7 Credit quality by class of financial assets

Neither past due nor impaired

Past due but not impaired

Individually impaired

Total

31 March 2017

Bank and cash balances 1,209,502,700 - - 1,209,502,700

Financial Assets - Available for sale 4,930,969,845 - - 4,930,969,845

Financial Assets - Loans and receivables (Gross) 16,492,234,387 3,968,454,029 1,393,935,162 21,854,623,578

Financial Assets - Held to maturity 233,973,484 - - 233,973,484

Lease and hire purchase (Gross) 375,633,072 635,985,095 149,526,033 1,161,144,200

Impairment - loans and receivables - (433,188,233) (212,550,619) (645,738,852)

Impairment - lease and hirepurchase - (170,118,088) (41,709,437) (211,827,525)

Total financial assets 23,238,813,489 4,001,132,803 1,289,201,139 28,529,147,431



91

Neither past due nor impaired

Past due but not impaired

Individually impaired

Total

31 March 2016

Bank and cash balances 800,411,100 - - 800,411,100

Financial Assets - Fair value through profit or loss 85,881,938 - - 85,881,938

Financial Assets - Available for sale 4,842,414,605 - - 4,842,414,605

Financial Assets - Loans and receivables (Gross) 17,556,643,225 484,726,549 1,549,992,324 19,591,362,097

Financial Assets - Held to maturity 228,593,733 - - 228,593,733

Lease and hire purchase (Gross) 873,066,515 471,666,013 99,498,065 1,444,230,593

Impairment - loans and receivables - (337,163,856) (263,671,097) (600,834,953)

Impairment - lease and hirepurchase - (143,302,316) (40,677,623) (183,979,940)

Total financial assets 24,383,511,115 619,228,706 1,385,819,291 26,388,559,112

4.3.8 Movement of impairment allowance for loans and receivable

Movement in specific impairment allowance

Movement in collective impairment allowance

Movement in impairment allowance

2017 2016 2017 2016 2017 2016

At the Beginning of the Year 263,671,097 81,512,922 337,163,856 196,869,380 600,834,953 278,382,302

Net Impairment Charge for the Year (2,803,991) 182,158,175 268,305,763 389,528,659 265,501,772 571,686,834

Write off During the Year (37,368,831) - (95,833,177) (205,432,193) (133,202,008) (205,432,193)

Set offs during the year (10,947,656) - (76,448,209) (43,801,990) (87,395,865) (43,801,990)

At the end of the Year 212,550,619 263,671,097 433,188,233 337,163,856 645,738,852 600,834,953

4.3.9 Movement of impairment allowance for lease and hirepurchase

Movement in specific impairment allowance

Movement in collective impairment allowance

Movement in impairment allowance

2017 2016 2017 2016 2017 2016

At the Beginning of the Year 40,677,623 26,442,244 143,302,316 76,187,733 183,979,940 102,629,977

Net Impairment Charge for the Year 93,001,952 272,032,857 26,815,772 153,973,005 119,817,723 426,005,862

Write off During the Year (91,970,138) (257,797,478) - (86,858,422) (91,970,138) (344,655,900)

At the end of the Year 41,709,437 40,677,623 170,118,088 143,302,316 211,827,525 183,979,940


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4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Contd.)4.3.10 Trade receivablesCustomer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of the customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and any consignments to major customers are generally covered by bank guarantees or other forms of credit insurance.

4.3.11 Reinsurance ReceivableAccording to the overall risk management strategy, the Group cedes insurance risk through proportional, non-proportional and specific risk reinsurance treaties. While these mitigate insurance risk, the recoverable from reinsurers and receivables arising from ceded reinsurance exposes the company to credit risk. Following are the few steps to manage reinsurance risk in addition to explained above;

* Placed in line with policy guidelines approved by the Board of Directors on an annual basis in line with the guidelines issued by the Insur-ance Board of Sri Lanka

* Counterparties’ limits that are set each year and are subject to regular reviews. On a regular basis management assesses the creditworthi-ness of reinsurers to update the reinsurance strategy and ascertain the suitable allowance for impairment of reinsurance assets.

* Outstanding reinsurance receivables are reviewed on a monthly basis to ensure that all dues are collected or set off against payables.

* Maintain close and professional relationship with reinsurers

* No cover is issue without confirmation from reinsurance unless non reinsurance business.

As at reporting date reinsurance receivables amount to Rs. 190.69 Mn as at 31 March 2017 (2016 - Rs. 200.13 Mn). This mainly consists of reinsurance receivable on paid claims amounting to Rs. 154.29 Mn (2016 - Rs. 104.50 mn) and reinsurance share of claim reserve (receivables on outstanding claims) of Rs. 36.39 mn as at 31 March 2017 (2015 - Rs. 95.63 Mn).

4.3.12 Insurance Premium Receivable The Group’s has a credit risk exposure to receivables where the policyholder or the intermediary cannot settle their dues to the Group.

In life insurance, credit risk is minimal, since premium is collected before the policy is issued.

In non-life insurance, the premium warranty clause which state that a claim is not payable if the premium is not settled within 60 days has reduced the credit risk to a greater extent.

The following steps have also been taken to further minimise credit risk;

* Customers are regularly reminded on the premium warranty clause.

* Outstanding credit is followed up on a daily basis.

* Policies not settled within a reasonable period are monitored and cancelled.

* Outstanding receivables are checked and confirmed prior to settling claims.

* Until premium is settled a temporary certificate for 60 days issued for motor policies.


93

4.3.13 Bank DepositDeposits with banks mainly consist of fixed and call deposits. Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed in an annual basis, and may be updated throughout the year subject to appropriate approval. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty’s failure to make payments.

4.4 Liquidity riskThe Group monitors its risk to a shortage of funds using a recurring liquidity planning proccess. The Liquidity risk is the risk that the Group will not be able to meet financial obligations as they fall due.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, finance leases and hire purchase contracts that will always have sufficient liquidity to meet its liabilities when its due, under normal and stressed conditions. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing lenders. The approach is carefully managed without incurring unacceptable losses or risking damage to the Group’s reputation.

Liquidity risk managementAn optional combination of positive and negative cash flows along with investment returns and contractual obligation maturing is collated through an intra-day cash reporting system for all business segments. High value contractual outflows are processed through various control filters. The group is in the process of building a “Liquidity Dashboard” with the implementation of ERP program. This would help further accelerate the review and identification of debt maturities relating to net liquidity position on daily basis and thus enable proactively mobile necessary funding mobilization or reinvest of cash surplus if any. Closely monitoring and working to reschedule maturity profile is any to de-stress cash flows and re-align them with actual investment tenor. This would engender optimal liquidity positioning and this would reduce borrowing cost and enhance reinvestment income.

4.4.1 Maturity analysisThe table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2017 based on contractual undiscounted payments.

On demand Less than12 months

1 to 3 years > 3 years Total

Bank overdraft 1,228,013,221 - - - 1,228,013,221

Trade payables - 530,932,668 - - 530,932,668

Put option liability - 9,356,708 - - 9,356,708

Interest-bearing loans and borrowings - 2,263,191,500 1,284,636,674 1,211,015,363 4,758,843,537

Public deposits - 14,017,274,676 1,863,670,498 167,528,753 16,048,473,927

1,228,013,221 16,820,755,552 3,148,307,172 1,378,544,116 22,575,620,062

The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2016 based on contractual undiscounted payments.



Bank overdraft 1,350,523,495 - - - 1,350,523,495

Trade payables - 311,049,887 - - 311,049,887

Amounts due to related companies - 473,763 - - 473,763


Interest-bearing loans and borrowings - 3,409,166,433 542,891,239 1,223,548,344 5,175,606,016

Public deposits - 12,482,191,740 872,766,599 649,176,396 14,004,134,735

1,350,523,495 16,212,238,532 1,415,657,838 1,872,724,740 20,851,144,604


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4 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Contd.)The table below summarises the maturity profile of the Company’s financial liabilities at 31 March 2017 based on contractual undiscounted payments.



Bank Overdrafts 5,917,819 - - - 5,917,819


Interest-bearing loans and borrowings - 20,000,000 60,000,000 1,210,300,000 1,290,300,000

5,917,819 29,356,708 60,000,000 1,210,300,000 1,305,574,527

The table below summarises the maturity profile of the Company’s financial liabilities at 31 March 2016 based on contractual undiscounted payments.



Bank Overdrafts 311,323,068 - - - 311,323,068

Amounts due to related parties - 473,763 - - 473,763


Interest-bearing loans and borrowings - 295,953,802 466,116,000 350,937,500 1,113,007,302

311,323,068 305,784,273 466,116,000 350,937,500 1,434,160,841


95

4.5 Capital ManagementThe primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2017.

The Group monitors capital using a gearing ratio for company and subsidiary level, which is net debt divided by total capital plus net debt which is monitored very closely by the senior management officials. Net debt of the Group includes, interest bearing loans and borrowings, trade and other payables less cash and cash equivalents (excluding discontinued operations).

Group CompanyAs at 31 March 2017 2016

Restated2017 2016

In LKR

Interest bearing loans and borrowings 4,758,843,537 5,175,606,015 1,290,300,000 1,113,007,302

Trade and other payables 1,285,435,148 2,247,800,619 - -

Less: cash and short-term deposits (1,209,502,700) (800,411,100) (40,284,332) (40,362,714)

Net debt 4,834,775,985 6,622,995,535 1,250,015,668 1,072,644,589

Equity 5,177,247,319 4,717,242,112 3,145,328,277 3,013,820,066

Total capital 5,177,247,319 4,717,242,112 3,145,328,277 3,013,820,066

Capital and net debt 10,012,023,305 11,340,237,647 4,395,343,944 4,086,464,654

Gearing ratio-(%) 48% 58% 28% 26%


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5. FINANCIAL INSTRUMENTS Financial assets and liabilities in the tables below are split into categories in accordance with LKAS 39.

Financial assets by categories - Group

Loans and Receivables Financial assets fair value through profit or loss

Available-for -sale financial assets

Held-to-maturity investments Totals

As at 31 March 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016

Cash and cash equivalents 1,209,502,700 800,411,100 - - - - - - 1,209,502,700 800,411,100

Financial Assets - Fair value through profit or loss - - 642,423,617 675,118,383 - - - - 642,423,617 675,118,383

Financial Assets - Available for sale at fair value - - - - 6,830,800,113 6,911,925,729 - - 6,830,800,113 6,911,925,729

Financial Assets - Loans and receivables 21,212,384,726 18,994,027,144 - - - - - - 21,212,384,726 18,994,027,144

Financial Assets - Held to maturity - - - - - - 230,473,484 225,093,733 230,473,484 225,093,733

Lease and hirepurchase receivables 949,316,675 1,444,230,593 - - - - - - 949,316,675 1,444,230,593

Total Financial Assets 23,371,204,101 21,238,668,836 642,423,617 675,118,383 6,830,800,113 6,911,925,729 230,473,484 225,093,733 31,074,901,315 29,050,806,681

Financial liabilities by categories - Group

Financial liabilities at fair value through profit or loss

(FVPTPL)

Financial liabilities measured at amortised cost

Totals

As at 31 March 2017 2016 2017 2016 2017 2016

Bank overdraft - - 1,228,013,221 1,350,523,495 1,228,013,221 1,350,523,495

Trade and other payables - - 1,285,435,148 2,247,800,619 1,285,435,148 2,247,800,619


Put option liability 9,356,708 9,356,708 - - 9,356,708 9,356,708

Interest bearing borrowings - - 4,758,843,537 5,175,606,015 4,758,843,537 5,175,606,015

Public deposits - - 16,048,473,927 14,004,134,735 16,048,473,927 14,004,134,735

Total 9,356,708 9,356,708 23,320,765,834 22,778,538,628 23,330,122,542 22,787,895,335

“The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

• Fair value of quoted equities, debentures and bonds is based on price quotations in an active market at the reporting date.

• The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases, as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.

• Fair value of the unquoted ordinary shares has been estimated using a Discounted Cash Flow (DCF) model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, the discount rate, credit risk and volatility. The probabilities of the various estimates within the range can be reasonably assessed and are used in management’s estimate of fair value for these unquoted equity investments.

• Fair value of loans and advances, rental receivable on lease assets and hire purchase approximately 68% of the portfolio has a remaining maturity of less than one year. Therefore fair value of lending portfolio approximates to the carrying value as at the reporting date. All loans and advances are granted with a fixed interest rate terms.


97

6. FAIR VALUE MEASUREMENTThe determination of fair value for financial assets and financial liabilities for which there is no observable market or market factors, pricing assumptions and other risks affecting the specific instrument price requires the use of valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.

Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

Level 2: Valuation techniques based on observable inputs, either directly (i.e. prices) or indirectly (i.e. derived from prices). This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The Group uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like government securities, interest rate and currency swaps that use mostly observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, government securities and simple over the counter derivatives like forward exchange contracts and interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets.

Management judgements and estimations are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of probability of counterparty default and prepayments and selection of appropriate discount rates.

The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level of the fair value hierarchy.

5. FINANCIAL INSTRUMENTS Financial assets and liabilities in the tables below are split into categories in accordance with LKAS 39.

Financial assets by categories - Group

Loans and Receivables Financial assets fair value through profit or loss

Available-for -sale financial assets

Held-to-maturity investments Totals

As at 31 March 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016

Cash and cash equivalents 1,209,502,700 800,411,100 - - - - - - 1,209,502,700 800,411,100

Financial Assets - Fair value through profit or loss - - 642,423,617 675,118,383 - - - - 642,423,617 675,118,383

Financial Assets - Available for sale at fair value - - - - 6,830,800,113 6,911,925,729 - - 6,830,800,113 6,911,925,729

Financial Assets - Loans and receivables 21,212,384,726 18,994,027,144 - - - - - - 21,212,384,726 18,994,027,144

Financial Assets - Held to maturity - - - - - - 230,473,484 225,093,733 230,473,484 225,093,733

Lease and hirepurchase receivables 949,316,675 1,444,230,593 - - - - - - 949,316,675 1,444,230,593

Total Financial Assets 23,371,204,101 21,238,668,836 642,423,617 675,118,383 6,830,800,113 6,911,925,729 230,473,484 225,093,733 31,074,901,315 29,050,806,681

Financial liabilities by categories - Group


(FVPTPL)

Financial liabilities measured at amortised cost

Totals

As at 31 March 2017 2016 2017 2016 2017 2016

Bank overdraft - - 1,228,013,221 1,350,523,495 1,228,013,221 1,350,523,495

Trade and other payables - - 1,285,435,148 2,247,800,619 1,285,435,148 2,247,800,619




Public deposits - - 16,048,473,927 14,004,134,735 16,048,473,927 14,004,134,735

Total 9,356,708 9,356,708 23,320,765,834 22,778,538,628 23,330,122,542 22,787,895,335

“The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

• Fair value of quoted equities, debentures and bonds is based on price quotations in an active market at the reporting date.

• The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases, as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.

• Fair value of the unquoted ordinary shares has been estimated using a Discounted Cash Flow (DCF) model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, the discount rate, credit risk and volatility. The probabilities of the various estimates within the range can be reasonably assessed and are used in management’s estimate of fair value for these unquoted equity investments.

• Fair value of loans and advances, rental receivable on lease assets and hire purchase approximately 68% of the portfolio has a remaining maturity of less than one year. Therefore fair value of lending portfolio approximates to the carrying value as at the reporting date. All loans and advances are granted with a fixed interest rate terms.


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6. FAIR VALUE MEASUREMENT (Contd.)Group Company

As at 31st March 2017 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Financial Assets

Fair value through profit or loss

Equity Securities 642,423,617 - - 642,423,617 - - - -

642,423,617 - - 642,423,617 - - - -

Available for sale Financial Assets

Equity Securities 1,430,799,667 - 469,030,600 1,899,830,267 12,037,518 - - 12,037,518

Treasury Bills and Bonds 1,554,868,312 - - 1,554,868,312 - - - -

Other Debt Securities 3,376,101,533 - - 3,376,101,533 - - - -

6,361,769,513 - 469,030,600 6,830,800,113 12,037,518 - - 12,037,518

Financial Liabilities

Put option liability - - 9,356,708 9,356,708 - - 9,356,708 9,356,708

- - 9,356,708 9,356,708 - - 9,356,708 9,356,708

Group CompanyAs at 31st March 2016 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Financial Assets

Fair value through profit or loss

Equity Securities 522,783,459 - - 522,783,459 - - - -

Debt Securities 85,881,938 - - 85,881,938 - - - -

Unit Trusts 66,452,986 - - 66,452,986 - - - -

675,118,383 - - 675,118,383 - - - -

Available for sale Financial Assets

Equity Securities 1,600,480,525 - 469,030,600 2,069,511,125 11,955,965 - - 11,955,965

Treasury Bills and Bonds 1,281,298,284 - - 1,281,298,284 - - - -

Other Debt Securities 3,561,116,320 - - 3,561,116,320 - - - -

6,442,895,129 - 469,030,600 6,911,925,729 11,955,965 - - 11,955,965

Financial Liabilities

Put option liability - - 9,356,708 9,356,708 - - 9,356,708 9,356,708

- - 9,356,708 9,356,708 - - 9,356,708 9,356,708

There were no transfers between Level 1, Level 2 and Level 3 during 2017 and 2016.


99

FINANCIAL INSTRUMENTS Financial assets and liabilities in the tables below are split into categories in accordance with LKAS 39.

Financial assets by categories - Company

Loans and Receivables Available-for -sale financial assets

Totals

As at 31 March 2017 2016 2017 2016 2017 2016

Cash in hand and at bank 40,284,332 40,362,714 - - 40,284,332 40,362,714

Amounts due from related parties 3,906,232 3,504,148 - - 3,906,232 3,504,148

Financial Assets - Available for sale at fair value

- - 12,037,518 11,955,965 12,037,518 11,955,965

Total 44,190,564 43,866,862 12,037,518 11,955,965 56,228,082 55,822,827

Financial liabilities by categories - Company


(FVPTPL)


(FVPTPL)

Totals

As at 31 March 2017 2016 2017 2016 2017 2016

Bank overdraft - - 5,917,819 311,323,068 5,917,819 311,323,068

Amounts due to related companies - - - 473,763.21 - 473,763



Total 9,356,708 9,356,708 1,296,217,819 1,424,804,133 1,305,574,527 1,434,160,841

6.1 Fair Value of Financial Instruments Carried at Amortised CostThe table below shows a comparison of the carrying amounts, as reported on the statement of financial position, and fair values of the financial assets and liabilities carried at amortised cost.

Fair values is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length transaction. The estimated fair values are based on relevant information. There are various limitations inherent in this fair value disclosure particularly where prices may not represent the underlying value due to dislocation in the market. Not all of the Group’s financial instruments can be exchanged in an active trading market. The Group obtains the fair values of investment securities from quoted market prices where available, Group obtains the fair values by means of discounted cash flows and other valuation techniques that are commonly used by market participants. These techniques address factors such as interest rates, credit risk and liquidity.

Group CompanyAs at 31st March 2017 Carrying Amount Fair Value Carrying Amount Fair Value

In LKR

Financial Assets

Loans and receivables ( Including and lease and HP ) 22,161,701,402 21,803,545,953 - -

Held to maturity Financial Assets 230,473,484 230,473,484 - -

Bank and cash balances 1,209,502,700 1,209,502,700 40,362,714 40,362,714

Liabilities

Borrowings 4,758,843,537 4,392,056,806 1,113,007,302 1,113,007,302

Public Deposits 16,048,473,927 13,916,497,029 - -


100


Group CompanyYear ended 31st March 2017 2016

Restated2017 2016

In LKR

7. INTEREST INCOMEFinance leasing 125,781,153 264,739,079 - -

Hire purchase 235,226,920 351,469,107 - -

Term loans 3,016,242,732 2,749,903,767 - -

Investment in treasury bills, bonds, fixed deposits & debentures

934,411,138 730,049,395 231,551 131,843

4,311,661,943 4,096,161,348 231,551 131,843

Group CompanyYear ended 31st March 2017 2016 2017 2016

In LKR

8. FEE AND TRADING INCOME Net Earned Premium 5,187,859,546 4,118,291,426 - -

Documentation and Processing Fee 105,825,341 475,631,311 - -

Stockbroker Income 127,585,694 179,636,149 - -

Professional Fee Income 485,080,019 - 144,043,825 126,666,429

5,906,350,600 4,773,558,886 144,043,825 126,666,429


Restated2017 2016

In LKR

9. OTHER INCOME & GAINSProfit on Disposal Property Plant and Equipment 4,938,187 12,052,248 - -

Other Income 87,845,458 91,144,380 941,866 3,242,579

92,783,645 103,196,628 941,866 3,242,579

GroupYear ended 31st March 2017 2016

In LKR

10. NET REALIZED GAINS/(LOSSES) Net Gains from Available-for-sale financial assets

Realised gains

Equity Market securities - 19,535,915

Debt Securities - 2,143,861

Money Market securities - Treasury Bonds 8,262,707 9,584,450

Unit Trust 15,115,988 -

Realised losses

Equity Market securities (25,950,994) -

(2,572,299) 31,264,226


101

GroupYear ended 31st March Note 2017 2016

In LKR

11. NET FAIR VALUE GAINS Financial Investments at Fair Value through Profit or Loss 12.1 38,850,582 155,491,342

38,850,582 155,491,342

11.1. Financial Investments at Fair Value through Profit or Loss

Unrealised gains

Equity Securities - 64,137,977

Treasury Bonds - 19,067,450

Unit Trusts - 3,819,703

- 87,025,130

Realised gains

Equity Securities 51,357,018 70,120,970

Treasury Bonds 7,311,020 -

58,668,038 70,120,970

Unrealised losses

Equity Securities (19,817,456) (1,654,758)

(19,817,456) (1,654,758)

Total 38,850,582 155,491,342


In LKR

12. DIVIDEND INCOMEDividends from Investments in Subsidiaries - - 583,496,951 65,617,661

Dividends from Other Quoted Investments 85,479,401 103,744,742 924,591 402,497

85,479,401 103,744,742 584,421,541 66,020,158


Restated2017 2016

In LKR

13. INTEREST EXPENSEInterest on Public Deposits 1,852,983,037 1,450,971,874 - -

Interest on Borrowings 578,034,577 625,785,505 172,324,026 93,557,356

Interest on Securitisation 54,672,379 6,637,338 - -

Interest on Finance Leases 1,467,694 501,713 - -

2,487,157,687 2,083,896,430 172,324,026 93,557,356


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RestatedIn LKR

14. IMPAIRMENT OF LOANS AND RECEIVABLESCollective Impairment

Lease 9,404,286 55,914,950

Hire purchase 9,941,727 98,058,030

SME & Other Loans 85,885,003 226,815,366

Group Personnel Loans 105,972,552 152,176,026

211,203,568 532,964,372

Specific Impairment

Lease - 1,763,487

Hire purchase - 8,811,757

Revolving loans (17,961,088) 19,672,622

Consumer Loans 1,077,099 8,418,382

Share Loans 3,132,342 30,573,441

Gold loans 667,451 (1,688,512)

Other charges receivables 3,635,010 25,996,203

Bad debt recoveries (72,067,028) (128,044,598)

(81,516,214) (34,497,218)

Bad Debt Written offs

Unrecovered balances of Repossessed Vehicles 61,095,932 213,378,428

Provision on Sundry Debtors 81,859,993 -

SME & Other Loans 76,448,209 -

Other charges receivables 8,715,339 -

Consumer Loans 3,409,696 -

Revolving loans 7,537,960 -

239,067,129 213,378,428

368,754,483 711,845,582


Restated2017 2016

In LKR

15. PROFIT BEFORE TAXProfit before tax is stated after charging all expenses including the following;Directors' Remuneration 79,586,900 83,105,329 16,855,000 11,785,000 Audit Fees 9,344,217 4,206,095 786,500 480,000

Audit Related and Non Audit Fee including Expenses 1,688,144 374,264 646,991 -

Secretarial fees 3,989,024 2,917,768 1,708,153 1,036,617 Personnel Costs

- Defined contribution plan costs - EPF & ETF 105,184,766 85,892,529 - - - Defined benefit plan costs 24,099,488 18,366,181 - - - Other Staff Costs 827,689,887 799,044,281 - - Depreciation 155,137,092 325,402,445 119,766 199,106

Amortization of Intangible Assets 139,821,098 149,480,625 - 571,263 Provision for Bad debts 55,404 6,830 69 - (Gain)/Loss on Disposal of Fixed Assets (4,933,809) (12,052,248 ) - -


103

Group CompanyYear ended 31st March Note 2017 2016

Restated2017 2016

In LKR

16. TAX EXPENSECurrent income tax

Current tax charge 103,332,476 75,693,106 42,142 23,995

10% withholding tax on inter company dividends 64,832,995 7,290,851

(Over) provisions in previous years (94,808,256) (4,185,663) - -

Deferred tax charge

Relating to origination and reversal of temporary differences 93,860,048 (47,346,349) - -

Income tax expense 16.1 167,217,263 31,451,945 42,142 23,995

16.1 The tax on the Company and Group’s profit before tax differs from the theoretical amount that would arise using the basic tax rate of the Company and the Group as follows:

Reconciliation between current tax charge & accounting profit

Profit before tax 1,274,144,007 987,753,724 475,619,600 28,216,790

Tax calculated at a tax rate 28% ( 2015 - 28%) 356,760,322 276,571,043 133,173,488 7,900,701

Expenses not deductible for tax 53,478,406 197,103,794 155,189 1,352,191

Expenses deductible for tax (150,983,926) (101,954,716) 33,455 (105,612)

Effect from tax losses 30,078,573 (10,453,052) 30,318,042 9,362,359

Income not subject to tax (427,418,442) (335,205,363) (163,638,032) (18,485,644)

Consolidation Adjustments 306,250,538 56,922,251 - -

Under / (over) provisions in previous years (94,808,256) (4,185,663) - -

Deferred tax 16.2 93,860,048 (47,346,349) - -

167,217,263 31,451,945 42,142 23,995

All Companies of the Group are liable to pay Income Tax at 28% (2014/2015-28%).

16.2 Deferred tax charge / (release)

Income statement

Deferred tax expense arising from;

Accelerated depreciation for tax purposes 7,704,498 18,363,236 - -

Employee benefit liabilities (940,200) (254,177) - -

Benefit arising from tax losses 110,226,127 (10,911,070) - -

Others (23,130,377) (54,544,338) - -

93,860,048 (47,346,349) - -

Other comprehensive income

Deferred tax expense arising from;

Revaluation of land and building to fair value - - - -

Actuarial gains/ (loss) on retirement benefits 31,697 634,431 - -

Net change in fair value of available-for-sale financial assets - - - -

31,697 634,431 - -

Deferred tax has been computed at 28% for all companies.


104


16. TAX EXPENSE (Contd.)


Restated2017 2016

In LKR

16.3. Tax losses carried forward

Tax losses brought forward 7,005,020,899 6,227,091,065 1,129,984,077 1,102,755,937

Adjustments on finalization of liability 840,985,258 615,949,911 - -

Acquisition/disposal through business combinations (1,294,258,838) - - -

Tax losses arising during the year 2,236,080,599 258,300,103 108,359,763 27,274,284

Utlization of tax losses (41,437,271) (96,320,180) (81,043) (46,145)

8,746,390,647 7,005,020,899 1,238,262,797 1,129,984,076

The group has tax losses amounting to Rs. 8,746 mn (2015 - Rs. 7,005 mn) that are available indefinitely to offset against future taxable profits of the companies in which the tax losses arose.

17. EARNINGS PER SHAREAccounting policyBasic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent (after adjusting outstanding share option scheme and warrants) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.


Restated

In LKR

17.1 Basic Earnings per Share

Profit attributable to equity holders of the parent from Continuing Operation (LKR) 582,504,658 559,427,403

Profit attributable to equity holders of the parent from Discontinuing Operation (LKR) 248,412,020 (42,919,542)

Weighted average number of ordinary shares 688,160,000 688,160,000

Basic/Diluted earnings per share - Continuing Operation (LKR) 0.85 0.81

Basic/Diluted earnings per share - Discontinuing Operation (LKR) 0.36 (0.06)

17.2 There were no potential Dilutive Ordinary Shares outstanding at any time during the year. Therefore, diluted Earnings Per Share is same as Basic Earnings Per shown in Note 17.1.

18. DIVIDEND PER SHARE


In LKR DPS Total Value DPS Total Value

Equity dividend on ordinary shares declared and paid during the year

Interim dividend 0.50 344,080,000 -


105

19. CASH AND CASH EQUIVALENTS


Restated2017 2016

In LKR

Cash in hand and at Bank Balances 1,209,502,700 800,411,100 40,284,332 40,362,714

Bank Overdrafts (1,228,013,221) (1,350,523,495) (5,917,819) (311,323,068)

(18,510,521) (550,112,395) 34,366,513 (270,960,354)

Cash and Cash equivalents include Cash in Hand, Bank Deposits & Investments with the maturity of less than 3 months.Bank Overdrafts include all temporary & permanent overdrafts.

20. INVENTORIES


Restated

In LKR

Vehicle Stock 25,643,568 58,694,787

Real Estate Stock 82,798,724 423,762,980

Other 7,501,831 29,749,924

115,944,123 512,207,691

21. OTHER NON FINANCIAL ASSETS


Restated2017 2016

In LKR

Advance, Deposits & Pre payments 110,469,646 255,807,043 355,612 667,347

Receivable from Inland Revenue 289,624,793 308,523,419 - -

Deferred Expenses 20.1 - 138,684,364 - -

Receivable from Fairfax on AAGI disposal 157,146,352 -

Other Receivables 239,302,730 432,181,754 3,886,555 2,219,594

796,543,521 1,135,196,580 4,242,167 2,886,941

20.1 Deferred Expenses (Deferred acquisition costs) comprise commissions and other variable costs directly connected with acquisition or renewal of insurance contracts.


106


22. FINANCIAL ASSETS22.1. Financial Assets at Fair Value through Income Statement


In LKR

Quoted Shares 21.1.1 642,423,617 522,783,459

Debt Securities - 85,881,938

Unit Trusts - 66,452,986

642,423,617 675,118,383

22.1.1 Quoted shares investments

GroupYear ended 31st March 2017 2017 2016 2016

In LKR No of Shares Market Value No of Shares Market Value

Market Value

Alumex PLC - - 828,460 12,758,284

Bairaha Farms PLC - - 17,919 2,580,336

Cargills (Ceylon) PLC 7,479 1,403,808 - -

Chevron Lubricants Lanka PLC 170,000 28,900,000 55,000 16,775,000

Commercial Bank of Ceylon PLC (Non Voting) 244,524 31,885,930 - -

Dialog Axiata PLC 4,702,620 53,139,606 868,600 8,859,720

Hemas Holdings PLC 704,950 76,628,065 904,950 72,938,970

Hatton National Bank PLC 335,500 75,588,150 22,443 4,472,890

Hatton National Bank PLC (Non Voting) 42,000 7,770,000 208,505 35,654,355

Jhon Keells Holdings PLC 952,193 131,307,434 789,419 116,834,012

Kelani Cables PLC 17,900 2,103,250 - -

Lanka Tiles PLC - - - -

Overseas Realty (Ceylon) PLC - - 100,000 2,340,000

Panasian Power PLC 3,090,000 9,270,000 3,090,000 9,888,000

People's Leasing & Finance PLC - - - -

Piramal Gas Ceylon PLC 4,000,000 22,400,000 - -

Seylan Bank PLC (Non Voting) 299,614 16,388,886 299,614 18,875,682

Softlogic Holding PLC 4,591,702 54,641,254 4,591,702 61,069,637

Textured Jersey Lanka PLC 350,000 12,950,000 1,811,689 57,430,541

The Lanka Hospital Corporation PLC 62,995 3,874,193 45,470 2,318,970

Tokyo Cement Company (Lanka) PLC 469,540 28,641,940 - -

Union Bank PLC 6,023,317 85,531,101 6,023,317 99,987,062

642,423,617 522,783,459


107

21.1.2 Reclassification of financial assets at fair value through profit or loss (FVTPL) to available-for-sale (AFS)Softlogic Life Insurance PLC Group (previously known as Asian Alliance Insurance PLC) and Softlogic Finance PLC reclassified its investment in National Development Bank PLC (NDB) equity shares into Available for Sale (AFS) from financial assets at fair value through profit or loss (FVTPL) category on 31 July 2015 as approved by the respective board of directors. Further board of directors of respective entities had resolved to reclassify the investment in NDB shares as it was decided the group will no longer hold the investment in NDB for the purpose of being sold in the near term. This decision was taken after considering the potential synergies that could be developed between NDB and companies within the Softlogic group and taking in to account the strategic intent in the holding.

Details of reclassified amounts from financial assets at fair value through profit or loss (FVTPL) to Available for Sale (AFS) as at 31 July 2015 are as follows.

In LKR

Softlogic Life Insurance PLC 2,241,717,500

Softlogic Finance PLC 131,175,000

Total value of Reclassification 2,372,892,500

Fair Value gain recorded in the Group Income Statement and Group Other Comprehensive Income Statement as at the beginning of the each financial period, at the date of the reclassification and as at the financial priod end is given bellow;

Fair value/carrring value

Impact on Group Income

Statement

Impact onOther

Comprehensive Income

As at 01 April 2015 2,139,917,600 - -

As at 31 July 2015 2,372,892,500 232,974,900 -

As at 31 March 2016 1,456,524,560 - (916,367,940)

As at 31 March 2017 1,276,862,149 (208,691,977)

22.2 Available for sale Financial Assets

Group CompanyYear ended 31st March Note 2017 2016 2017 2016

In LKR

Quoted Shares 22.2.1 1,430,799,667 1,600,480,525 12,037,518 11,955,965

Unquoted Shares 22.2.2 469,030,600 469,030,600 - -

Debentures 22.2.3 1,554,868,312 1,281,298,284 - -

Treasury Bonds 3,376,101,533 3,561,116,320 - -

6,830,800,112 6,911,925,729 12,037,518 11,955,965


108


22. FINANCIAL ASSETS (Contd.)22.2.1. Quoted shares investments

GroupQuoted shares 2017 2017 2016 2016


Market Value

Asiri Hospital Holdings PLC 5,500,000 141,900,000 5,500,000 132,000,000

Browns Capital PLC 950,900 1,426,350 950,900 1,141,080


National Development Bank 9,146,577 1,276,862,149 8,628,700 1,456,524,560


1,430,799,667 1,600,480,525

CompanyQuoted shares 2017 2017 2016 2016


Browns Capital PLC 950,900 1,426,350 950,900 1,141,080



12,037,518 11,955,965

22.2.2. Un-quoted shares investments

Group2017 2017 2016 2016


Cargills Agricultural Commercial Bank Limited 34,000,000 469,000,000 34,000,000 469,000,000

Credit Information Bereau 100 30,600 100 30,600

469,030,600 469,030,600


109

22.2.3 Debentures

GroupIssuer 2017 2016

In LKR Maturity Date Interest Rate % No of Debentures Market Value Market Value

Alliance Finance Co. PLC 16.50% 30-Sep-18 250,000 31,699,874 31,330,936

Citizens Development Business Finance PLC 12.75% 3-Jun-21 500,000 51,450,734 -

16.00% 19-Dec-18 692,700 75,993,931 76,022,204

16.00% 19-Dec-18 245,800 26,822,596 26,975,975

Commercial Bank of Ceylon PLC 10.75% 8-Mar-21 500,000 41,318,361 50,316,563

12.00% 27-Oct-21 243,100 21,906,865 -

Commercial Credit & Finance PLC 20.00% 18-Feb-18 500,000 54,619,591 54,710,462

DFCC Bank PLC 12.75% 9-Nov-23 500,000 51,510,167 -

Dunamis Capital PLC 12.50% 5-Aug-19 798,000 81,821,993 84,896,512

12.50% 5-Aug-19 202,000 20,851,008 21,476,299

First Capital Holdings PLC 14.00% 12-Mar-19 262,640 29,836,002 29,845,321

First Capital Treasuries PLC 9.50% 6-Feb-20 250,000 24,815,588 24,407,201

Hatton National Bank PLC 7.75% 14-Dec-19 500,000 45,436,137 45,446,730

8.33% 14-Dec-24 500,000 51,005,305 51,016,700

11.25% 28-Mar-21 1,000,000 86,597,269 100,087,661

13.00% 1-Nov-23 370,200 38,163,527 -

8.00% 29-Aug-23 185,256 13,461,535 15,696,280

Kotagala Plantations PLC 14.25% 26-May-18 463,750 47,979,889 47,997,949

14.50% 26-May-19 463,750 48,009,355 48,027,829

14.75% 26-May-20 463,750 48,038,254 48,057,172

15.00% 26-May-21 463,750 48,067,492 48,086,776

Merchant Bank of Sri Lanka & Finance PLC 17.50% 27-Mar-18 469,300 55,950,157 55,968,940

17.50% 27-Mar-18 281,600 29,619,578 -

Nations Trust Bank PLC 12.80% 8-Nov-21 225,900 23,275,052 -

People's Leasing & Finance PLC 12.60% 16-Nov-21 1,000,000 103,070,430 -

17.00% 26-Mar-18 500,000 55,715,246 55,734,859

17.00% 26-Mar-18 300,000 29,697,807 -

Sampath Bank PLC 8.25% 14-Dec-19 500,000 44,479,707 46,007,218

12.75% 10-Jun-21 500,000 51,553,705 -

16.50% 11-Oct-17 144,300 15,269,782 15,563,935

Senkadagala Finance PLC 15.00% 10-Dec-18 817,653 81,731,200 81,854,451

17.25% 27-May-17 185,014 19,547,793 19,418,371

17.25% 27-May-17 181,880 18,683,505 -

Seylan Bank PLC 15.50% 21-Feb-18 100,000 9,552,465 10,660,323

Singer Finance (Lanka) PLC 11.50% 6-Apr-19 300,000 30,785,435 -

12.00% 6-Apr-20 300,000 30,866,758 -

Siyapatha Finance PLC 13.50% 20-Sep-21 168,000 15,664,218 -

Lanka Orix Leasing Company PLC 11.90% 30-Jun-16 450,000 - 46,301,787

Softlogic Holding 15.75% 9-Sep-16 1,000,000 - 108,305,854

15.75% 9-Sep-16 300,000 37,083,976

1,554,868,311 1,281,298,284


110


22. FINANCIAL ASSETS (Contd.)22.3. Loans and Receivables


Restated

In LKR

Other Loans 21.3.1 17,810,237,120 14,883,040,858

Trade Debtors 353,429,259 228,314,414

Reinsurance Receivables 190,697,783 200,127,791

Premium Receivables 142,670,060 679,116,882

Debentures - 444,427

Commercial Papers 154,002,338 -

Bank Deposit 139,026,767 324,118,343

Repos 2,418,821,400 2,675,364,429

Deposits with Regulator-CSE 3,500,000 3,500,000

21,212,384,727 18,994,027,144

22.3.1 Other Loans

Loans and receivable 20,287,968,584 17,691,628,137

(-) Unearned Income (1,831,992,612) (2,207,752,326)

Gross Loans and Receivables 18,455,975,972 15,483,875,811

(-) Allowance for Specific Impairment (212,550,619) (263,671,097)

(-) Allowance for Collective Impairment (433,188,233) (337,163,856)

Net Other Loans 17,810,237,120 14,883,040,858


111

22.3.1.1 Product wise analysis of Other Loans


Restated

In LKR

Revolving loans receivable 1,054,812,746 663,798,212

Consumer Loans receivable 97,759,448 107,696,393

Personal loans receivable 2,217,674,237 3,011,655,375

Pawning receivable 822,790,857 610,384,558

Policy Loans 144,913,575 1,470,037

SME Loans receivable 14,118,025,109 11,088,871,236

Allowance for impairment (645,738,852) (600,834,953)

17,810,237,120 14,883,040,858

22.3.1.2 Product wise analysis - allowance for impairment for loans and advances

Revolving loans receivable 13,577,173 48,346,255

Consumer Loans receivable 2,456,002 27,467,029

Personal loans receivable 306,233,554 197,049,052

Pawning receivable 726,810 59,359

SME Loans receivable 322,745,313 327,913,258

645,738,852 600,834,953

22.3.1.3 Movement in Impairment Allowance for Loans and Receivable

At the Beginning of the Year 600,834,953 278,382,302

Net Iimpairment Charge for the Year 265,501,772 571,686,834

Write off during the Year (133,202,008) (205,432,193)

Set offs during the year (87,395,865) (43,801,990)

At the end of the year 645,738,852 600,834,953

22.3.1.4 Movement in Specific Impairment Allowance for Loans and Receivables


Net Impairment Charge for the Year (2,803,991) 182,158,175

Write off During the Year (37,368,831) -

Set offs during the year (10,947,656) -


22.3.1.5 Movement in Collective Impairment Allowance for Loans and Receivables


Net Impairment Charge for the Year 268,305,763 389,528,659

Write off During the Year (95,833,177) (205,432,193)

Set offs during the year (76,448,209) (43,801,990)


22.3.1.6 The company modified the classification of fixed deposits and repo investments for better presentation purposes to reflect more appropriately the investments held by the company for investment purposes. Comparative amounts in the Statement of Financial Position were restated for consistency. As a result, Rs. 1,985,949,858 was reclassified from ‘cash and cash equivalents’ to ‘financial investments- loans and receivables’.


112


22. FINANCIAL ASSETS (Contd.)22.4. Held to Maturity Financial Assets


In LKR

Treasury Bonds 230,473,484 225,093,733

230,473,484 225,093,733


Restated

In LKR

22.5. Lease and hire purchase receivables

Gross Investment in Leases and hire purchases 1,372,285,252 1,898,435,356

(-) Rentals Received in Advance (326,046) (1,177,300)

(-) Unearned Income (210,815,006) (269,047,524)

(-) Allowance for Impairment

Allowance for Specific Impairment (41,709,437) (40,677,623)

Allowance for Collective Impairment (170,118,088) (143,302,316)

Net Leases and hire purchase Receivables 949,316,675 1,444,230,593

22.5.1. Lease and hire purchase rentals receivable within one year

Lease and hire purchase Rentals Receivable within one year 1,013,517,354 1,408,000,332

(-) Unearned Income (131,311,909) (172,911,596)

Gross Rentals Receivable within one year 882,205,445 1,235,088,736

22.5.2. Lease and hire purchase rentals receivable within one to five years

Lease and hire purchase Rentals Receivable within 1-5 years 358,441,852 496,325,837

(-) Unearned Income (79,503,097) (96,135,928)

Gross rentals Receivable within one to five years 278,938,755 400,189,909

22.5.3. Movement in Impairment Allowance for Leases and hire purchase Receivables

At the beginning of the year 183,979,940 102,629,978

Net impairment charge for the year 47,750,695 297,961,264

Recoveries during the year 72,067,028 128,044,598

Write offs during the year (91,970,138) (344,655,901)


22.5.3.1. Movement in Specific Impairment Allowance for Leases and hire purchase Receivables


Net impairment charge for the year 20,934,925 143,988,259

Recoveries during the year 72,067,028 128,044,598

Write offs during the year (91,970,138) (257,797,479)



113


Restated

In LKR

22.5.3.2. Movement in Collective Impairment Allowance for Leases and hirepurchase Receivables


Net Impairment Charge for the Year 26,815,772 153,973,005

Write offs during the year - (86,858,422)

At the end of the Year 170,118,088 143,302,316

23. INVESTMENTS IN SUBSIDIARIESCompany

Effective Holding No of Shares 2017 2016

Carrying Value %

Softlogic Finance PLC 68.58% 40,509,081 1,373,104,741 1,370,501,893

Softlogic Life Insurance PLC (previously known as Asian Alliance Insurance PLC)

59.19% 221,952,810 2,689,582,213 2,689,582,212

Softlogic Stockbrokers (Pvt) Ltd 100.00% 19,700,000 316,929,500 316,929,500

Capital Reach Portfolio Management (Pvt) Ltd. 100.00% 2 20 20

4,379,616,474 4,377,013,625

Market Value of Group quoted Investments in Subsidiaries

Softlogic Finance PLC 1,255,781,511 1,548,455,007

Softlogic Life Insurance PLC 4,328,079,795 3,351,487,431


114


24. PROPERTY, PLANT & EQUIPMENT24.1. Group

As at 31st March 2017In LKR

Land and Building

Furnitureand Fittings

Computersand Printers

OfficeEquipment

MotorVehicles

Total as at31st March

2017

Total as at31st March

2016

Freehold assets

Cost or Valuation

At the beginning of the year 429,784,245 511,218,661 119,881,200 348,418,268 41,371,800 1,450,674,174 1,282,745,312

Additions 12,172,132 118,423,814 22,082,941 29,799,586 6,506,993 188,985,466 201,262,028

Disposals - (51,068,030) - (8,235,656) (709,428) (60,013,114) (28,230,926)

Disposal of Subsidiary - (33,261,842) (28,799,180) (16,308,865) (2,392,500) (80,762,387) -

Transfers - (16,614) (747,563) (2,500) (16,527,345) (17,294,022) (88,270,524)

Impairment/ Derecognition - (274,088) (1,642,572) (130,427) - (2,047,087) -

Revaluations 30,000,000 - - - - 30,000,000 83,168,283

At the end of the year 471,956,377 545,021,901 110,774,826 353,540,406 28,249,520 1,509,543,030 1,450,674,173

Leasehold assets

Cost

At the beginning of the year - 3,590,487 - 707,000 12,682,533 16,980,020 18,312,475

Additions - - - - - - 8,888,820

Disposals - - - - (2,000,000) (2,000,000) (10,221,275)

Transfers - - - - 16,494,420 16,494,420 -

At the end of the year - 3,590,487 - 707,000 27,176,953 31,474,440 16,980,020

Total value of assets 471,956,377 548,612,388 110,774,826 354,247,406 55,426,473 1,541,017,470 1,467,654,193

Freehold assets

Accumulated Depreciation

At the beginning of the year 1,903,444 239,446,499 73,689,990 215,184,308 22,471,690 552,695,931 485,327,327

Charge for the year 15,208,646 74,952,513 13,966,061 40,691,710 4,678,284 149,497,214 153,619,517

Disposals - (14,681,474) - (128,800) (709,428) (15,519,702) (15,047,742)

Disposal of Subsidiary - (12,150,385) (16,478,471) (8,339,152) (42,500) (37,010,508) -

Transfers - (9,559) (580,846) (348,045) (3,465,777) (4,404,227) (71,203,171)

Impairment/ Derecognition - (274,086) (1,597,920) (130,426) - (2,002,432) -

At the end of the year 17,112,090 287,283,508 68,998,814 246,929,595 22,932,269 643,256,276 552,695,931

Leasehold assets


At the beginning of the year - 3,590,487 - 707,000 4,969,371 9,266,858 18,151,222

Charge for the year - - - - 5,639,878 5,639,878 1,336,911

Disposals - - - - (2,000,000) (2,000,000) (10,221,275)

Transfers - - - - 3,432,852 3,432,852 -

At the end of the year - 3,590,487 - 707,000 12,042,101 16,339,588 9,266,858

Total accumulated depreciation 17,112,090 290,873,995 68,998,814 247,636,595 34,974,370 659,595,864 561,962,789

As At 31 March 2017 454,844,287 257,738,393 41,776,012 106,610,811 20,452,103 881,421,606

As At 31 March 2016 427,880,800 271,772,163 46,191,210 133,233,960 26,613,272 905,691,404


115

24.2 Company

As at 31st March 2017In LKR

Furniture and Fittings

Computers and Printers

Computers and Printers

Total as at2017

Total as at2016

Cost

At the beginning of the year 290,702 2,390,135 132,927 2,813,764 2,813,764

Additions - - - - -

Disposals - - - - -

Transfers/Writeoffs (290,702) (2,390,135) (132,927) (2,813,764) -

At the end of the year - - - - 2,813,764


At the beginning of the year 281,986 2,060,992 132,012 2,474,990 2,474,990

Charge 1,659 117,774 332 119,765 298,817

Disposals - - - - -

Transfers/Writeoffs (283,645) (2,178,766) (132,344) (2,594,755) -

At the end of the year - - - - 2,773,807

Balance As At 31 March 2017 - - - -

Balance As At 31 March 2016 8,716 329,143 915 338,774

24.3. Acquisition of PPE during the yearDuring the financial year, the Group acquired PPE to the aggregate value of Rs. 188.9Mn (2016 - 210Mn)

24.4. Fully depreciated property plant & equipment in useThe initial cost of fully depreciated PPE which are still in use as at reporting date, is as follows:


In LKR

Property, Plant and Equipment 203,752,682 215,162,270

24.5. Property plant & equipment pledged as securityNone of the PPE of the Group and the Company have been pledged as securities as at the reporting date except lease assets.

24.6. Title restriction on property plant & equipmentThere are no restrictions that existed on the title of the PPE of the Group and the Company as at the reporting date.

24.7. Capitalisation of Borrowing CostThere were no capitalised borrowing costs relating to the acquisition of Property Plant and Equipment during the year (2016- Nil).


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24. PROPERTY, PLANT & EQUIPMENT (Contd.)24.8. The details of freehold land and buildings which are stated at valuation are as follows;

Freehold land - Group

Subsidiary Location Land extend Method of Valuation Date of the Valuation

Valuer RevaluedAmount

(LKR)

Softlogic Finance PLC No. 13, De Fonseka place, Colombo 4.

0A-0R-12.6P Open Market Value 28th February 2017

Mr. G.W.G. Abeygunawardene(Chartered Valuation Surveyor)

150,000,000

Softlogic Life Insurance PLC No. 283, R A De Mal Mawatha, Colombo 3.

0A-0R-12.0P Open Market Value 31st December 2015

Mr. P.B. Kalugalgedara(Chartered Valuation Surveyor)

108,000,000

Freehold buildings - Group

Subsidiary Location Square Feet Method of Valuation Date of the Valuation

Revalued Amount

(LKR)

Softlogic Finance PLC No. 13, De Fonseka Place, Colombo 4.

16,850 Direct Capital Comparison method

28th February 2017

Mr. G.W.G. Abeygunawardene (Chartered Valuation Surveyor)

81,100,000

Softlogic Life Insurance PLC No. 283, R A De Mal Mawatha, Colombo 3.

11,824 Direct Capital Comparison method

31st December 2015

Mr. P.B. Kalugalgedara (Chartered Valuation Surveyor)

118,000,000

24.9 If land and buildings were stated at historical cost, the amounts would have been as follows

Group2017 2016

31 March 2017 Land Building Land Building

In LKR

Cost 147,801,424 217,927,005 147,801,424 210,512,696

Accumulated depreciation - (24,843,934) - (14,215,129)

Carrying value 147,801,424 193,083,072 147,801,424 196,297,567


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23.10 Fair Value HierarchyThe fair value of the Land & Buildings was determined by an external independent property valuer, having appropriate recognised professional qualifications and experience in the category of the property being valued. The valuer provides the fair value of the property. Fair value measurements of the property has been categorised as a Level 3 fair value based on the valuation techniques used.

Valuation Techniques and Significant Unobservable InputsThe following tables show the valuation techniques used in measuring fair values, as well as the significant unobservable inputs.

Description Effective Date of valuation

Valuation Technique Significant Unobservable Inputs

Interrelationship between key unobservable inputs and Fair value measurements

Freehold land - Group

No. 13, De Fonseka place, Colombo 4.

28th February 2017 Open Market Value Estimated price per perchRs. 12,500,000

Positive correlated sensitivity

No. 283, R A De Mal Mawatha, Colombo 3.

31st December 2015 Open market value Estimated price per perchRs. 5,000,000 - Rs. 11,000,000


Freehold buildings - Group

No. 13, De Fonseka place, Colombo 4.

28th February 2017 Direct capital comparison method

Estimated value per square feet Rs.6,500 - Rs.8000


No. 283, R A De Mal Mawatha, Colombo 3.

31st December 2015 Direct capital comparison method

Estimated value per square feet Rs. 10,000


25. INTANGIBLE ASSETSGroup Company

PVIB Goodwill Brand Name Other 2017 2016 2017 2016

Cost

At the beginning of the year 1,980,596,000 924,934,106 224,498,000 206,284,412 3,336,312,518 3,246,596,806 6,571,263 6,571,263

Additions - - - 72,308,482 72,308,482 14,316,558 - -

Transfers - from PPE - - - (4,688,733) (4,688,733) 75,399,154 - -

Disposal of Subsidiary - - - (200,000) (200,000) - - -

1,980,596,000 924,934,106 224,498,000 273,704,161 3,403,732,267 3,336,312,518 6,571,263 6,571,263

Accumulated amortisation

At the beginning of the year 639,045,249 - - 126,413,695 765,458,944 557,646,153 6,571,263 6,000,000

Amortisation 121,959,159 - - 17,599,618 139,558,777 149,480,625 - 571,263

Transfers - from PPE - - - - - 58,332,166 - -

Impairment/ Derecognition - - 67,349,400 - 67,349,400 - - -

At the end of the year 761,004,408 - 67,349,400 144,013,313 972,367,121 765,458,944 6,571,263 6,571,263

Carrying value

As at 31 March 2017 1,219,591,592 924,934,106 157,148,600 129,690,848 2,431,365,146 - - -

As at 31 March 2016 1,341,550,751 924,934,106 224,498,000 79,870,718 - 2,570,853,575 - -


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25. INTANGIBLE ASSETS (Contd.)25.1. Present value of acquired in-force Long-term Insurance business (PVIB)On acquiring a controlling stake in Softlogic Life Insurance PLC, the group has recognized in the consolidated financial statements an intangible asset representing the present value of future profits on AAIC’s portfolio of long term life insurance contracts, known as the present value of acquired in-force Long-term Insurance business (PVIB) at the acquisition date. Further, PVIB recognized at the acquisition date will be amortized over the life of the business acquired and reviewed annually for any impairment in value.

25.2. Goodwill acquired through business combinations have been allocated to three cash generating units (CGU’s) such as Softlogic Life Insurance PLC, Softlogic Stock Brokers and Softlogic Finance PLC for impairment testing

The recoverable amount of all CGUs have been determined based on the higher of its fair value less costs to sell and its Value in Use (VIU) calculation. VIU was determined by discounting the future cash flows generated from the continuing use of the unit. The key assumptions used are given below:

• Business growth - Based on historical growth rate and business plans. Cash flows beyond the five year period are extrapolated using zero growth rate.

• Inflation - Based on prevailing inflation rate and projected economic conditions.

• Discount rate - Weighted Average Cost of Capital;

• Margin - Based on current margin and business plans

26. STATED CAPITAL2017 2016

Year ended 31st March Number Value of Number Value of

In LKR of Shares Shares of Shares Shares

Issued and Fully Paid

At the beginning of the year 688,160,000 2,880,000,000 688,160,000 2,880,000,000

At the end of the year 688,160,000 2,880,000,000 688,160,000 2,880,000,000

27. RESERVES27.1. Reserve Fund


Restated

In LKR


Transferred during the year 72,959,977 73,792,156


Reserve fund is a statutory reserve created in compliance with the direction No. 1 of Central Bank Regulations of 2003. The amount transferred is not less than 20% of the net profit after taxation.

27.2. Available for Sale Reserve


In LKR

At the beginning of the year (870,274,893) 35,939,065 (2,871,107) (1,953,928)

Net unrealised gain/ (loss) on available-for-sale financial instruments (140,413,830) (906,213,958) 10,753 (917,179)

At the end of the year (1,010,688,723) (870,274,893) (2,860,354) (2,871,107)


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28. TRADE AND OTHER PAYABLESGroup

Year ended 31st March 2017 2016Restated

In LKR

Trade payable 530,932,668 311,049,887

Reinsurance Creditors 229,140,349 200,701,183

Insurance Provision - General - 1,346,470,847

Commission Payable 201,882,766 214,504,515

Premium Deposit 56,053,689 94,584,615

Accrued Expenses 267,425,677 80,489,573

1,285,435,149 2,247,800,620

29. OTHER NON FINANCIAL LIABILITIESGroup Company

Year ended 31st March 2017 2016 2017 2016

In LKR

Deferred Income - 15,236,346 - -

Tax and Other Statutory payables 6,475,990 15,402,830 - -

Other Payable 143,631,220 155,992,199 3,943,880 2,841,220

150,107,210 186,631,375 3,943,880 2,841,220

30. INCOME TAX PAYABLEGroup Company


2017 2016

In LKR

At the beginning of the year 72,869,051 23,541,697 - -

Provision for the year 112,572,775 88,192,566 42,142 23,995

Reversal of income tax over charge in previous years (94,808,256) (4,171,605) - -

Payments and set off against refunds (92,637,572) (34,693,607) (42,142) (23,995)

Disposal of Subsidiary (23,708,572)

At the end of the year (25,712,574) 72,869,051 (42,142) (23,995)

31. PUT OPTION LIABILITYGroup

Year ended 31st March 2017 2016

In LKR

Put Option Liability 9,356,708 9,356,708


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31. PUT OPTION LIABILITY (Contd.)31.1. Softlogic Holdings PLC (“SH”), Softlogic Capital PLC (“SC”) and Asian Alliance Insurance PLC (“AAI”) entered into a “Shareholders Agreement” and “Share Purchase Agreement” dated 20 December 2012 as amended 13 February 2013 with Deutsche Investitions - Und Entwicklungsgesellschaft MBH (“DEG”) and Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (“FMO”) to sell 19% of the ordinary shares of AAI, held by SH to FMO and 19% of the AAI ordinary shares held by SC to DEG. As per the above agreements, SC has granted a ‘Put Option’ to FMO and DEG which will be valid for a three year period with effect from 7 March 2017 to repurchase 38% of the shares held by DEG and FMO based on a ‘Put Option’ price as specified in the amended agreements.

Subsequent to the evaluation of ownership interest on the share transferred to non-controlling interest (NCI) based on pricing, voting rights, decision making and dividend rights, management determines that SH & SC have transferred full ownership interest to the NCI. Therefore AAI shares were derecognized and any liability arising from the put option will be recognized based on option valuation methodology in line with LKAS 39 Financial Instrument Recognition and measurement.

31.2. The obligation on the put option liability is based on the Binomial method of valuation carried out by the management of Softlogic Capital PLC. The principal inputs used in determining the liability were:

Group and CompanyYear ended 31st March 2017 2016

In LKR

Continuous compounded risk free rate (%) 12.89 10.64

Annualized volatility (%) 40.81 39.54

Appraisal value (Rs.) 293 247

Probability to move up (Pu) of the option value (%) 90 90

Probability to move down (Pd) of the option value (%) 10 10

Upward movement of the appraisal value (%) 1.33 1.32

Downward movement of the appraisal value (%) 0.75 0.76

At the end of the year the liability amounted to Rs. 9,356,708/-.

Risk free rate Rate of return of an investment with no risk of financial lossAppraisal value Appraisal value is based on an valuation performed by an independent valuer

31.3. Sensitivity of assumptions usedIf one percentage point changes in the assumptions, would have the following effect:

Group and CompanyYear ended 31st March 2017 2016

In LKR

Effect on the put option obligation liability;

Increase by one percentage point in risk free rate (127,152) (184,302)

Decrease by one percentage point in risk free rate 129,835 188,944


Increase by one percentage point in appraisal value (210,290) (418,157)

Decrease by one percentage point in appraisal value 210,290 418,157


Increase by one percentage point in probability to move up of the option value (1,929,647) (2,439,280)

Decrease by one percentage point in probability to move up of the option value 2,276,066 2,923,311


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32. INTEREST BEARING BORROWINGSGroup Company

Year ended 31st March 2017 2016 2017 2016

In LKR

Bank Loans 2,284,147,786 1,971,404,591 1,290,300,000 1,035,216,000

FMO Loan 315,551,687 311,727,460 - -

Finance Lease Creditors 6,298,601 18,292,040 - -

Securitisation 509,217,694 - - -

Corporate Debt Securities 1,483,627,770 2,874,181,924 - 77,791,302

Other Loans 160,000,000 -

4,758,843,538 5,175,606,015 1,290,300,000 1,113,007,302

32.1. Bank Loans

Institution Type of Loan Amortized Cost Interest Rate SecuritiesPledged

Security Value

Softlogic Capital PLC

Sampath Bank PLC Term Loan 952,000,000 AWPLR+2.75% 158,611,920 shares of Softlogic Life Insurance PLC and 13,244,981 shares of Softlogic Finance PLC

3,503,526,851

Nations Trust Bank PLC Term Loan 338,300,000 AWPLR+2.75% with a floor of 14%

34,000,000 shares of Softlogic Life Insurance PLC

663,000,000

1,290,300,000

Softlogic Finance PLC

Commercial Bank of Ceylon Term Loan 156,592,836 AWPLR+2.50% Nil

Commercial Bank of Ceylon Revolving short term loan

251,009,972 15% Nil

HNB Bank Term Loan 200,279,850 AWPLR+1% Nil

Seylan Bank Term Loan 183,575,265 AWPLR+ 2% Mortgage over lease and hire purchase receivables

300,000,000

People's Bank Revolving short term loan

202,389,863 AWPLR+ 4.5% Mortgage over lease receivables

250,000,000

993,847,786

Total Bank Borrowings 2,284,147,786

32.2 FMO Loan and Securitisation

Institution Type of Loan Amortized Cost Interest Rate SecuritiesPledged

Security Value

FMO Convertible Debt 315,551,687 LIBOR+7% Nil

Bank of Ceylon-Trust 1 Securitisation 509,217,694 14% Mortgage over personal loans receivables

509,217,694


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33. PUBLIC DEPOSITSGroup


In LKR

Time deposits 15,994,391,320 13,932,160,040

Savings deposits 54,082,607 67,820,263

Certificate of deposits - 4,154,432

16,048,473,927 14,004,134,735

Payable after one year 1,986,055,112 1,521,942,995

Payable within one year 14,062,418,815 12,482,191,740

16,048,473,927 14,004,134,735

34. INSURANCE PROVISION - LIFEGroup

Year ended 31st March Note 2017 2016

In LKR Restated

At the beginning of the year 6,434,118,177 5,029,272,339

Increase in life fund 1,162,448,883 1,891,162,838

Transfer to shareholders (1,080,000,000) (862,235,000)

Adjustment made as directed by Insurance Board of Sri Lanka 34.5 - 375,918,000

At the end of the year 6,516,567,060 6,434,118,177

34.1. Valuation of Life Insurance FundLong duration contract liabilities included in the Life Insurance fund,result primarily from traditional participating and non-participating life insurance products. The actuarial reserves have been established by Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, FIAI, Messrs. Willis Towers and Watson (WTW) as at 31st December 2016. (Valuation of 31st December 2015 was done by Mr. Poopalanathan, AIA Messrs. Acturial and Management Consultation (Pvt) Ltd.

Key Assumptions used in determinations of Best Estimate Liability (BEL)

Assumption Basis of Estimation

Risk Free Rate Based on Sri Lankan government bond yields issued by IBSL for the industry as at 31st December 2016

Mortality Rates Based on the Morality investigation carried out as at 31st December 2016

Individual life - 65% of A67/70 (ultimate)

Group life - 50% of A67/70 (ultimate)

Morbidity Rates Based on the Morbidity investigation carried out as at 31st December 2016

Expense Based on the Expense investigation carried out as at 31st December 2015 based on the expenses incurred during 2015.

For the purpose of the expense study, a functional split of expenses between acquisition and maintenance cost have been done on the basis of inputs from various departments heads of each cost Centre to determine a reasonable activity based split of expenses.

Persistency Ratio Discontinuance assumption have set based on the experience investigation carried out as at 31st December 2016

The discontinuance assumptions have been set with reference to actual experience and vary by policy duration

Bonus Rate Based on the Asset Share investigation study

Participating fund yield Based on the weighted average of projected asset mix and based on the expected yields for various asset types


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34.2. Recommendation of Surplus TransferThe valuation of life insurance fund as at 31st December 2016 was made by Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, FIAI, Messrs. Willis Towers and Watson (WTW), who recommended;

- there is no transfer to shareholders from the Participating life fund

- a sum of Rs. 1,080 million to be transferred from Non-Participating Life Insurance fund / insurance contract liabilities to the Shareholders fund (2016 - Rs. 862.24 million); (transfer of the amount of Rs.440.00 mn declared as surplus for the quarter ended 31 March 2017, as recommended by the Appointed Actuary was permitted by the Insurance Board of Sri Lanka (IBSL) subject to strict conditions)

Subsequent to the transfer the surplus of Rs. 1,080 million, life fund stands as Rs. 6,517 million as at 31st March 2017, including the liability in respect of bonuses and dividends declared up to and including for the year 2016 as well as Surplus created due to Change on Valuation method of policy liabilities from NPV to GPV.

34.3. Solvency MarginIn the opinion of the Appointed actuary, the Company maintains a Capital Adequacy Ratio (CAR) 195% and Total Available Capital (TAC) of Rs.8,570 million as at 31st December 2016, which exceed the minimum requirement of 120% and Rs. 500 million respectively as per the Solvency Margin (Risk Based Capital) Rules 2015 requirement prescribed under section 26 (1) of the Regulation of Insurance Industry Act No. 43 of 2000.

34.4. Surplus created due to change in Valuation Method - One off SurplusAccounting PolicyInsurance Contract Liabilities are measured on a market consistent basis in accordance with the Solvency Margin (Risk Based Capital) Rules 2015 with effect from 01st January 2016. However period up to 31st December 2015, the Company used Net Premium Valuation (NPV) methodology to calculate insurance liability in accordance with Solvency Margin (Long Term Insurance) Rules 2002.

One off unallocated surplus was created with the migration to the new Regime as explain above which was effective from 01st January 2016.

MeasurementThe Insurance Board of Sri Lanka (IBSL) has directed insurance Companies to maintain this one off surplus arising from change in the policy liability valuation within the long term insurance fund / insurance contract liabilities separately in the name of “Surplus created due to change in valuation method from NPV to GPV and not transfer/distribute any part surplus until specific instructions are issued in this regard.

Surplus created due to change in Valuation Method of Policy Liabilities from Net Premium Valuation (NPV) to Gross Premium Valuation (GPV) is measured based on the difference in the policy liability valuation by the independent Actuary based on NPV and GPV bases valuation as at 31st December 2015 as directed by IBSL through a letter dated 02nd February 2017.

ValuationDetails of one off results as at 01st January 2016 is provided as follows;

Description Participating Fund

Rs. Mn

Non-Participating Fund

Rs. Mn

TotalRs. Mn

Value of Insurance contract liability based on Independent Actuary -NPV as at 31st December 2015 3,866.7 2,472.6 6,339.3

Value of Insurance contract liability based on Independent Actuary - 2,810.2 (1,285.7) 1,524.5

GPV 31st December 2015

Surplus created due to Change in Valuation Method -One off Surplus as at 01st January 2016 1,056.5 3,758.3 4,814.8


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34. INSURANCE PROVISION - LIFE (Contd.)34.5. Prior year adjustment made as directed by Insurance Board of Sri LankaThrough a letter dated 09th September 2016 the Insurance Board of Sri Lanka (IBSL) has instructed the Company to obtain an independent valuation of life fund liability as at 31st December 2015 based on Solvency Margin (Long term Rules) 2002 - Net Premium Based Liability Valuation (NPV). This was the same basis on which the Company’s Appointed Independent Actuary, Mr. M. Poopalanathan had performed the reported liability valuation as at 31st December 2015.

Further to the above, IBSL instructed the Company on the “One-off surplus created due to change in valuation method from NPV to GPV” should be calculated based on valuation carried out by an additional Independent Actuary (Towers and Watson). This required the Company to state its opening Life Fund Value as per the value provided by the said Independent Actuary.

The table below summarizes the Policy liability valuation results as at 31st December 2015 between the two Actuaries;

Valuation on NPV Basis TotalRs. Mn

Appointed Actuary’s Valuation as at 31st December 2015 Mr. M. Poopalanathan, AIA, Actuarial & Management Consultants 5,963

Independent Actuary’s Valuation as at 31st December 2015 Mr. Mark Birch, FIA, Messrs. Willis Towers Watson 6,339

Adjustment as at 31st December 2015 376

In order to record the additional liability of Rs. 376 million as at 31st December 2015, as required by IBSL, the Company has charged its opening retained earnings and increased the life fund liability by Rs. 376 million, as at 31st December 2015. Accordingly the Statement of Financial position and Statement of Changes in Equity have been restated. Based on the discussions with the Actuaries, it is understood that it is not practical to determine the period specific effects as this difference may be arising due to differences in methodology/approach used by acturies over many years. (Each year valuation assumptions are different under Net premium basis valuation such as each single inforce policy to be valued in each reporting period as well as practical difficulty for determining each periods cash flow / estimates separately for respective periods). As such the cumulative effect of Rs. 376 million had been adjusted in retained earnings as at 31st December 2015, without adjusting the impact in the comparative income statement.

35. EMPLOYEE BENEFIT LIABILITIESGroup

Year ended 31st March 2017 2016In LKR


Transfer of liability from Group Companies 768,734 -

Current service cost 24,332,130 16,058,178

Interest cost 2,026,937 6,589,341

Actuarial (gain) / loss on defined benefit plans 17,217,461 (1,570,960)

Disposal of Subsidiary (18,127,473) -

Benefits paid (11,483,723) (7,941,903)


35.1. The amounts recognized in the statement of comprehensive income are as follows

Current service cost 24,332,130 16,058,178

Interest cost 2,026,937 6,589,341

Recognised in income statement 26,359,067 22,647,519

35.2. The principal assumptions used for this purpose are as follows:

Group2017 2016

Discount rate per annum 11% - 13% 11% - 12%

Annual salary increments rate 8% - 12% 8%

Staff turnover rate 10% - 24% 6%

Retirement age 55 55


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35.3. Sensitivity of assumptions used

If one percentage point changes in the assumptions, would have the following effect:

GroupYear ended 31st March 2017 2016In LKR

Effect on the defined benefit obligation liability;

Increase by one percentage point in discount rate (3,480,748) (3,451,380)

Decrease by one percentage point in discount rate 3,808,037 3,797,608

Effect on the defined benefit obligation liability;

Increase by one percentage point in salary increment rate 4,126,454 4,034,922

Decrease by one percentage point in salary increment rate (3,839,515) (3,721,203)

35.4. Maturity analysis of the paymentsThe following payments are expected on employees benefit liabilities in future years.

GroupYear ended 31st March 2017 2016In LKR

- within the next 12 months 36,851,168 22,581,056

- between 1 and 2 years 21,400,688 18,364,344



- beyond 10 years 3,811,873 6,013,680

Total expected payments 99,508,152 84,774,085

35.3. The Group’s weighted average duration of defined benefit obligation is 4.3 years.

36. DEFERRED TAX LIABILITIES / ASSETS36.1. Deferred tax assets


Restated2017 2016

In LKR

At the beginning of the year 111,908,568 14,953,055 14,759,960 14,759,960

Charge/ release (22,106,555) 96,955,513 - -

Charge/ release - Other Comprehensive Income (22,606,454) -

Disposal of Subsidiary (52,435,599) -

At the end of the year 14,759,960 111,908,568 14,759,960 14,759,960

The closing deferred tax asset balance relates to the following;

Accelerated depreciation for tax purposes - (37,700,662) - -

Revaluation of building to fair value - (7,905,460) - -

Net gain/loss on available-for-sale financial assets - 22,606,454 - -

Employee benefit liabilities - 9,328,790 - -

Losses available for offset against future taxable income 14,759,960 72,649,877 14,759,960 14,759,960

Unclaimed Impairment Provisions - 117,236,188 - -

Lease Capital Balance - (64,306,619) - -

14,759,960 111,908,568 14,759,960 14,759,960


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36. DEFERRED TAX LIABILITIES / ASSETS (Contd.)36.2. Deferred tax liabilities


Restated

In LKR


Income statement release 63,961,598 (16,974,865)


The closing deferred tax liability balance relates to the following;

Accelerated depreciation for tax purposes 50,043,074 4,108,054

Employee benefit liabilities (5,773,034) (705,035)

Losses available for offset against future taxable income (164,010) (268,656)

Lease Capital Balance 22,989,931 -

67,095,961 3,134,363

37. DISCONTINUED OPERATIONSBased on the Share Sale and Purchase agreement on 24th June 2016, the shareholding of 100% held by Softlogic Life Insurance PLC in Asian Alliance General Insurance Limited was divested to Fairfax Asia Limited on 3rd October 2016 for Rs. 1,542 million resulting a profit on disposal of Rs. 314 million to the Group.

The General Insurance Business segment has been classified as Asset Held For Sale and disposal gain has been recorded in the Income Statement. The comparative Statements of Profit or Loss and Other Comprehensive Income have been re stated. The disclosures required by SLFRS 5 as given below.

37.1 Summarised Income Statement of Discontinued OperationFor the six months

ended 30 September 2016For the twelve months ended 31 March 2016

Total revenue 1,066,896,480 1,838,421,129

Direct expenses (870,198,304) (1,356,978,333)

Operating profit 196,698,176 481,442,796

Administrative expenses (292,508,105) (531,526,490)

Distribution cost (10,097,822) (46,649,693)

Other operating expenses (3,681,538) (6,436,477)

Profit Before Taxation (109,589,289) (103,169,864)

Income Tax Expenses (1,416,706) 30,655,224

(Loss)/Profit from Discontinued Operations (111,005,995) (72,514,640)

Gain on disposal of Discontinued Operations 314,113,601 -

Profit/(Loss) from Discontinued Operations 203,107,606 (72,514,640)

Other Comprehensive Income

Net gain on available-for-sale financial assets 95,489,246 (214,598,795)

Remeasurement of defined benefit (liability)/assets - (5,154,513)

Tax on Other Comprehensive Income (22,606,454) 24,049,717

Total other Comprehensive income net of tax 72,882,792 (195,703,589)

Total Comprehensive income for the period 275,990,398 (268,218,229)


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37.2 Summarised Cash flows statement of Discontinued Operation

For the six monthsended 30

September 2016

For the twelve months ended

31st March 2016

Net Cash Generated from Operating Activities 267,963,051 (22,337,670)

Net Cash (used in )/ Generated from Investing Activities (430,614,587) (396,460,414)

Net Cash (used in) / Generated from Financing Activities 300,000,000 299,970,000

137,348,464 (118,828,084)

Net cash and cash equivalents as at the Beginning of the year (118,828,084) -

Net cash and cash equivalents as at the end of the year 18,520,380 (118,828,084)

37.3. Realised Gain from Disposal of Subsidiary Based on the Share Sale and Purchase agreement on 24th June 2016, the shareholding of 100% held by Softlogic Life Insurance PLC in Asian Alliance General Insurance Limited was divested to Fairfax Asia Limited on 3rd October 2016 for Rs. 1,542 million resulting a profit on disposal of Rs. 314 million to the Group.

Considering the nature of the transactions and the presentation of the financial statement of the Group, the gain on disposal to the Group has been reported separately under result of Discontinued Operations and not as a part of operating profit of the Group.

GroupYear ended 31st March 2017

In LKR

Fair Value of Total Purchase Consideration 1,541,836,000

Share of net assets disposed (603,913,183)

Non Controlling interest investment reversal (571,376,176)

Gross Disposal Gain 366,546,641

Adjustments as per share sale and purchase agreement (52,433,041)

Net Disposal Gain 314,113,601


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37. DISCONTINUED OPERATIONS (Contd.)37.4. Effect of disposal on the financial position of the Group

GroupAs at 31st March 2017In LKR

Assets

Cash and Cash Equivalents (49,243,310)

Inventories (6,852,368)

Other Non Financial Assets (230,037,868)

Financial assets - Loans and receivables (2,582,834,499)

Deferred Tax Asset (52,435,598)

Property & Equipment (43,772,478)

Intangible Assets (200,000)

Liabilities

Bank Overdraft 30,722,929

Trade & Other Payables 1,841,683,100

Amount Due to Related Companies 18,358,657

Income Tax Payables 23,708,572

Deferred income 12,434,556

Retirement benefit obligation 18,127,472

Net Assets (1,020,340,834)

Share of net assets disposed 603,913,183

Non Controlling interest investment reversal 571,376,176

Gain on disposal 314,113,601

Consideration Receivable from Cash (157,146,352)

Consideration Received, satisfied in cash 1,332,256,608

Cash and cash equivalents disposed of (18,520,381)

Net Cash inflows 1,313,736,227


129

38 COMMITMENTS AND CONTINGENCIES38.1. The Company has given Corporate Guarantees amounting to LKR 75Mn on behalf of Softlogic Stockbrokers (Pvt) Ltd.Year ended 31st March 2017 2016In LKR

38.2. Subsidiaries

38.2.1. Softlogic Finance PLC

Contingent Liabilities

Guarantees issued and in force 3,000,000 4,650,000

Commitments

Commitment for unutilised facilities 3,009,243,979 1,388,735,214

Capital commitment for software purchases 28,611,720 -

Analysis of commitment and contingencies by remaining contractual maturities

Less than12 months

More than3 and less than

12 months

More than 1 year

and less than3 years

More than3 years

Total

Rs. Rs. Rs. Rs. Rs.

Contingent Liabilities

Guarantees issued to banks and other institutions 3,000,000 - - - 3,000,000

Commitments

Commitment for unutilised facilities 3,009,243,979 - - - 3,009,243,979

Capital commitment for software purchases - 28,611,720 - - 28,611,720

38.2.2. Softlogic Life Insurance PLC38.2.2.1 Assessment in respect of Value Added Tax (VAT)a) The Company has been issued with an assessment by the Department of Inland Revenue on 28 October 2011 and 26 April 2013 under

the Value Added Tax Act, in relation to the taxable period ending 31 December 2009 and 2010 for Rs. 9.6 Million and Rs. 52.3 Million respectively.

The Company has filed an appeal in November 2011 on the basis that the underlying computation includes items which are exempt /out of scope of the VAT Act. The Commissioner General of Inland Revenue has determined the assessment and the Company has appealed to the Tax Appeals Commission. The Company is awaiting the final decision.

b) The Company has received a tax assessments letter for Life Insurance taxation for the year 2010 and 2011.The Company is of the strong view that no additional tax liability is arising and also we have filed a response highlighting our view, which was done in consultation with Tax Consultants. The Commissioner General of Inland Revenue has determined the assessment and the Company has appealed to the Tax Appeals Commission. Further even if this would materialized against the Company, no additional tax liabilities are required for the Company due to carried forward taxable loses and credits. However,the accumulated tax losses of Life business will come down by Rs. 506 Million.

c) The Company has received a notice of assessments letter for Life Insurance taxation for the years 2012 and 2013.The Company has filed a petition of appeal through Company’s Tax Consultants and the Company is of the strong view that no additional tax liability is arose due to this. Further even if this would materialized against the Company, no additional tax liabilities are required for the Company due to carried forward taxable loses and credits. However,the accumulated tax losses of Life business will come down by Rs. 682 Million.

38.2.2.2 Pending LitigationIn the opinion of the Directors, and in consultation with the Company Lawyers, litigation currently pending against the Company would not have a material impact on the reported financial results of the Company.

All pending litigations for claims have been evaluated and adequate provisions have been made in these Financial Statements where necessary.

38.2.2.3 Compliance with Solvency RegulationSoftlogic Life Insurance PLC is also subject to insurance solvency regulations and has complied with all solvency regulations. There are no contingencies associated with the Company’s compliance or lack of compliance with such regulations.


130


39. POST BALANCE SHEET EVENTSNo circumstances have arisen since the date of the statement of financial position, which would require adjustments to or disclosure in the financial statements.

40. SEGMENT INFORMATION40.1. Segment Revenue & Segment ResultsFor the year ended 31 March 2017

Lease Hire Purchase Loans Insurance Investments Group Total

Segment Revenue 128,244,617 236,821,689 3,583,613,949 6,037,663,210 729,638,783 10,715,982,248

Un-allocated 534,326,089

Inter Segment (817,754,465)

10,432,553,872

Depreciation of property,plant and equipment (2,038,446) (3,764,276) (57,271,045) (82,877,094) (119,765) (146,070,626)

Un-allocated (9,066,466)

(155,137,092)

Amortisation of intangible assets (304,378) (562,077) (8,551,637) (7,589,888) - (17,007,980)

Un-allocated (591,638)

Adjustments (121,959,159)

(139,558,777)

Segment Results before Tax 14,069,220 25,980,790 395,281,023 1,185,727,246 475,619,600 2,096,677,879


Adjustments / Eliminations (862,205,510)

Taxation (167,217,264)

1,106,926,744

As at 31 March 2016Continuing Operations

Lease Hire Purchase Loans Insurance Investments Group Total

Segment Revenue 268,012,885 368,003,466 3,200,027,426 4,975,123,636 196,061,010 9,007,228,423


Inter Company (188,303,145)

9,263,417,172

Depreciation of property,plant and equipment

(4,884,230) (6,685,024) (58,370,062) (75,967,050) (199,106) (146,105,472)

Un-allocated (8,850,956)

(154,956,428)

Amortisation of intangible assets (678,163) (928,199) (8,104,535) (11,203,355) (571,263) (21,485,515)

Un-allocated (651,441)

Adjustments (127,343,669)

(149,480,625)

Segment Results 2,684,055 4,956,485 75,409,734 1,008,969,603 28,216,792 1,120,236,669


Adjustments / Eliminations (177,255,001)

Taxation (31,451,946)

956,301,777


131

40.2. Segment Assets & LiabilitiesAs at 31 March 2017

Lease Hire Purchase

Loans Insurance Investments Group Total

Total Assets 705,707,210 218,444,947 17,665,323,521 10,285,900,669 4,454,846,683 33,330,223,030

Un-allocated 4,092,717,010

Goodwill 924,934,106

Other Intangible Assets 1,376,740,192

Eliminations (4,383,966,093)

Total Assets 35,340,648,245

Total Liabilities 632,808,574 218,444,947 15,840,518,589 8,793,478,926 1,309,518,407 26,794,769,443


Eliminations (104,192,855)

Total Liabilities 30,163,400,925

Segment Assets & Liabilities

As at 31 March 2016

Lease Hire Purchase

Loans Insurance Investments Group Total

Total Assets 761,174,074 669,108,983 14,895,518,357 12,349,877,576 4,450,822,117 33,126,501,107


Goodwill 924,934,106

Intangible Assets 1,645,919,468

Eliminations (5,708,319,817)

Total Assets 34,292,817,558

Total Liabilities

Un-allocated 686,606,420 603,560,394 13,436,293,858 9,963,764,365 1,437,002,049 26,127,227,086

Eliminations 3,699,627,071

Total Liabilities (251,278,712)

29,575,575,445


132

41. RELATED PARTY TRANSACTIONSThe Companies within the Group disclosed under the Corporate Directory engage in trading transactions under relevant commercial terms and conditions.

Outstanding current account balances at year end are unsecured an interest free and settlement occurs in cash. Interest bearing borrowings are on pre-determined interest rates and terms.

41.1. Key Management Personnel (KMP)Key Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity directly of indirectly.

KMP of the Company and the GroupAccordingly, the Directors (including Executive and Non-Executive Directors) and the Members of the Executive Committees and their immediate family members of the Company and its’ subsidiaries have been classified as Key Management Personnel.

Compensation with KPM


In LKR

Short-term Employment benefits 79,586,900 83,105,329 79,586,900 102,325,329

41.2. Transactions, Arrangements and Agreements involving KMP and their Close Family Members (CFM)CFM of a KPM are those family members who may be expected to influence, or be influenced by, that KMP in their dealings with the entity. They may include KMP’s domestic partner and children, children of the KMP domestic partner and dependants of the KMP or the KMP domestic partner. CFM are related parties to the Company and the Group.

Income Statement


In LKR

Interest expense on Public Deposits 8,087,106 6,326,123 - -

Insurance Premiums 1,803,000 1,891,000 - -

Rendering/Receiving of services 1,237,000 575,000 - -

Claims paid - 1,769,000 - -

Professional Charges 68,000 122,000 - -

Statement of Financial Position

Public Deposits from KMPs 84,672,005 77,117,364 - -

41.3. Outstanding balances arising from the related party transactions are as follows:

Group CompanyYear ended 31st March 2017 2016 2017 2016In LKR

Amount due to Related Companies

Softlogic Holdings PLC - 473,763 - 473,763

Amount due from Related Companies

Softlogic Life Insurance PLC - - 492,500 1,984,148

Softlogic Finance PLC - - 3,413,732 1,520,000

- - 3,906,232 3,504,148



133

41.4. Transactions with Group Companies

Nature of the Transaction Company Relationship 2017 2016

Interest Income Softlogic Stockbrokers (Pvt) Ltd. Subsidiary 63,691 -

Consultancy and Professional Fees Softlogic Finance PLC Subsidiary 39,600,000 36,000,000

Income Softlogic Life Insurance PLC Subsidiary 91,243,825 78,666,429

Softlogic Stockbrokers (Pvt) Ltd. Subsidiary 13,200,000 12,000,000

Corporate Guarantee Fees Income Softlogic Finance PLC Subsidiary - 2,369,404

Softlogic Stockbrokers (Pvt) Ltd. Subsidiary 750,000 376,027

Dividend Income Softlogic Finance PLC Subsidiary 45,483,339 43,455,162

Softlogic Life Insurance PLC Subsidiary 538,013,611 -

Softlogic Stockbrokers (Pvt) Ltd. Subsidiary - 22,162,500

Consultancy and Professional Fees Softlogic Holdings PLC Parent Company 47,719,908 35,881,125

Expense

Secretarial Fee Softlogic Corporate Services (Pvt) Ltd. Group Company 1,626,413 987,703

Brokerage Expense Softlogic Stockbrokers (Pvt) Ltd. Subsidiary - 741,656

Network Support Charges Softlogic BPO Services (Pvt) Ltd. Group Company 3,258,588 3,186,021

Corporate Guarantees given to Softlogic Stockbrokers (Pvt) Ltd. Subsidiary 75,000,000 75,000,000

42. PRIOR YEAR ADJUSTMENTThe Consolidated Financial Statements have been restated in accordance with Sri Lanka Accounting Standard LKAS – 8, Accounting Policies, changes in Accounting Estimates and Errors, to reflect the following.

Softlogic Life Insurance PLC and Softlogic Finance PLC which are subsidiaries of Softlogic Capital PLC adjusted errors mainly due to overstatement, under statement or classification changes of assets, liabilities and reserves in previous years and revisited the methodology used for estimating provisions for loans, lease and hire purchase to be in compliance with LKAS 39.

Comparative information in the consolidated financial statements have been restated as follows:


134

42. PRIOR YEAR ADJUSTMENT (Contd.)42.1. Impact to the consolidated income statement for the year ended 31 March 2016

Published forFY 2016

Impact of errors/ revisited the methodology

used

Published for FY 2017

Interest income 4,144,403,369 (48,242,021) 4,096,161,348

Fee and trading income 4,773,558,886 - 4,773,558,886

Other income and gains 109,247,911 (6,051,283) 103,196,628

Net realized gains/(losses) 31,264,226 - 31,264,226

Net fair value gains 155,491,342 - 155,491,342

Dividend income 103,744,742 - 103,744,742

Total operating income 9,317,710,477 (54,293,304) 9,263,417,172

Direct expenses

Interest expenses (2,102,236,430) 18,340,000 (2,083,896,430)

Other direct expenses (1,737,672,723) - (1,737,672,723)

Impairment of loans and receivables (447,585,879) (264,259,703) (711,845,582)

Net operating income 5,030,215,444 (300,213,007) 4,730,002,438

Admin, selling and other operating expenses (2,716,818,231) 3,497,356 (2,713,320,875)

Change in insurance contract liabilities (1,028,927,838) - (1,028,927,838)

Profit before tax for the year from Continuing Operations 1,284,469,376 (296,715,651) 987,753,725

Tax expense (74,727,927) 43,275,982 (31,451,945)

Profit after tax for the year from Continuing Operations 1,209,741,449 (253,439,669) 956,301,780

Profit for the year from Discontinued Operations (Net of Tax) (72,514,640) - (72,514,640)

Profit for the year 1,137,226,809 (253,439,669) 883,787,140

Attributable to:

Equity holders of the parent 676,594,498 (160,086,636) 516,507,862

Non-controlling interest 460,632,311 (93,353,033) 367,279,278

Profit for the year 1,137,226,809 (253,439,669) 883,787,140

Earnings/ (loss) per share

Basic 0.98 (0.23) 0.75



135

42.2. Impact to the consolidated financial position as at 01 April 2015 and 31 March 2016

EQUITY AS AT 31 MARCH 2016 EQUITY AS AT 01 APRIL 2015

Published/ restated for

FY 2016

Impact oferrors/

revisited the methodology

used



Impact oferrors/

revisited the methodology

used


ASSETS

Cash and cash equivalents 2,786,360,958 (1,985,949,858) 800,411,100 1,137,234,429 (400,000,000) 737,234,429

Inventories 529,855,875 (17,648,185) 512,207,690 643,475,336 (17,648,185) 625,827,151

Other non financial assets 1,127,969,362 7,227,218 1,135,196,580 1,064,815,782 (78,043,033) 986,772,750

Income tax receivable - - - - -

Financial Assets - Loans and receivables 17,389,660,327 1,600,866,816 18,990,527,143 13,887,535,148 231,478,584 14,119,013,732

Lease and hirepurchase receivables 1,548,416,164 (104,185,567) 1,444,230,597 3,085,067,942 (2,194,190) 3,082,873,752

Deferred tax asset 81,978,420 29,930,144 111,908,564 - - -

Other Assets 11,292,182,824 - 11,292,182,824 12,936,552,868 - 12,936,552,868

Total Assets 34,756,423,930 (469,759,432) 34,286,664,498 32,754,681,506 (266,406,823) 32,488,274,683


Reserve fund 124,166,209 68,893,915 193,060,124 73,662,858 45,605,110 119,267,968

Retained earnings 955,268,930 (547,649,599) 407,619,331 413,961,626 (165,057,100) 248,904,525

Other Components of shareholders fund 2,064,342,751 - 2,064,342,751 2,915,939,066 - 2,915,939,066

Shareholders' funds 3,143,777,890 (478,755,685) 2,665,022,206 3,403,563,549 (119,451,991) 3,284,111,559

Non-controlling interest 2,463,467,137 (411,247,230) 2,052,219,907 2,619,260,988 (141,193,255) 2,478,067,733

Total equity 5,607,245,027 (890,002,915) 4,717,242,112 6,022,824,537 (260,645,246) 5,762,179,292

Trade payables 316,794,653 (5,744,766) 311,049,887 712,417,201 (1,700,002) 710,717,199

Income tax liability 9,084,606 63,784,445 72,869,051 27,234,912 (3,693,215) 23,541,697

Public deposits 14,004,503,098 (368,363) 14,004,134,735 12,061,962,361 (368,361) 12,061,594,000

Insurance provision - life 6,058,200,177 375,918,000 6,434,118,177 5,029,272,339 - 5,029,272,339

Deferred tax liabilities 16,480,197 (13,345,834) 3,134,363 20,109,228 - 20,109,228

Other liabilities 8,744,116,172 - 8,744,116,172 8,880,860,928 - 8,880,860,928

Total liabilities 29,149,178,903 420,243,483 29,569,422,386 26,731,856,969 (5,761,578) 26,726,095,391

Total equity and liabilities 34,756,423,930 (469,759,432) 34,286,664,498 32,754,681,506 (266,406,823) 32,488,274,683


136


43. MATERIAL PARTLY-OWNED SUBSIDIARIESFinancial information of subsidiaries that have material non controlling interest (NCI) is given below.

43.1. Summarised Income Statement

Softlogic Finance PLC Softlogic Life Insurance PLCYear ended 31st March 2017 2016 2017 2016


Total operating income 4,327,957,901 4,080,598,348 6,037,663,210 4,975,123,636

Direct expenses (2,675,833,714) (2,714,351,848) (2,843,117,797) (1,684,048,007)

Net operating income 1,652,124,187 1,366,246,499 3,194,545,413 3,291,075,630

Admin, Selling and Other Operating Expenses (1,177,320,701) (1,275,665,867) (1,926,378,194) (1,253,178,189)

Change in insurance contract liabilities - - (82,439,974) (1,028,927,838)

Profit before tax for the year 474,803,486 90,580,632 1,185,727,246 1,008,969,603

Tax expense (101,237,033) (17,438,285) - -

Profit after tax for the year 373,566,453 73,142,348 1,185,727,246 1,008,969,603

Other Comprehensive Income 15,196,561 11,996,772 (310,968,325) (1,258,698,620)

Total Comprehensive Income 388,763,015 85,139,119 874,758,921 (249,729,017)

Profit attributable to material NCI 117,757,873 23,081,928 483,925,928 411,760,495

Dividend paid to NCI 23,301,691 24,063,093 412,207,098 -

43.2. Summarised Statement of Financial Position

Total Assets 22,198,143,112 20,280,131,490 10,285,900,669 9,804,009,191

Total Liabilities 19,897,242,825 18,294,155,482 8,793,478,926 7,800,441,692

Accumulated balance of material NCI 723,013,083 626,725,252 609,095,877 817,707,669

43.3. Summarised cash flow information

Net cash generated from / (used in) operations 847,336,724 1,199,741,497 1,508,007,017 687,009,982

Net cash (used in) / generated from investing activities (107,166,088) (57,219,317) (402,333,350) (1,152,590,475)

Net cash used in /generated from financial activities (643,430,607) (1,285,130,817) (1,121,916,623) 118,678,515

Net cash used in /generated from financial activities 96,740,030 (142,608,637) (16,242,955) (346,901,978)

43.4. The above information is based on amounts before inter-company eliminations and consolidated adjustments .


137

OtherInformationShareholder Information / 138Five year Performance / 146Five year Financial Positions / 148Notice of Meeting / 151Form of Proxy / 155Corporate Information / Inner Back Cover

138


SHAREHOLDER INFORMATION

01. Stock Exchange ListingSoftlogic Capital PLC (SCAP) is a public quoted Company which has listed ordinary shares in Colombo Stock Exchange (CSE). SCAP ordinary shares are effectively traded in Diri Savi Board of the Colombo Stock Exchange under the symbol of SCAP.N0000.

02. Information on Share Trading2016/2017 2015/2016

Share volume 18,476,654 3,174,499

Turnover (Rs.) 108,494,120 17,344,652

Days Traded 246 54

0

4,000

8,000

12,000

16,000

20,000

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

Rs Mn

Number of Shares Traded

14,000

14,500

15,000

15,500

16,000

16,500

17,000

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

(Indices) (B&F Sector Index)Performance of SCAP ordinary share in 2016/17

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17ASPI (LHS) S&P SL20 (LHS) B&F Sector (RHS)

Rs

SCAP Share Price

4.00

4.50

5.00

5.50

6.00

6.50

7.00

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17


139

03. Submission of financial statements to CSEThe Audited Income Statement for the year ended 31st March 2016 and the Audited Statement of Financial Position as at 31st March 2017 will be submitted to the CSE within four months from the year end, which is well within the required deadline as required by Rule No. 7.5(a) of the Listing Rules of the CSE.

The interim financial statements were submitted within stipulated time lines.

04. The Name, Number and Percentage of Shares held by Twenty Largest Shareholders(As per Rule 7.6 (iii) of the Listing Rules of the CSE)

(a) As at 31st March 2017

Name No of Shares %

1 Softlogic Holdings PLC 410,952,743 59.72

2 Commercial Bank of Ceylon PLC / Softlogic Holdings PLC 100,000,000 14.53

3 Seylan Bank PLC / ARRC Capital (Pvt) Ltd 70,329,246 10.22

4 Melstacorp Limited 40,000,000 5.81

5 Rosewood (Private) Limited Account No. 1 35,417,613 5.15

6 Mcbridge Blue (Private) Limited 2,318,000 0.34

7 Seylan Bank PLC / W.D.N.H. Perera 2,000,000 0.29

8 Hotel International Ltd 1,624,700 0.24

9 Mr. K. Sabaratnam 1,200,000 0.17

10 Mr. A. K. Pathirage 1,122,841 0.16

11 Mr. K. A. D. A. Perera 1,077,038 0.16

12 Vanik Incorporation Limited 1,050,000 0.15

13 Mr. D. F. G. Dalpethado 949,588 0.14

14 Mr. D. L. Piyarisi 875,000 0.13

15 Trading Partners (Pvt) Ltd. 600,000 0.09

16 Dr. S. Yaddehige 575,000 0.08

17 Ms. M. S. W. Gunawardana 550,000 0.08

18 Mr. Rahul Gautam 530,000 0.08

19 Mr. K. T. Gunarathna 390,000 0.06

20 Mr. K. D. H. Perera 339,595 0.05

671,901,364

16,258,636

688,160,000

140


Shareholder Information

(b) As at 31st March 2016

Name No of Shares %

1 Softlogic Holdings PLC 405,814,044 58.972 Commercial Bank of Ceylon PLC / Softlogic Holdings PLC 100,000,000 14.533 Seylan Bank PLC / ARC Capital (Pvt) Ltd 70,329,246 10.224 Melstacorp Limited 40,000,000 5.815 Rosewood (Private) Limited Account No. 1 35,417,613 5.156 Seylan Bank PLC / W.D.N.H. Perera 10,109,999 1.477 Mcbridge Blue (Private) Limited 2,318,000 0.348 Hotel International Ltd 1,624,700 0.249 Mr. K. A. D. A. Perera 1,062,510 0.1510 Vanik Incorporation Limited 1,050,000 0.1511 Mr. D. L. Piyarisi 1,000,002 0.1512 People's Leasing & Finance PLC/ Mr. M.I.M. Rizly and F.R. Hassan 1,000,000 0.1513 Trading Partners (Pvt) Ltd. 600,000 0.0914 Ceylon Investments PLC Account No. 1 600,000 0.0915 Dr. S. Yaddehige 575,000 0.0816 Mr. M. P. W. Gunawardana 550,000 0.0817 Mr. H. A. V. Starrex 500,000 0.0718 Mr. K. T. Gunarathna 495,501 0.0719 Trillion Investments Limited 448,000 0.0720 Mr. K. D. H. Perera 339,595 0.05

673,834,210 97.93 14,325,790 2.07

688,160,000 100.00

05. Public Shareholding(Percentage of public holding - As per Rule 7.6 (iv) of the Listing Rules of the CSE Number of shareholders representing public holding - As per Rule 7.13.1 of the Listing Rules of the CSE)

As at 31 March 2017 As at 31 March 2016No of

Shareholders% No of

Shareholders%

Public Holding 1,249 25.57% 1,226 26.48%


141

06. Director’s Shareholding including the MD’s Shareholding(As per Rule No 7.6 (v) of the Listing Rules of the Colombo Stock Exchange)

No of SharesAs at

31 March 2017

No of SharesAs at

31 March 2016

Mr. A.K. Pathirage 1,122,841 NilMr. T.M.I. Ahamed Nil NilMr. R.J. Perera Nil NilMr. L. Wijewardena 99,900 99,900 Mr. A. Pasqual 10,000 10,000Mr. H. Premaratne Nil NilMr. R. Wijeratne Nil NilMr. A. Russell-Davison Nil Nil

07. Material Foreseeable Risk Factors(As per Rule No 7.6 (vi) of the Listing Rules of the Colombo Stock Exchange)

Information pertaining to the material foreseeable risk factors that require disclosures as per Rule No. 7.6 (vi) of the Listing Rules of CSE are discussed in the section on Financial Risk Management on pages 82 to 99.

08. Material Issues pertaining to Employees and Industrial Relations(As per Rule No 7.6 (vii) of the Listing Rules of the Colombo Stock Exchange)

There were no material issues pertaining to employees and industrial relations pertaining to the company that occurred during the year under review which need to be disclosed.

09. Information on Movement in Number of Shares Represented by the Stated Capital(As per Rule No 7.6 (ix) of the Listing Rules of the Colombo Stock Exchange)

Year Details Basis Number ofShares Issues

Balance

2010/2011 As at 31 March 2011 27,200,000

2012/2013 Rights Issue 10 for 1 272,000,000 299,200,000

2014/2015 Rights Issue 13 for 10 388,960,000 688,160,000

10. Distribution Schedule of the Number of Holders and Percentage Holding in Each Class of Equity Securities(As per Rule No 7.6 (x) of the Listing Rules of the Colombo Stock Exchange)

No of shares

As at 31 March 2017 As at 31 March 2016

No ofshareholders

No of shares % of total No ofshareholders

No of shares % of total

1 – 1,000 629 186,277 0.03 602 191,493 0.031001 – 10,000 378 1,678,412 0.24 379 1,739,177 0.2510,001 – 100,000 189 6,864,634 1.00 201 7,133,043 1.03100,001 – 1,000,000 46 12,338,496 1.79 37 10,370,173 1.51Over 1,000,000 12 667,092,181 96.94 11 668,726,114 97.18Total 1,254 688,160,000 100.00 1,230 688,160,000 100.00

142



11. Information on Ratios, Market Prices of Shares and Credit Ratings(As per Rule No 7.6 (xi) of the Listing Rules of the Colombo Stock Exchange)

(a) Key Performance Ratios

Group Company

2017 2016 2017 2016

Basic earnings per share (Continuing Operation) (Rs.) 0.85 0.81 0.69 0.04

Net Assets per share (Rs.) 4.26 3.77 4.57 4.38

Price per book Value (Times) - per share 1.10 1.59 1.03 1.37

Return on Equity (%) 45% 37% 15% 1%

Price Earnings Ratio (Times) 5.55 7.38 6.80 146.45

Earning yield (%) 18% 14% 15% 1%

Dividend per share (Rs.) 0.5 - 0.5 -

Dividend yield (%) 11% - 11% -

(b) Market Prices

2016/2017 2015/2016

Price (Rs.) Date Price (Rs.) Date

Highest during the period 6.50 9-May-16 7.90 05-Aug-15

Lowest during the period 4.60 27-Feb-17 4.50 09-Mar-16

Last traded price 4.70 6.00

0

1

2

3

4

5

6

7

Mar Jun Sept Dec Mar 2016 2016 2016 2016 2017

Rs

Share Price Movement – 2016/2017

0

900

1,800

2,700

3,600

4,500

Mar Jun Sept Dec Mar 2016 2016 2016 2016 2017

Rs

Market Capitalization Market Price

0.0

1.5

3.0

4.5

6.0

7.5

Softlogic Capital Market Capitalization andMarket Price over Last Five Years


143

Share Price Trend over Last Five Years

Year 2016/2017 2015/2016 2014/2015 2013/2014 2012/2013

Highest Price 6.50 7.90 8.80 7.20 16.90

Lowest Price 4.60 4.50 3.60 3.10 4.60

Last Traded Price 4.70 6.00 6.00 3.90 5.60

(c) Credit RatingsThe Company’s credit rating, (SL) BBB was affirmed by ICRA Lanka Limited in 2016/2017.

12. Analysis of Shareholders(a) Resident / Non Resident

No of shares


No ofshareholders



Resident 1,245 686,703,039 99.79 1,221 687,088,439 99.84

Non Resident 9 1,456,961 0.21 9 1,071,561 0.16

Total 1,254 688,160,000 100.00 1,230 688,160,000 100.00

%

Resident / Non Resident Shareholding 2016

Resident

99

Non Resident1

%

Resident / Non Resident Shareholding 2017

Resident

99

Non Resident1

144



(b) Individual / Institutional

No of shares


No ofshareholders



Individual 1,152 18,897,688 2.75 1,141 14,985,614 2.18

Institutional 102 669,262,312 97.25 89 673,174,386 97.82

Total 1,254 688,160,000 100.00 1,230 688,160,000 100.00

Compliance Report on the Contents of the Annual Report in terms of Listing Rules of the CSEWe are pleased to inform you that your company has complied with all requirements of Section 7.6 of the Listing Rules of the CSE on the contents of the Annual Report and Accounts of a Listed Entity.

The table below provides reference to the relevant sections of this Annual Report where specified information is found, together with page references for the convenience of the readers.

Listing rulenumber

Compliance Requirement Section / Reference Page Reference

7.6 (i) Names of persons who held the position of Director during the financial year

Annual Report of the Board of Directors 54 -56

7.6 (ii) Principal activities of the Company and its Subsidiaries during the year, and any changes therein.

Note 1.6 of the Accounting PoliciesGroup Structure

684

7.6 (iii) The names and number of shares held by the 20 largest holders of voting and non-voting shares and the percentage of such shares held at the end of the period

Item 04 of the Shareholder Information 139

7.6 (iv) The public holding percentage Item 05 of the Shareholder Information 140

7.6 (v) A statement of each Director’s holding and Chief Executive Officer’s holding in shares of the entity at the beginning and end of each financial year

Item 06 of the Shareholder InformationAnnual Report of the Board of Directors

14154 - 56

7.6 (vi) Information pertaining to material foreseeable risk factors of the entity


%

Individual / Institutional Shareholding 2016

Individual

93

Institutional7

%

Individual / Institutional Shareholding 2017

Individual

92

Institutional8


145

Listing rulenumber

Compliance Requirement Section / Reference Page Reference

7.6 (vii) Details of material issues pertaining to employees and industrial relations of the entity


7.6 (viii) Extents, locations, valuations and the number of buildings of the entity’s land holdings and investment properties

Note 24 to the Financial Statements on “Property, Plant and Equipment”

114

7.6 (ix) Number of shares representing the entity’s stated capital

Note 26 to the Financial Statements on “Stated Capital”Item 09 of the Shareholder Information

118

141

7.6 (x) A distribution schedule of the number of holders in each class of equity securities, and the percentage of their total holdings in the given categories


7.6 (xi) List of ratios and market price information Item 11 of the Shareholder Information 142

7.6 (xii) Significant changes in the entity’s fixed assets and the market value of land, if the value differs substantially from the book value

Note 24 to the Financial Statements on “Property, Plant and Equipment”

114

7.6 (xiii) If during the year the entity has raised funds either through a public issue, rights issue or private placement

Note 26 to the Financial Statements on “Stated Capital”

118

7.6 (xiv) Employee Share Option Schemes and Employee Share Purchase Schemes

There is no “Employee Share Ownership Scheme” in the Company.

-

7.6 (xv) Disclosures pertaining to Corporate Governance practices in terms of rules 7.10.3, 7.10.5 c. and 7.10.6 c. of Section 7 of the Rules

Report on Corporate Governance 38 - 45

7.6 (xvi) Disclosures on Related Party Transactions exceeding 10% of the Equity or 5% of the total assets of the Entity as per the Audited Financial Statements, whichever is lower.

Note 41 to the Financial Statements on “Related Party Transactions”

132

146


FIVE YEAR PERFORMANCE - GROUP

Income Statement - Group

2016/2017 2015/2016 2014/2015 2013/2014 2012/2013

Rs. Rs. (Restated)

Rs. Rs. Rs.

Continuing Operations

Revenue

Interest Income 4,311,661,943 4,096,161,348 4,210,527,081 3,942,592,514 2,751,383,428

Fee & Trading Income 5,906,350,600 4,773,558,886 4,459,622,978 3,620,859,354 2,706,660,572

Other Income & Gains 92,783,645 103,196,628 215,638,014 154,333,169 33,034,551

Realized Gains/(Losses) on Disposal of Subsidiaries - - - - 19,829,754

Realised gain/(loss) on AFS financial assets (2,572,299) 31,264,226 148,002,914 222,027,356 (47,023,365)

Fair value Gains and Losses 38,850,582 155,491,342 798,182,464 269,868,032 227,186,128

Dividend Income 85,479,401 103,744,742 121,977,100 106,324,902 133,791,874

Total Revenue 10,432,553,872 9,263,417,172 9,953,950,551 8,316,005,327 5,824,862,942

Direct Expenses

Interest Expenses (2,487,157,687) (2,083,896,430) (2,174,083,268) (2,369,782,841) (1,892,908,547)

Other Direct Expenses (2,892,759,468) (1,737,672,723) (2,510,004,869) (2,026,666,916) (1,377,315,533)

Impairment of Loans and Receivables (368,754,483) (711,845,582) (522,295,525) (327,796,234) (72,963,616)

Operating Profit 4,683,882,234 4,730,002,437 4,747,566,889 3,591,759,336 2,481,675,246

Administrative Expenses (2,489,617,578) (2,159,550,009) (2,350,392,382) (1,793,133,417) (1,511,648,253)

Distribution Cost (601,500,459) (366,773,804) (396,982,806) (257,317,810) (299,743,365)

Change in Insurance Contract Liabilities (82,439,974) (1,028,927,838) (944,348,981) (966,545,920) (773,854,115)

Other Operating Expenses (236,180,216) (186,997,063) (213,411,797) (201,929,506) (185,464,898)

Profit before tax for the year from Continuing Operations 1,274,144,007 987,753,723 842,430,923 372,832,682 (289,035,385)

Taxation (167,217,263) (31,451,946) (59,934,071) (63,506,394) (28,180,050)

Profit after tax for the year from Continuing Operations 1,106,926,743 956,301,777 782,496,852 309,326,288 (317,215,435)

Profit for the year from Discontinuing Operations 203,107,606 (72,514,640) - - -

Profit for the Year 1,310,034,344 883,787,137 782,496,852 309,326,288 (317,215,435)

Attributable to :

Equity holders of the parent 830,916,678 516,507,858 466,061,173 60,456,472 (380,837,796)

Non-controlling interests 479,117,672 367,279,279 316,435,679 248,869,816 63,622,361

Profit /(Loss) for the period 1,310,034,350 883,787,137 782,496,852 309,326,288 (317,215,435)


147

FIVE YEAR PERFORMANCE - COMPANY

Income Statement - Group

2016/2017 2015/2016 2014/2015 2013/2014 2012/2013

Rs. Rs. Rs. Rs. Rs.

Revenue

Interest Income 231,551 131,843 273,262 1,109,828 898,205

Fee & Trading Income 144,043,825 126,666,429 155,566,866 101,778,234 88,628,156

Other Income & Gains 941,866 3,242,579 981,423 879,380 493,114

Realized Gains/(Losses) on Disposal of Subsidiaries - 30,275,817 25,113,795

Realised gain/(loss) on AFS financial assets - - (6,025,410) (114,970) (43,405,574)

Dividend Income 584,421,541 66,020,158 219,967,809 134,802,737 38,461,926

Total Revenue 729,638,783 196,061,009 370,763,950 268,731,026 110,189,622

Direct Expenses

Interest Expenses (172,324,026) (93,557,356) (108,349,409) (324,552,969) (482,856,221)

Other Direct Expenses (4,767,888) (6,113,632) (3,339,150) (7,313,040) (5,466,747)

Operating Profit 552,546,869 96,390,021 259,075,391 (63,134,983) (378,133,346)

Administrative Expenses (74,379,882) (63,234,435) (44,332,007) (34,927,176) (37,588,264)

Distribution Cost - (773,763) - (131,572) (4,572)

Other Operating Expenses (2,547,388) (4,165,033) (1,058,022) (10,060,899) (3,091,983)

Profit /(Loss) before Taxation 475,619,600 28,216,790 213,685,362 (108,254,630) (418,818,165)

Taxation (42,142) (23,995) (49,734) (201,989) -

Profit /(Loss) for the period 475,577,458 28,192,795 213,635,628 (108,456,619) (418,818,165)

148


FIVE YEAR FINANCIAL POSITION - GROUP

2016/2017 2015/2016 2014/2015 2013/2014 2012/2013

Rs. Rs. (Restated)

Rs. (Restated)

Rs. Rs.

ASSETS

Cash and cash equivalents 1,209,502,700 800,411,100 737,234,429 2,607,387,593 1,690,077,239

Inventories 115,944,123 512,207,691 625,827,151 662,793,833 152,355,594

Other non financial assets 822,256,095 1,135,196,580 986,772,750 1,676,183,448 982,294,771

Financial Assets 29,865,398,615 28,250,395,582 26,636,957,406 21,054,479,834 16,704,382,169

Receivable from related parties on account of put option - - - - 906,414,000

Deferred tax asset 14,759,960 111,908,568 14,953,055 22,446,337 27,202,620

Property, plant and equipment 881,421,606 905,691,404 797,579,238 662,499,039 320,275,619

Intangible assets 2,431,365,146 2,570,853,575 2,688,950,653 2,796,222,606 3,003,631,814

TOTAL ASSETS 35,340,648,245 34,286,664,500 32,488,274,682 29,482,012,690 23,786,633,826



Stated capital 2,880,000,000 2,880,000,000 2,880,000,000 2,176,000,000 2,176,000,000

Reserve fund 266,020,101 193,060,124 119,267,968 46,657,939 26,076,637

Investment fund account - - - 47,312,568 29,698,004

Available for sale reserve (1,010,688,724) (870,274,893) 35,939,065 123,955,721 170,835,523

Revaluation Reserve 75,190,729 54,617,644 -

Retained earnings 1,074,091,447 407,619,330 248,904,525 (603,881,308) (585,021,608)


Non-controlling interest 1,892,633,768 2,052,219,907 2,478,067,733 2,434,121,304 1,461,904,210

Total equity 5,177,247,320 4,717,242,112 5,762,179,291 4,224,166,224 3,279,492,766

Liabilities

Bank overdraft 1,228,013,221 1,350,523,495 876,300,347 515,644,064 699,218,635

Trade payables 1,285,435,149 2,247,800,620 2,286,259,622 980,724,821 1,239,712,063

Amounts due to related companies - 473,763 - 3,219,480 126,517,122

Other non financial liabilities 150,107,210 186,631,375 460,009,559 734,000,373 250,950,433

Income tax liability - 72,869,051 23,541,697 54,205,548 20,580,376

Liability under Put Option 1,812,828,000

Derivative Financial Instruments 9,356,708 9,356,708 6,260,352 17,744,694

Interest bearing borrowings 4,758,843,538 5,175,606,015 5,891,108,818 8,436,344,253 5,587,960,870.00

Public deposits 16,048,473,927 14,004,134,735 12,061,594,000 9,312,742,952 6,787,130,447

Insurance provision 6,516,567,060 6,434,118,177 5,029,272,339 5,084,629,324 3,864,302,457

Employee benefit liabilities 99,508,151 84,774,085 71,639,429 71,993,576 52,790,515

Deferred tax liabilities 67,095,961 3,134,363 20,109,228 46,597,381 65,150,142

Total Liabilities 30,163,400,925 29,569,422,388 26,726,095,391 25,257,846,466 20,507,141,060



149

FIVE YEAR FINANCIAL POSITION - COMPANY

2016/2017 2015/2016 2014/2015 2013/2014 2012/2013

Rs. Rs. Rs. Rs. Rs.

ASSETS

Cash and cash equivalents 40,284,332 40,362,714 35,590,585 126,156,569 56,269,553

Amounts due from related companies 3,906,232 3,504,148 4,018,249 2,015,494 2,021,489

Other non financial assets 4,242,167 2,886,941 10,035,321 10,684,380 17,655,710

Financial Assets 12,037,518 11,955,965 12,873,144 23,012,231 21,057,831

Receivable from related parties on account of put option 906,414,000

Investments in subsidiaries 4,379,616,474 4,377,013,625 4,005,768,273 3,656,523,967 4,409,250,455

Deferred tax asset 14,759,960 14,759,960 14,759,960 14,759,960 14,759,960

Property, plant and equipment - 338,774 537,880 836,697 950,174

Intangible assets - - 571,263 571,263 121,263

TOTAL ASSETS 4,454,846,683 4,450,822,127 4,084,154,675 3,834,560,561 5,428,500,435



Stated capital 2,880,000,000 2,880,000,000 2,880,000,000 2,176,000,000 2,176,000,000

Available for sale reserve (2,860,354) (2,871,107) (1,953,928) (15,020,456) (17,536,228)

Retained earnings 268,188,631 136,691,173 108,498,378 (714,076,411) (605,619,792)


Non-controlling interest - - - - -

Total equity 3,145,328,277 3,013,820,066 2,986,544,450 1,446,903,133 1,552,843,980

Liabilities

Bank overdraft 5,917,819 311,323,068 255,110,399 124,950,189 278,891,471

Amounts due to related companies - 473,763 - 3,219,480 334,986,786

Other non financial liabilities 3,943,880 2,841,220 2,645,153 7,565,305 50,369,726

Income tax liability - - - - (1,644)

Liability under Put Option - - - - 1,812,828,000

Put option liability 9,356,708 9,356,708 6,260,352 6,260,352

Interest bearing borrowings 1,290,300,000 1,113,007,302 833,594,321 2,245,600,602 1,398,384,419

Employee benefit liabilities - - - 61,500 197,697

Total Liabilities 1,309,518,407 1,437,002,061 1,097,610,225 2,387,657,428 3,875,656,455


150


FIVE YEAR SUMMARY - GRAPHICAL PRESENTATION

0

500

1,000

1,500

2,000

2,500

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

Rs

Interest Expenses

0

1,000

2,000

3,000

4,000

5,000

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

Rs

Operating Pro�t

0

500

1,000

1,500

2,000

2,500

3,000

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

Rs

Other Direct Expenses

-600

-300

0

300

600

900

1,200

1,500

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

Rs

Pro�t for the Year

05,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

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

Rs

Total Assets

0

2,000

4,000

6,000

8,000

10,000

12,000

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

Rs

Total Revenue

0

1,000

2,000

3,000

4,000

5,000

6,000

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

Rs

Total equity


151

NOTICE OF MEETING

NOTICE IS HEREBY GIVEN that the Tenth (10th) Annual General Meeting of Softlogic Capital PLC will be held at the Auditorium of Central Hospital Limited (4th Floor), No. 114, Norris Canal Road, Colombo 10 on Thursday the 17th day of August 2017 at 10.00 a.m. for the following purposes:

1) To receive and consider the Annual Report of the Board of Directors and Financial Statements of the Company for the year ended 31st March 2017 together with the Report of the Auditors thereon.

2) To re-elect A M Pasqual who retires by rotation in terms of Articles 88 and 89 of the Articles of Association, as a Director of the Company.

3) To re-elect Mr. P D J L R Wijeratne who retires in terms of Article 95 of the Articles of Association, as a Director of the Company.

4) To re-elect Mr. A Russell-Davison who retires in terms of Article 95 of the Articles of Association, as a Director of the Company

5) To re-appoint Messrs Ernst & Young as Auditors of the Company for the ensuing year and to authorize the Directors to determine their remuneration.

6) To authorize the Directors to determine and make donations for the year ending 31st March 2018 and up to the date of the next Annual General Meeting.

By Order of the BoardSOFTLOGIC CORPORATE SERVICES (PVT) LTD

(Sgd.)Secretaries

10 July 2017Colombo

Note:A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy who need not be a member, to attend on behalf of him/her.

The Form of Proxy is enclosed in this Report.

The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 14, De Fonseka Place, Colombo 05 not later than 36 hours before the time fixed for the meeting.

152


NOTES


153

154


Notes


155

FORM OF PROXY

*I/We ............................................................................................................................................................................................................................of

................................................................................................................................................................................ being *a member/ members of

SOFTLOGIC CAPITAL PLC, do hereby appoint .....................................................................................................……………………………………………

.................................................................................................................................................... (holder of N.I.C. No. ................................................ )

of ............................................................................................................................................................................................................or failing him*

Mr A K Pathirage of Colombo or failing him*

Mr T M I Ahamed of Colombo or failing him*

Mr R J Perera of Colombo or failing him*

Mr W L P Wijewardena of Colombo or failing him*

Mr A M Pasqual of Colombo or failing him*

Mr G L H Premaratne of Colombo or failing him*

Mr P D J L R Wijeratne of Colombo or failing him*

Mr A Russell-Davison of Colombo

as *my/our Proxy to represent *me/us and to speak and vote for *me/us on *my/our behalf at the ANNUAL GENERAL MEETING OF THE COMPANY to be held at the Auditorium of Central Hospital Limited, No. 114, Norris Canal Road, Colombo 10 at 10.00 a.m. on the 17th day of August 2017 and at any adjournment thereof, and at every poll which may be taken in consequence thereof.

FOR AGAINST

1) To receive and consider the Annual Report of the Board of Directors and the Financial Statements of the Company for the year ended 31st March 2017 together with the Report of the Auditors thereon.

2) To re-elect A M Pasqual who retires by rotation in terms of Articles 88 and 89 of the Articles of Association, as a Director of the Company.

3) To re-elect Mr. P D J L R Wijeratne who retires in terms of Article 95 of the Articles of Association, as a Director of the Company.

4) To re-elect Mr. A Russell-Davison who retires in terms of Article 95 of the Articles of Association, as a Director of the Company.

5) To re-appoint Messrs Ernst & Young, as Auditors and to authorize the Directors to determine their remuneration.

6) To authorize the Directors to determine and make donations.

*Signature/s Date

Note:

1) *Please delete the inappropriate words.

2) Instructions as to completion are noted on the reverse hereof.

156


INSTRUCTIONS AS TO COMPLETION

1. Kindly perfect the Form of Proxy after filling in legibly your full name, address and the National Identity Card number and signing in the space provided and filling in the date of signature.

2. A Member entitled to attend and vote at the Meeting is entitled to appoint a Proxy who need not be a member, to attend and vote on behalf of him. Please indicate with an “X” in the boxes provided how your Proxy is to vote on each resolution. If no indication is given, the Proxy in his discretion will vote as he thinks fit.

3. If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should also accompany the completed Form of Proxy for registration, if such Power of Attorney has not already been registered with the Company.

4. In the case of a Corporate Member, the Form of Proxy must be executed in the manner prescribed by the Articles of Association/Statute.

5. The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 14, De Fonseka Place, Colombo 05 not later than 36 hours before the time fixed for the meeting.

Please provide the following details:

Shareholder’s N.I.C./ Passport/ Company Registration No.

Shareholder’s Folio No.

Number of shares held

Proxy Holder’s N.I.C. No. (if not a Director)

FORM OF PROXY

Designed & produced by

Printed by Printage (Pvt) Ltd

CORPORATE INFORMATION

Name of CompanySoftlogic Capital PLC

Legal FormIncorporated under the Companies Act No 17 of 1982 on 21st April 2005 Re-registered under the Companies Act No 7 of 2007 on 27th November 2008 Quoted in the Colombo Stock Exchange on 21st September 2011Registered under the Securities & Exchange Commission of Sri Lanka Act No 36 of 1987 as an Investment Manager

Date of Incorporation21st April 2005

Company Registration NumberP B 779 PQ

Stock Exchange ListingThe Ordinary Shares of the Company are listed on the Dirisavi Board of the Colombo Stock Exchange. Stock code for the Company share is “SCAP”.

Tax Payer Identification Number (TIN) 134012463

VAT Registration Number1340124637000

Fiscal Year – End31st March

Registered Office No 14, De Fonseka Place,Colombo 05

Directors Mr. A. K. Pathirage – Chairman- Non-Executive DirectorMr. T. M. I. Ahamed - Managing DirectorMr. R. J. Perera – Non-Executive DirectorMr. W. L. P. Wijewardena – Independent Non- Executive DirectorMr. A. M. Pasqual – Independent Non- Executive DirectorMr. H. Premaratne – Non - Executive DirectorMr. J. L. R. Wijeratne - Non - Executive DirectorMr. A. Russell-Davison - Independent Non- Executive Director

Board Sub CommitteesAudit CommitteeMr. W. L. P. Wijewardana - ChairmanMr. A.M. PasqualMr. H. PremaratneMr. A. Russell-Davison

Remuneration CommitteeA. K. Pathirage - ChairmanW. L. P. WijewardanaA. M. Pasqual

Nomination CommitteeA. K. Pathirage - ChairmanW. L. P. WijewardanaA. M. Pasqual

Related Party Transaction Review CommitteeW. L. P. Wijewardana - ChairmanA. M. PasqualR. J. Perera

Auditors Messers Ernst & YoungChartered Accountants201, De Saram PlaceP.O. Box 101Colombo 10Sri Lanka

Secretaries Softlogic Corporate Services (Pvt) Ltd.No. 14, De Fonseka Place,Colombo - 5Tel: +94 11 5575425

Bankers Sampath Bank PLCPan Asia Banking Corporation PLC Commercial Bank of Ceylon PLCNations Trust Bank PLCNational Development Bank PLC DFCC Bank PLCDeutsche Bank AG

Subsidiaries

Subsidiaries % Holding

Softlogic Finance PLC 68.58

Softlogic Life Insurance PLC 59.19

Softlogic Stockbrokers Pvt Ltd 100.00

Capital Reach Portfolio Management Pvt Ltd.

100.00

www.softlogiccapital.lk

67.4% 12,567mn 2.6% n 6.68bn 3.7% 78% 85% 12,567mn read 80 ... · annual report 2016/17 56% 8,345m...

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