softlogic finance plc annual report 2011 · · 2013-03-04softlogic finance plc ii annual report...

Softlogic Finance PLC

Annual Report 2011 i


Annual Report 2011ii

OUR MISSION

OUR VIS IONTo be the perfect non-banking �nancial institution in Sri Lanka.

To strive to delight our customers through custom- made �nancial solutions, served through our professional and highly motivated team, committed to excellence.

To create shareholder value through stability and above- average returns.

To sustain our continued commitment to being a good corporate citizen, and make a positive contribution to the community and environment.

WIN

NING

ANG

LE

CONTENTS

02 Corporate Information

03 Chairman’s Review

05 CEO’s Review

07 Pro�les of Directors

09 Management Discussion

12 Operational Review

14 Corporate Governance

24 Risk Management

26 Management Committee

31 Annual Report Of The Board Of Directors On The A�airs Of The Company

34 Audit Committee Report

35 Statement of Directors’ Responsibilities

36 Auditor’s Report

37 Income Statement

38 Balance sheet

39 Statement Of Changes In Equity

40 Cash Flow Statements

41 Signi�cant Accounting Policies

46 Notes to the Financial Statements

54 Investor Information

56 7 Years Summary

From whatever corner you look at, life is all about

angles. It’s all about diversity, opportunities,

attitudes and one’s ability to overcome the odds and

accomplish his or her vision in life. Financial success demands compelling and

contrasting factors to come together into a cohesive,

transparent and enterprising formula of success in

bridging people to financial wealth. Now, this isn’t

something we’d let you worry about. You simply trust us to

deliver the winning angle. For you - The year in review

duly illustrates our growing reputation in making good on

our pledge.

Softlogic Finance PLC is a Registered Finance Company under Finance Companies Act No 78 of 1988 as well as being a Specialized Leasing Company, licensed by the Central Bank of Sri Lanka under the Finance Leasing Act No. 56 of 2000. Further, the Company became a public listed company by way of Offer for Sale of Shares in December 2008.

The main line of business is providing Finance Lease, Hire Purchase, Operating Lease facilities, Fixed Deposits, Savings Accounts, Business Loans, Gold Loan Services and Group Personal Loans. Manned by a team of professional staff with vast experience in Marketing, Finance and Legal, Softlogic Finance PLC is geared to provide the highest quality service to its clientele.


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Corporate Information

NAME OF THE COMPANYSoftlogic Finance PLC

HOLDING COMPANYSoftlogic Capital Limited

LEGAL FORMIncorporated under the Companies Act No 17 of 1982Date of Incorporation 24th August 1999.

Re-registered under the Companies Act No. 7 of 2007 on29th September 2008.

Registered under the Finance Companies Act No. 78 of 1988Registered under the Finance Leasing Act No. 56 0f 2000.

Approved Credit Agency under the Mortgage Act No 6 of1949 and Inland Trust receipts Act No 14 of 1990.

Quoted in the Colombo Stock Exchange on January 22, 2009.

COMPANY REGISTRATION NUMBERPB641PQ

TAX PAYER IDENTIFICATION NUMBER (TIN)134008350

ACCOUNTING YEAR END31st March

REGISTERED OFFICENo.1, Lake Crescent Colombo 2

PRINCIPAL PLACE OF BUSINESSNo.1, Lake Crescent Colombo 2Telephone 94 11 2307284 – 8Facsimile 94 11 2307289E-mail [email protected] www.softlogicfinance.lk

SECRETARIESP W Corporate Secretarial (Pvt) Ltd

AUDITORSMessrs. Nihal Hettiarachchi & Co.Chartered Accountants

BANKERSHSBCDFCC Vardhana BankSampath BankBank of CeylonCommercial BankSeylan BankHatton National BankPan Asia Banking CorporationPeople’s Bank

LEGAL ADVISORS TO THE COMPANYNithya Partners

BOARD OF DIRECTORSMr Ashok Pathirage (Chairman)Mr. Mayura FernandoMr. Nalin WijekoonMr. B.H.S.JayawardeneMr Tuan Iftikar AhamedMr Samantha RajapaksaMr Ranil PathiranaMr Chris CoreaMr Dushan Soza

MANAGEMENT COMMITTEE Mr. Mayura Fernando - Director/CEOMr. Nalin Wijekoon – DirectorMr Tuan Iftikar Ahamed - DirectorMr. Sudath Jayawardena - GMMs. Devika Gunasekera - DGMMr. Sanjaya Vithanage - DGMMr. Rohana Dahanayake - AGMMr. Sampath Hewapathirana - AGMMr. T. D. Manoj Kumar - AGMMr. Dihan Eriyagama – AGMMr. Colin Samarathunga – AGMMr. Nalinda Ranaraja – AGMMr. Chamilantha Fernando – AGMMr. Ananda Wickramasinghe - SMMr. Lasantha Perera - MMs. Shalika Hewawickrama – MMr. Surendra Rodrigo - M


Annual Report 2011 3

3Softlogic Finance PLC

Annual Report 201 1

Chairman’s Review

There were more! Sri Lankans living abroad mustered

all they could; a significant volume of funds too.

A cacophony of good intentions, total confusion,

frustrations and lack of guidance made the systems

grind to a halt! The good Samaritans forayed in a

multitude of directions. Confusion worst confounded!

This was no help for the suffering masses confined to

temporary shelters their cacophony of good intentions,

total confusion, frustrations and lack of guidance made

the systems grind to a halt! The good Samaritans forayed

in a multitude of directions. Confusion worst confounded.

A robust loosely knit team of young professionals

committed to and equipped with sound knowledge,

effective communications get the job done.

There were more! Sri Lankans living abroad mustered all they could; a significant volume of funds too. A cacophony of good intentions, total confusion, frustrations and lack of guidance made the systems grind to a halt! The good Samaritans forayed in a multitude of directions. Confusion worst confounded!

This was no help for the suffering masses confined to temporary shelters their cacophony of good intentions, total confusion, frustrations and lack of guidance made the systems grind to a halt! The good Samaritans forayed in a multitude of directions. Confusion worst confounded.

A robust loosely knit team of young professionals committed to and equipped with sound knowledge, effective communications get the job done.

There were more! Sri Lankans all

they could, a significant volume of

good intentions, total confusion,

guidance made the systems grind!

The good Samaritans...

“

Chairman’s Review

It is with great pleasure we present you the performance of our Company that achieved a net profit after tax of Rs 68.5Mn which is an increase of 190% compared to the previous year’s Rs 23.6Mn.

We are also happy to inform you that our company has taken great strides forward and is now getting ahead with significant momentum, fixing our sights firmly on being a leading player in the industry within the next three years. We truly believe that our customers are at centre-stage in our business and it is their unwavering patronage that has enabled our results. We will continue to build constructive customer partnerships that will be the cornerstone of our business drive.

We are embarking on this journey in the backdrop of a Sri Lankan economy that shows enormous promise. We firmly believe that our country stands on the threshold of an unprecedented stage of growth and are hence assembling a formidable combination of resources at Softlogic Finance that will fully engage towards meeting our goals and objectives.

The year that passed was the first year of peace our country enjoyed after three long decades of war. Although slow at the start, the economy has steadily built up momentum with business confidence rising, as Sri Lankans began buying, building and investing after what has seemed like an eternity of uncertainty. Economic indicators have moved positively, signaling that a period of growth and prosperity should now unravel as the latest success story in the region begins to unfold.

Although credit growth was slow to take off, the charge has been led by the State investing in much needed infra-structure projects, reconstruction and business recovery in the areas affected by the conflict. The Private sector has been slow to grasp the opportunities and it is now time that Corporate Sri Lanka shows its mettle in delivering growth and value to the economy that was thus far stifled, aided by low interest rates, a stable exchange rate and excellent prospects in a number of industries.

On the back of good credit demand, Softlogic Finance delivered a superlative performance with Customer Advances moving to more than double, recording Rs 3.7Bn as at 31st March 2011 with Customer Deposits showing a similar trend to reach Rs1.5Bn. Prudent risk management has seen the volume of non-performing Loans ratio prevail at best of industry standards with Gross NPL at 1.1% and Net NPL at 0.4%. We maintain a robust risk management framework that is at the core of our business and hence will seek to ensure that growth and stability go hand in hand with steady risk management practices.


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Chairman’s Review

The year also saw the relaxation of exchange controls and import duty on a number of items including vehicles reduced. The Government Budget in 2011 also saw measures taken to rationalize taxation as a result of which the tax burden on the financial services sector has been considerably reduced.

Significant credit demand was generated from these actions and has opened up several new avenues for the industry in which Softlogic Finance has played an active role in gaining business volumes. Our product mix covering Leasing and Hire Purchase, Personal Loans, Gold Loans, Consumer Loans and Business Loans have all been set up to continue growth momentum at a rapid pace and it is extremely pleasing to see this trend firmly in place.

We move forward with great optimism and are keen to gain the most from a promising environment. We expect consumer confidence to steadily improve with the national objective of doubling per capita income by the year 2015, a relishing prospect. Our company will expand its offering whilst moving into several new areas in the country where financial services will be accessible through Softlogic Retail stores that will complement the Softlogic Finance Branch roll-out.

The staff and management team that we have on board is our strongest asset and we will continue to attract talent from the market to augment this prized resource. I am deeply appreciative of all their efforts and am confident that they have what it takes to deliver the results that are required.

I wish to express sincere thanks to my colleagues on the Board for their valued assistance and guidance during the year. I am also grateful to all our stakeholders for their valued cooperation and assistance.

I look forward to your cooperation as we move through the exciting times that lie ahead.

Ashok PathirageChairman30th July 2011



5Softlogic Finance PLC

Annual Report 2011

CEO’s Review





























CEO’s Review

The performance of your Company during the Financial year 2010/11 ought to be reviewed in the background of the very positive macroeconomic environment and the other significant factors that influenced the performance. The end of the 30 year war and the expansion of the economic activities of the country presented immense opportunities to the Financial Services industry similar to many other sectors of the economy. The renewed optimism in all areas witnessed a significant growth in business activities which resulted in much higher demand for financial services. The sector experienced a good recovery from the crisis faced two years ago. Vast improvement of economic fundamentals including the falling inflation, more realistic interest rates improvement of market liquidity directly contributed to the industry recovery.

In August 2010 the majority ownership of our parent Company changed hands and Softlogic Finance became a part of the dynamic conglomerate Softlogic Group. The strong support of the new ownership and the encouragement received from the Chairman and other Directors were added incentives for us to go in search of higher goals. The foundation we laid for a much bigger organization in the year under review will continue in the years to come.

Financial and Operational Performance

The gross income of the Company recorded a growth of 87.5% to reach Rs.650.6 Mn from Rs.346.9 Mn in the previous financial year. Less than proportionate increases in Interest cost and Overheads resulted in a Profit before Taxes of Rs. 104.5 from a corresponding number of Rs. 34.2 representing a 205.5% improvement over the last year. The Net Profit after Taxes was an increase of 190% from Rs. 23.6 Mn to Rs. 68.5 Mn from Financial year 2009/10 to 2010/11. The total assets of the Company grew by 137.6% during the same period to reach Rs 4.4 Bn. The most significant growth of assets was the growth of the lending portfolio from Rs 1,550 Mn in 2009/10 to Rs. 3,779.6 in the year under review recording a growth of 143.8%. The increase in the Gross Income and the profitability was mainly generated by this growth of lending portfolio. The funding for the higher volume of lending came from two main sources. The Public Deposits grew by 94.3% to go over Rs.1.5 Bn and the borrowing from Banking institutions and Securitization of lease receivables grew over three times from Rs. 633.2 Mn to Rs. 1,952.8 Mn during the year under review. This phenomenal growth of the Balance sheet was supported by a new Equity infusion in December 2010. The Company raised Rs. 267.5 Mn by way of a rights issue taking the total Equity over Rs.500 Mn achieving a regulatory requirement three years in advance.


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CEO’s Review

The quality of the lending portfolio was maintained at the best of the industry benchmarks despite the growth described above. Our recovery ratio was above 92.7% throughout the year and the Non Performing Loan ratio improved to 1.1% from 2.39% in the previous financial year. Many steps have been taken to strengthen the recovery of loans and advances in view of the higher volume of advances and resulting work load related to monthly monitoring and collection of dues.

Products and Services

Leasing and Hire Purchase facilities remained our main products during this year too. Three new products namely Group Personal Loans, Gold Loans and Business Loans were introduced to the product portfolio. First two products were earlier offered through our sister company Softlogic Credit Limited and the teams who handled these products have been absorbed to Softlogic Finance. Business loans were an opportunity we identified within the leasing and Hire Purchase customer segments to offer an additional product to known customers. The plans are underway to introduce few more products during the current financial year.

Our focus market segment remained to be the SME sector. However diversifications in terms of different industry segments and geographical locations have been achieved within the SME sector. Renewed optimism and enhanced level of business activities in many industry sectors has produced good lending opportunities.

Strategic Direction to support growth

The financials of the Company clearly demonstrate the growth of the business volume and resultant growth in revenue and profitability. To achieve this growth we have expanded our business activities in several fronts. The staff strength has been increased significantly over the last year. The branch teams have been strengthened to generate higher business volumes in all products. We are now planning to expand the network of branches to achieve our growth plans. In the current year we have already opened two new branches and several others will be opened over the next few months. There were 10 Gold Loan centers operational as at end

March 2011. A very aggressive growth of Gold Loan centers has been planned for the current year with a threefold increase in the number of centers. In addition to the network of Branches and Gold Loan Centers we have established a channel to market our Leasing facilities through softlogic centers optimizing the group synergies. The planned growth described above will be supported by enhanced and more efficient operational capabilities. All the processes were reviewed and revised where necessary to improve the operational capacity and efficiency. The need for a new IT system was identified and initial steps have been taken to replace the existing. We are planning to offer many new product features and a much bigger value addition to our customers through the better use of Information and Communication Technology.

Towards the Future

We believe that the current momentum in the economic front will continue in the foreseeable future and will continue to provide a positive environment for the Financial Services industry to thrive. Our plans to add new products and services, penetrate into new market segments and the planned geographical expansion will provide us a stronger platform to contribute to the growth of the national economy and at the same time to reap benefits from such growth. We will endeavour to optimize the performance of the Company to provide a fair share of the returns to all stakeholders.

Appreciations

I take this opportunity to thank the Chairman and the Board of Directors for their dynamic direction and guidance provided to me and to my team. My sincere appreciation also goes to the members of the Board of Directors who resigned during the year after serving at the Board for several years. The achievement in the past year is a team effort. It is the dedication and persevering efforts of the team Softlogic Finance that made us a winning combination. I thank all the team members for the wonderful contributions made.

Mayura FernandoDirector/Chief Executive Officer30th July 2011.



01. MR. R A K PATHIRAGE – CHAIRMAN

Having co-founded Softlogic in 1991 with a vision of redefining Sri Lanka’s economic potential, Mr. Pathirage has served the Softlogic Group as its Managing Director since its inception. He was appointed its Chairman in 2000 and has carved out a reputation as one of the country’s savviest and most successful business leaders. He was the catalyst in the Group’s transformation from its beginnings as a humble software development company to its current status as one of the most successful, diversified conglomerates in the country, with a turnover of USD 100 million. He is also the Managing Director of the Asiri Group of Hospitals, Sri Lanka’s number one private healthcare provider, and serves as the Chairman of Softlogic Capital Ltd. and Softlogic Finance PLC. He also serves as the Deputy Chairman on the NDB Board. Mr. Pathirage counts over 25 years of senior leadership experience in the IT industry and the business world.

02. MR. MAYURA FERNANDO – DIRECTOR/CEO

Mr. Mayura Fernando is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and a Fellow member of the Chartered Institute of Management Accountants of UK. He holds a Bachelor of Science (Applied Science) degree from University of Sri Jayawardenapura. He started his professional career at KPMG Ford Rhodes Thornton & Company and was a partner of the firm.

Profiles of Directors

01. Mr. R A K Pathirage – Chairman

02. Mr. Mayura Fernando – Director/CEO

03. Mr. Nalin Wijekoon – Director/ Deputy CEO

04. Mr. B H S Jayawardane – Director

05. Mr. R P Pathirana- Director (Absent)

06. Mr. S A B Rajapaksa- Director

07. Mr. T M I Ahamed – Director

08. Mr. Chris Corea – Director

09. Mr. Dushan Soza – Director

(1)

(2)

(8)

(3)

(9)

(6)(7)

(4)


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He has extensive experience in financial services, holding many senior positions at Vanik and Forbes Ceylon Group. Mr. Fernando also functioned as the Group Finance Director of Confifi Group and joined Virtusa (An Information Technology Company based in Boston USA) as its Director Finance Asian Region. He was responsible for the finance function of the subsidiaries in India and Sri Lanka.

03. MR. NALIN WIJEKOON – DIRECTOR/DEPUTY CEO

Mr. Wijekoon is a fellow Member of Chartered Institute of Management Accountants, London and Associate member of the Institute of Chartered Accountants of Sri Lanka and Finalist of the Institute of Bankers (Sri Lanka). He has worked in Peoples’ Bank as a Finance Officer from 1978 to 1990. Then he has joined KPMG Ford Rhodes Thornton as the Branch Manager, Kandy, in 1990 and joined DFCC as a Project Officer in 1992. He joined Vanik Incorporation Ltd as Asst. Vice President - Finance in 1994. He has undergone numerous training programs in Sri Lanka and Overseas, including training in Harvard University, Boston, USA. He counts for more than 25 years of experience in the Financial Sector.

04. MR. B H S JAYAWARDANE – DIRECTOR

Mr. B H S Jayawardane has been a Fellow of the Association of Chartered Certified Accountants. He joined the Auditor General’s Department in South Africa in 1983 as an Auditor and was later promoted to the rank of senior Auditor. He has trained local officers in carrying out qualitative audits as against basic regulatory audit work performed previously. In 1986 he joined the Postal Services of Botswana as Head of Finance. He has travelled extensively in his work in relation to the Postal Department. He was responsible in strengthening the finances of the Department. In addition to his main function as Head of Finance of this institution he also performed the role of Secretary to the Board. In Sri Lanka he has been involved in two World Bank Funded Projects and also holds the position of Executive Director of Vanik Incorporation Ltd.

05. MR. R P PATHIRANA- DIRECTOR

Mr. Pathirana is a Fellow of the Chartered Institute of Managements Accountants (U.K) and a Bachelor of Commerce (University of Sri Jayawardenepura). He has over 15 years of experience in the field of financial services and related areas.

Mr. Pathirana has had working experience at John Keells Holdings, CKN Fund Management (subsidiary of JKH) and with Vanik Incorporation, and was instrumental in setting up Vanik Bangladesh Securities in Bangladesh. He has been with Hirdaramani Group of Companies for the last 9 years and functions as the Group Finance Director

06. MR. S A B RAJAPAKSA- DIRECTOR

Mr. Samantha Rajapaksa joined the Softlogic Group in 2008 and currently is the Director / CEO of Softlogic Communications (Pvt) Limited. He is a MBA holder from the University of Sri Jayawardenapura. He is also a Member of FCMA, FCA and holds

a Diploma in Marketing from the Chartered Institute of Marketing (London) and is an Associate of Cisco, USA.

07. MR. T M I AHAMED – DIRECTOR

Mr. Iftikar Ahamed is the Executive Director at Softlogic Holdings Limited and counts 27 years of experience in a wide range of métiers within the financial services industry. He has specialist knowledge and exposure in the Treasury area and extensive Banking experience both in Sri Lanka and overseas having held senior positions at Nations Trust Bank PLC and Deutsche Bank AG.

08. MR. CHRIS COREA – DIRECTOR

Mr. Chris Corea holds BSc (Hons) degree from the University of Colombo. He has obtained his MBA and MSc degrees from the same University. Mr. Corea has completed his CIMA Examinations in 1983. He is a member of the Computer Society of Sri Lanka (former Treasurer), the Chartered Institute of Management Accountants (UK) and the Natural History Society of Sri Lanka (former President).

He started his career at Computer Service Bureau as an Analyst Programmer and has extensive experience at John Keells Group and Jaykay Computer Services. He served with the Keells Group as the head of the MIS Division of the Group where he was responsible for the Software Development and IT consulting for the entire group until he left the group in 2004 to launch Riscor Consultants a software products company. Mr. Corea was a visiting lecturer on the MBA Programme of the University of Colombo for a period of 5 years.

09. MR. DUSHAN SOZA – DIRECTOR

Mr. Dushan Soza is the Managing Director of WNS Global Services (Pvt) Ltd. Sri Lanka. He heads the WNS Sri Lankan operations and is credited for being the first to set up Sri Lanka’s premier “Finance and Accounting Center of Excellence” employing a talent pool of over 300 Finance and Accounting Professionals. His Global roles include heading the Legal Services Business Unit for WNS worldwide. In the past 24 months he also set up WNS’s Philippines site and did a number of other projects internationally. WNS is today a forerunner in the BPO and KPO industries and has won numerous awards and recognitions both in Sri Lanka as well as internationally.

He was a founder board member SLASSCOM and is on EDB advisory panel. He has spoken at many national and International forums and a thought leader in the industry.

Mr. Dushan Soza is an engineer by profession and had graduated from the University of Reading UK. He has over 25 years of diverse work experience in UK, India and Sri Lanka and has held many senior leadership positions.

He has been a much sought after speaker and has presented many papers on BPO at local and International forums.

In his early years he was a professional cricketer and has captained the Sri Lanka Under 19 Cricket Team and the University of Reading First XI.



Management Discussion

The year under review marks one of increasing strength and recognition, as Softlogic Finance has witnessed significant continued growth and stability since its takeover last year and now has 11 branches located in provincial towns of the country offering an expanding range of value-added and customer-focused financial services.

Whilst we have sought to evaluate the company’s financial performance, it is also important to take into account those socio-economic and political factors which at a macro level have impacted upon the immediate market in which Softlogic Finance has operated.

Reflecting therefore on the past year, Sri Lanka has steadily become one of the largest beneficiaries of this resurgence amongst all the emerging economies, a situation with added impetus by the post-war development boom coupled with an extended period of political stability following the Sri Lankan general elections.

Fuelled by a combination of favourable internal socio-economic conditions, Sri Lanka’s economy expanded at a dramatic rate and the GDP swiftly surpassed the 6% benchmark set in the previous four years, with this trend set to continue. These developments served to energize the financial sector as a whole and their impact upon Registered Finance Companies in particular was overly significant.

In recent times, Non-Banking Financial Institutions have lain within the public as well as the governmental gaze. Several regulatory and policy changes were enacted during the financial year whose ramifications would prove to be far reaching, mostly favourable insofar as they sought to safeguard the public through promoting a healthier, more accountable operational backbone within the finance industry.

In other words, the 2011 budget was incentive-led and built around a new regime of lower corporate taxes and interest rates intended to encourage rapid economic growth. Lower income tax on individuals was in turn designed to increase demand for personal credit while enhancing the borrower’s ability to meet repayments.

All in all, 2011 can justifiably be termed the ‘come-back year’ for the finance industry and Softlogic Finance’s latest Annual Report pays clear testimony to a finance company which has set its roots in fertile ground.

Considering now some specific areas of operation, we would first emphasize that - since its initial introduction to Sri Lanka in 1980, Lease Finance has gained particular acceptance as an alternative to loan financing and a viable source of financing for SMEs. This trend has accelerated due to the convenience offered by the speed of granting leasing facilities and, during the past year, by a reduction in import duties on unregistered vehicles as well as increased demand for Motor Cycles and 3-Wheelers.

Overseeing all processes, Softlogic Finance’s centralized operation affords a high-tech platform for promoting the company - not only in managing its expanding island-wide operation more effectively, but also in offering fresh impetus in developing a top-notch product portfolio tailor-made to the evolving needs of its customers. Indeed, plans are afoot for the continuation of this dynamic expansion in the forthcoming year as Softlogic Finance seeks to consolidate on its already strong market position.

The quality of any company’s employees - their aspirations and job satisfaction, productivity as well as their desire to feel valued - all attest to the welfare of that company. In short, employees represent the fuel which drives any smoothly running operation, and the Human Resources Department has therefore focused this year on maintaining the momentum towards excellence in career development and training, as well as recruiting the right staff from the outset.

The primary initiative of the Department has been to launch a ground-breaking Training & Development Unit utilizing both in-house and External Trainers. The result has been to set performance benchmarks for company staff while promoting individual career development through HR’s newly developed Career Succession Plan. In this sense, the employee ‘Reward System’ has become an even greater component within the overall Company.

The objective of the Career Succession Plan is to identify the dynamic and motivated Team Leaders for the future - particularly within the Leasing and Hire Purchase Sectors - who are best equipped to deliver Softlogic Finance’s enviable Service Excellence Standard.

In a competitive environment in which the need to retain and develop talented employees within the organization is fully


Annual Report 201110


recognized, HR has therefore launched Executive and Management Training Programmes which focus upon:

1. Systems within the finance industry. 2. Technical knowledge of products & services.3. IT and Software skills.4. On the Job Training (OJT) for newly recruited staff.

A Corporate Shared Values (CSV) initiative entitled The “WIN” Youth Empowerment Programme - an internship scheme was launched and conducted at each of Softlogic Finance’s Branch Network.

A performance-driven culture is promoted by linking achievements to rewards, increments and performance bonus incentives.

HR also commenced an English Literacy Training programme for Junior Executives up to intermediate level, with plans afoot for advanced English Literacy Training as well as Computer Literacy Training. Softlogic Finance thereby invested heavily in a variety of seminars, workshops and bespoke training programmes during the year, with a KPIs for Managers initiative now also in the pipeline.

All in all, the year has proven to be a hard-driven and ambitious one on the part of HR Department insofar as Softlogic Finance’s most valuable resource - its staff is concerned!

Considering the Operations Department its primary initiative this year has been to launch a progressive new 5 Year Plan which aims to introduce a variety of dynamic measures, which include:

1. Decentralization of Fixed Deposit operations A Fixed Deposits Operations unit has been set up at Galle

Branch to issue certificates and facilitate cash withdrawals and it is intended to extend the trial to Softlogic Finance’s other branches no later than end of March 2012.

2. New IT Software It is intended to have this operational by the end of 2012

to enable faster online approvals and hence faster product processing. While better information gathering will improve overall efficiency, the gathering of ‘intelligent’ information will also allow for better targeted marketing based upon more specific market demographics.

3. New filing system It is intended to have an 5S system operational by the end

of 2013 to enable virtual storage of all files as a result of increasingly restricted and expensive hard storage space as Softlogic Finance expands.

4. Operational Risk Evaluation Unit As has already been alluded to, this has been introduced to

monitor service standards as well as the risk ‘appetite’ of sub-departments, particularly as a result of increased business volumes and the decentralization of the FD/Lending processing units.

5. Transparency In conclusion, all service standards and appraisal results will be

now published for the ultimate benefit of Softlogic Finance’s current and future customers.

The performance of the Leasing and Hire Purchase Department under Mr. Nalin Wijekoon, achieved phenomenal growth during the year due primarily to the post-war boom within the tourism and construction sectors in particular. Furthermore, the reduction of import duties on vehicles helped significantly to increase the demand for leasing products.

The department’s results may be summarized succinctly as:

% Growth of Lending Portfolio 144%

In terms of capitalizing on this success, the Department is now planning to open new low-cost business channels through Softlogic network of showrooms in order to further drive and expand its Leasing and Hire Purchase portfolio.

In a similar vein, Group Personal Loans under Mr. Sudath Jayawardhana has constituted one of Softlogic Finance’s most successful services in terms of introducing its innovative new concept which facilitates loans for salaried personnel of approved public, semi-private and private organizations.

2009-10

Gross Income Growth 12%

Net Profit after Tax 70%

2010-11

Gross Income Growth 88%

Net Profit after Tax 190%




The Group Personal Loans portfolio witnessed an immense growth during the period under review and the portfolio has grown to 246 Mn. 80% of the Group Personal Loan portfolio consists of government personnel and 70% of these are teachers of Government Schools.

The key advantage of this service is that it carries in-built consumer durability and, while it is currently utilized for the most part by the low-end target sector, planning is underway to introduce similar services aimed at high-end customers in the near future.

Moving on to Gold Loans under Mr. Sudath Jayawardhana, the period under review saw sustained growth within the operation, with new standalone Gold Loan Centres being inaugurated in Pamankada, Grand Pass, Ja-Ela, Kandana, and Dematagoda. In the first half, an aggressive expansion plan is in place to expand of the Gold Loan Centres Island-wide.

Although Gold Loans pose a minimal risk to the company due to the asset-based nature of the service, the Department has taken steps to further mitigate risk in this sector through the establishment of Audit Units as well as new state-of-the-art equipment which accurately measures the density of customers’ gold.

Business Loans took particular advantage of new ventures seeking mainly short-term capital as a result of the post-war consumer boom, with its portfolio growing to an impressive Rs. 184 Mn. The Department is in the process of developing new Lending Products aimed at targeting expanding niche market sectors.

During the period under review a company has maintained the quality of receivables, with its portfolio undoubtedly amongst the best-maintained in the industry with Non-Performing advances running at under 1.1%.

Softlogic Finance’s total deposit portfolio nearly doubled during the financial year 2010-11, Deposit Mobilization surpassed the landmark Rs.1.5 Bn barrier as far as Rs. 1.57 Billion - a phenomenal rise of 94.4% in its deposit base. The company also recorded a threefold increase in other borrowings, mainly via the banking sector and through securitization of its Leasing and Higher Purchase receivables.

The Fund Mobilization team achieved this through a variety of proactive measures, including aggressive yet customer-focused marketing throughout the company’s Branch network running alongside strategic product promotions.

In reviewing the overall performance of the company during the past financial year, as well as the picture this paints for the next 12 months, Softlogic Finance is boldly set to forge ahead with its aggressive expansion strategy in its capacity as emerging financial colossus. During the year it has recorded huge increases in its asset and public deposits, both in quantitative and qualitative terms, and it is now labelled a ‘Large Financial Company’ by the Central Bank. Governmental policy is also generally conducive to an increasingly expansive credit environment, particularly within the company’s target SME sector.

With its main lending activities concentrated in Leasing, Hire Purchase and Term Loans, Softlogic Finance added several new services to its portfolio during the operating year including Business Loans, Group Personal Loans and Gold loans - all of which performed exceptionally under prevailing market conditions. Within the context of the ongoing growth recorded within the country’s tourism, transport and construction sectors, Softlogic Finance can therefore boast the ideal strategic fit in offering retail and SME customers exciting personal and business financial solutions alike through its network of Branches and Stores as it continues to expand island-wide.

In conclusion, promoting growth through sound and dynamic management strategies coupled with streamlined state-of-the-art company operations, Softlogic Finance’s focus for the forthcoming year remains simple enough; namely, astute financial products and lending criteria running hand-in-hand with good old-fashioned customer service.



Five Years at a Glance 2006/07 2007/08 2008/09 2009/10 2010/11

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

Gross Income 112.5 206.6 309.4 346.9 650.6

Interest expense 41.8 107.7 185.3 202.4 336.6

Operating Profit after Interest 72.7 103.9 131.6 154.6 343.6

Profit before tax 17.2 21.8 22.6 26.2 84.8

Lease & HP Rental Receivable (Gross)

713.4 1,226.3 1,466.8 2,259.5 4,772.1

Lease Disbursements 466.0 707.1 675.8 1,205.0 3,126.7

Borrowings 345.7 497.7 453.1 633.2 1,952.8

Shareholders’ Funds 185.9 200.1 213.9 217.5 531.2

Total assets 627.1 1,025.1 1,167.3 1,867.7 4,438.4

Public Deposits 32.0 225.5 406.8 821.8 1,584.8

EPS 0.51 0.71 0.69 1.18 3.07

PE Ratio - - - 12.71 20.36

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

100

150

200

250

300

350

Rs. Mns

Year

s

50

Operating Profit after Interest

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

100.0

200.0

300.0

400.0

500.0

600.0

700.0

Rs. Mns

Year

s

Gross Income

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

100

150

200

250

300

350

Rs. Mns

Year

s

Interest Expense

50

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

40

60

80

100

Rs. Mns

Year

s

Profit Before Tax

20

Operational Review



2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

Rs. Mns

Year

s

Borrowings

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

1600.0

1800.0

2000.0

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

Rs. Mns

Year

s

Shareholders’ Funds

100.0

200.0

300.0

400.0

500.0

600.0

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

Rs. Mns

Year

s

Lease & HP Rental Receivable (Gross)

1000.0

2000.0

3000.0

4000.0

5000.0

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

Rs. Mns

Year

s

Lease & HP Disbursements

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

Rs. Mns

Year

s

Total Assets

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

4000.0

4500.0

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

Rs. Mns

Year

s

Public Deposits

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

1600.0

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

Rs. Mns

Year

s

PE Ratio

5.00

10.00

15.00

20.00

25.00

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

0

Rs. Mns

Year

s

EPS

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Operational Review



Corporate Governance

The Company’s compliance with the parameters set out in the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka (ICASL), the Securities and Exchange Commission (SEC) the Listing Rules of Colombo Stock Exchange (CSE) and the Finance Companies (Corporate governance) Direction No.3 of 2008 is tabulated below.

Principle Reference to Code of Best Practice

issued by ICASL

Reference to the Listing

Rules of CSE

Reference to the Finance Companies (Corporate

Governance) Direction No. 3

of 2008

Level of Compliance

Board of Directors

The Boardshould direct,lead and controlthe Company

A.1 7.10.3 (a)&(c)

2 (1) & 2 (2) At present, the Board of Directors of the Company comprises of Seven Non-Executive Directors and Two Executive Directors. The Board consists of members who have adequate knowledge and skills to direct, lead and control its operations. The Profiles of the Directors are presented on pages 7 to 8 of this Annual Report. The Company is controlled by a team of Senior Managers headed by the Chief Executive Officer (CEO). The Board plays an active role in setting the directions for the Company and the process of implementation of strategies. The Senior Managers are given the authority and responsibility to implement strategies. Annual budgets and corporate plans are the key tools in this process. The Board ensures that the Company’s plans are directed towards the achievement of set objectives which are regularly monitored and updated through a well established monitoring process. Key Performance Indicators are used to assess the performance at each Board meeting.

Board Meetings

Frequency ofBoard meetings

A.1.1 3 (1) Board meetings are held once every month to review and evaluate the performance of the Company. Special meetings are held based on the requirement to discuss specific matters. The number of Board meetings held during the year and the individual attendance by each member of the Board is presented on page 23 of this Annual Report

Board Responsibilities

Formulation and implementationof a sound strategy and effective systems

A.1.2 2 (1) & 3 (2) Developing and implementing an annual business plan, annual budgets and managing day-to-day operations are fulfilled by the management as the Board has delegated its authority and responsibility to the management. These plans and the budgets are approved by the Board at the beginning of the year and the performance of the Company is reviewed by the Directors in line with the set targets and performance indicators. In setting targets for the future, the Board is responsible for approving the next three year budget at board meetings. Necessary adjustments are made to the plans and budgets and the strategies are altered accordingly. The changes by the Board are based on the Internal Strengths, Weaknesses and the Opportunities and Threats prevailing in the macro-environment. In addition, competitive actions are also considered in finalizing any change.

Competenceof the CEOand SeniorManagementin implementingBusinessStrategies

A.1.2 2 (1) (f) The Senior Management / Management Committee consists of competent members who have skills, knowledge and experience and qualifications to carry out their respective functions effectively. The CEO is responsible for the effective implementation of the policies approved by the Board. The profiles of the Senior Management and the Management Committee are presented on pages 28 to 30 of this Annual Report.




Effectivesuccessionplanning for theCEO and SeniorManagement

A.1.2 2 (1) ( j) A proper succession plan is in place to ensure that there are adequate options available within the Company to replace the key personnel. Continuous training programs are put in place to ensure that the staff is up to the required standard in filling a vacant position. The Company culture is designed in a way to identify and develop internal personnel to fill key positions whenever required.

EffectiveSystems tosecure Integrityof Information,Internal Controlsand RiskManagement

A.1.2 (2) (1) (c )& (e)

To secure integrity of information, internal controls, risk management policies and effective systems have been implemented by the Company. The effectiveness of such systems is continuously monitored by the management, internal and external auditors and independent consultants whenever necessary.

Compliancewith Laws,Regulationsand Ethicalstandards

A.1.2 2 (1) (i) The Company has been taking steps to follow ethical standards in carrying out operations. The Company has taken relevant measures to comply with the laws and regulations applicable to ethical business practices wherever possible.

Consideration ofall Stakeholders‘Interest inCorporateDecisions

A.1.2 2 (1) (d) &7(10)

Stakeholders’ interests are taken into consideration in evaluating a strategic decision. The Chairman ensures the effective communication with the shareholders and that their interests are taken into consideration in making decisions. The Board always makes an effort to minimise negative aspects towards any stakeholder in the corporate decision making process.

Adoption ofappropriateaccountingpolicies andfosteringcompliancewith financialregulations

A.1.2 10 (1) The Company’s Accounting Policies are prepared based on the Sri Lanka Accounting Standards (SLAS) and Industry best practices. Further, such policies are reviewed annually and updated accordingly to reflect the true and fair financial position of the Company. Financial statements of the Company are prepared and presented in Compliance with the Sri Lanka Accounting Standards (SLAS) and also comply with the requirements of the Companies Act No. 07 of 2007 and the Finance Companies Act No.78 of 1988 and the directions issued thereunder. The Independent Auditor’s Report is given on page 36 of this Report.

Fulfilling otherBoard functionsare vital, giventhe scale, natureand complexityof the businessconcerned

A.1.2 The Board consistently discharges its stewardship obligations on behalf of all Shareholders. Further, it ensures that recommendations given by external auditors are implemented properly to improve internal controls and business processes within the Company. The Board continuously monitors and develops the ethical guidelines to meet the highest level of public interest in its business activities.

Act in accordance with the laws and regulations relevant to the organization and place procedures to obtain independent advice.

A.1.3 2 (3) The Board ensures that members across the Company are independently and collectively responsible to act according to the relevant laws and regulations. The Directors are authorised to obtain any independent professional advice that they require regarding laws and regulations at the expense of the Company

Access toCompanySecretary

A.1.4 3(5), (6), (7)& (8)

All the Directors have access to the advice and service of the Company Secretary .The Secretary ensures that Board procedures are followed and are in compliance with the provisions of the Companies Act No.07 of 2007 and other applicable rules and regulations. The Secretary is responsible for maintaining minutes. The Secretary possesses the required qualifications as per the Companies Act and only the Board has the authority to change the Secretary.



IndependentJudgement

A.1.5 4 (6) Independent judgements of each Director on issues of strategy, performance, resources and standards of business conduct are discussed by the Board in order to evaluate matters effectively so that correct decisions can be made for the benefit of the Company and thus avoid conflicts of interests.

Dedication ofadequate timeand effort tomatters of theBoard and theCompany

A.1.6 3 (3) To ensure that the duties and responsibilities owed to the Company are satisfactorily discharged, the Directors attend monthly Board meetings and discuss prevailing matters. Time is allocated at each meeting to discuss the matters related to changes in business operations, risks and controls. Board papers are circulated amongst the members 7 days prior to each Board meeting in order to enable them to analyse and call for additional information and clarifications, if required. The Board members also conduct regular meetings and discussions with the Management and follow up on issues consequent to such meetings. The number of meetings attended to by each Director is presented on page 23 of this Annual Report.

Training forDirectors

A.1.7 The Chairman is responsible to ensure that the Directors possess sound knowledge to carry out their duties in an effective manner. The Company facilitates the Directors to enhance their knowledge on the industry, general economic conditions, market developments and trends etc. The Company also provides necessary resources for the training of the Directors on a continuous basis at the Company’s cost. Through this the Company expects to minimize the gap between the present status and the Company’s vision, mission and goals.

Division ofresponsibilitiesbetween theChairman andCEO

A.2 7 (1) The role of the CEO and Chairman are not combined. The Chairman is a Non-Executive Director while the CEO serves as an Executive Director of the Company. This is to ensure a balance of power and authority such that no one possesses unfettered powers of decisions.

Chairman’s Role A.3 & A.3.1 7 (2), (4), (6),(7) & (8)

The Chairman, who is a Non Executive Director, provides leadership and facilitates the effective functioning of the Board. The Chairman encourages the effective participation of the Directors towards the strategic decision making process in order to make collective decisions and ensure that the Directors utilize their maximum potential in favour of the Company. Therefore, the Chairman ensures that the Directors are informed adequately and in a timely manner about the issues arising at Board meetings. Different views of the Directors are evaluated to take strategically viable decisions and to ensure that stakeholder interest is not adversely affected. The Board has complete control over the affairs of the Company, by way of reviewing and analyzing performance on a monthly basis. The Chairman presents the views of the Board to the public.

Financial Acumen

Availabilityof sufficientfinancial acumenand knowledge

A.4 4 (6) The Directors hold the required qualifications and experience in the financial service sector as set out in their profiles given on pages 7 to 8 of this Annual Report and provide the Company with the necessary financial guidance in conducting its business.

Board Balance

Composition ofthe Board

A.5 & A.5.1 7.10.1 4 (1) &(3) The Board of Directors of the Company comprises of seven Non-Executive Directors and two Executive Directors, who are the CEO & Deputy CEO of the Company and their views carry significant weight in the Board decisions.




Independence ofthe Directors

A.5.2, A.5.3& A.5.5

7.10.2 &7.10.3.(c)

4 (4) & (8) At present, there are two Directors who are Independent Non executive Directors and they are free of any business or other relationship with the Company that could materially interfere with the exercise of their unfettered and independent judgement. Appointment of those two Directors as Independent Non-Executive Directors complied with the applicable statutory provisions. The Independency / Non-Independency, Executive / Non-Executive capacity of each Director is specified in page 31 of this Annual Report.

Submissionof Annualdeclarations

A.5.4 7.10.2 Each Non-Executive Director is responsible to submit a signed and dated declaration on an annual basis of his/her Independency/Non-Independency. At present two of the Directors of the Company are Independent and the other seven Directors are Non-Independent.

Requirement toappoint a SeniorIndependentDirector

A.5.6 7 (2) Since the posts of Chairman and CEO are held by different persons, there is no necessity to appoint a senior Independent Director.

Board meetingsonly withNon-ExecutiveDirectors

A.5.8 As and when the necessity arises, the Board meets only with the Non Executive Directors to review the performance of the CEO.

Unresolvedmatters

A.5.9 The Director’s concerns pertaining to unresolved matters are discussed and recorded in the Board minutes and discussed at the subsequent Board meeting.

Supply of Information

Provisionof timelyinformation

A.6.1 The Senior Management provides accurate, timely, relevant and comprehensive financial and non financial information to the Board to facilitate the decision making process on a regular basis.

Chairman to ensure that all the Directorsare properly briefed on issues arising at Board meetings

A.6.1 7 (6) The Chairman takes necessary actions to update any Director who could not attend a meeting, prior to the next meeting.

The minutes,agenda andpapers requiredfor a Boardmeeting

A.6.2 3 (3) The minutes, agenda and the Board Papers to be tabled at Board meetings are circulated among the Board members 7 days prior to each Board meeting.

Appointments to the Board

Assessmentof BoardComposition

A.7.2 4 (9) The Board as a whole assesses its own composition to ascertain whether the combined knowledge and experience of the Board matches when the Company is faced with strategic demands. The findings of such assessments are taken into account when making new appointments to the Board.

Disclosure ofprofiles of thenewly appointedDirector

A.7.3 7.10.3.(d) Appointments of new Directors during the year under review are presented in page 31 and their respective profiles were submitted to the CSE for dissemination to the public.




Resignation of aDirector

4 (11) Resignations of the Directors from the Board during the reporting period are presented in the page 31 of this Annual Report. Resignation of these Directors was accordingly notified to the Central Bank of Sri Lanka and to the CSE for dissemination to the public.

Period of Service 4 (2) No Director has exceeded the period of nine years of holding the office of Director.

Appraisal of Board

Board Appraisal A.9 2 (8) Board performance is assessed to ensure that the Board matches the strategic demands facing the Company. The findings of the appraisal will be taken into consideration in the appointment of new Directors. The Board carries out an annual review, headed by the Chairman and it covers the areas such as effectiveness of strategies taken, compliance with laws and effectiveness of the systems implemented. All the Directors actively participate in the review and improvements are implemented immediately.

Fitness andPropriety ofDirectors

5 (1)5 (2)

None of the Directors of the Company are above the age of 70 years and they do not hold office as a Director or any other equivalent position in more than 20 Companies/Societies/ Corporate Bodies.

Disclosure of

Information inrelation to eachDirector

A.10 7.10.3 (c) 2 (4), 7 (3), 9& 10.2 (d)

The following information in relation to Directors is disclosed in the Annual Report.

1. Profiles of Directors - Page No. 7-82. Details of Related Party Transactions - Page No. 323. Board Meeting Attendance - Page No. 23

In terms of the Articles of Association of the Company, Directors abstain from voting on any Board resolution on a matter in which he or any of his relatives has substantial interest and are not counted in the quorum for relevant agenda item at the Board meeting.

Appraisal ofCEO

A.11 Financial and Non financial targets for the CEO are set at the beginning of the financial year and the performance of the CEO is reviewed based on achievement of such targets at the end of the year.

Directors’

The Level andMake up ofRemuneration

B.2 The Remuneration Committee in deciding the remuneration of the Directors (including the compensation package of the CEO & Deputy CEO) takes into consideration the level of remuneration paid by the other comparable companies, performance and risk factors.

Executive ShareOptions

B.2.5 The Company does not have any executive share options at present.

Disclosure ofRemuneration

B.3 7.10.5 (c) 10(2) (e) The remuneration paid to the Directors is disclosed on page 53 of this Annual Report.

Relations with

Constructiveuse of AGMand conductof GeneralMeetings

C.1 The AGM is held in a participative way with the presence of Softlogic Capital Ltd as the major shareholder and the other shareholders. The Board is responsible for encouraging all the shareholders to be present at AGM’s of the Company.


performance

Information in respect of Directors

Remuneration

Shareholders



Consideration ofproxy votes

C.1.1 Proxy votes together with the votes of the shareholders present at the AGM are considered for each resolution.

SeparateResolution forSeparate issues

C.1.2 The Company proposes a separate resolution on each substantially separate issue and the adoption of the Annual Report and accounts is proposed as a separate resolution.

Circulation ofNotice of AGMand otherdocuments

C.1.4 The Annual Report, Financial Statements, copies of proposed resolutions to be passed at the AGM and the notice are sent to shareholders with a notice period of at least 15 working days in compliance with the Companies Act.

Summary ofproceduregoverning Votingat GeneralMeetings

C.1.5 Instructions on appointing a Proxy with regard to representing the shareholder at the General Meeting to ensure the voting right is sent to each shareholder.

Major Transactions

Disclosureof majortransactions

C.2 Future strategies of the Company and their potential impact are disclosed in Management Discussion of this Annual Report.

Accountability and

FinancialReporting

D.1 10.1 (a)&10(2) & (b)

The Company places a great emphasis on complete disclosure of both financial and non financial information and has presented a balanced assessment of the Company’s position bi-annually and for the period ended 31st March 2011. In preparing the bi-annual and annual Financial Statements, the Company has complied with the Companies Act No. 07 of 2007, the Finance Companies Act No.78 of 1988 and the directions issued thereunder and the Financial Statements are presented in conformity with the Sri Lanka Accounting Standards. The Company has also complied with the requirements of the regulatory authorities such as the Central Bank of Sri Lanka, the Securities and Exchange Commission of Sri Lanka and the Colombo Stock Exchange.

Interimaccounts, pricesensitive publicreports, reportsto regulatorsand informationrequired bystatute

D.1.1 Interim and Annual Financial Statements and other price sensitive information are disclosed to the CSE duly on a timely basis. All other regulatory reports are also submitted by the due dates.

Director’s Report D.1.2 Declarations by the Directors as required by the Code of Best Practice on Corporate Governance are presented on page 33 of this Annual Report.

Responsibilitiesof the Boardand Auditors forthe preparationof FinancialStatements.

D.1.3 10 (2) (c ) The statement of Directors’ Responsibility for Financial Reporting and Independent Auditors’ Report are presented on page 35-36 respectively of this Annual Report.


Audit



ManagementDiscussion andAnalysis

D.1.4 A detailed Management Discussion is presented on pages 9-11 of this Annual Report.

Declaration ofGoing Concernby Directors

D.1.5 This Information is provided in the Annual Report on page 36.

Internal Control

Maintain asound system ofInternal Control

D.2 2 (1) (e) The ultimate responsibility of internal controls and mitigating risks rests with the Board of Directors. The Company’s Internal Control systems and procedures are designed to eliminate possible risks and minimise any unforeseen risks while an effective disaster recovery plan is in place. A detailed Risk Management Report is presented on pages 24 to 25 of this Annual Report.

Review of theeffectivenessof the group’ssystem ofinternal control

D.2.1 The Management, with the assistance of the Internal and External Auditors reviews the effectiveness of the internal control procedures at the group level and takes corrective actions immediately.

Internal AuditFunction

D.2.2 The Company’s Internal Audit Function is carried out by a firm of Chartered Accountants.

Board Committees

BoardCommittees

D.3 7.10.5 &7.10.6

8 (1) The Company consists of the following Board Committees as required by the relevant statutory provisions;● Audit Committee● Integrated Risk Management Committee● Remuneration CommitteeEach of the above Committees directly report to the Board and is responsible to present a report on performance, duties and functions at the AGM.

Sub Committees

Audit Committee D.3 7.10.6 (a),(b) &(c)

8 (2) An Audit Committee was formed by the Board of Directors during the year under review which consists of four members of the Board, out of the four members, two of them are Independent Non-Executive Directors. The Chairman of the Committee is an Independent Non-Executive Director who possesses qualifications and experience in accountancy. The other members of the Committee are also Non Executive Directors. The composition and functions carried out by the Audit Committee is presented on page 34 of this Annual Report.




Integrated RiskManagementCommittee

8 (3) The Committee consists of one Non Executive Director, the CEO and key management personnel to make decisions on behalf of the Board in relation to the risks applicable to the Company and is responsible to submit a risk assessment report to the Board. The composition of the Risk Management Committee is presented on page 33 of this Annual Report. As per the terms of reference of the Committee adopted by the Board of Directors, the following functions are being performed by the newly formed Risk Management Committee,(i) Assess all risks to the Company on a monthly basis through appropriate risk indicators and management information.(ii) Review the adequacy and effectiveness of all management level committees to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the committee.(iii) Take prompt corrective action to mitigate the effects of specific risks in cases where such risks are at levels beyond the prudent levels decided by the committee on the basis of the Company’s policies and regulatory and supervisory requirements.(iv) Meet at least quarterly to assess all aspects of risk management including updated business continuity plans and take prompt corrective action to mitigate such effects.(v) Take appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions as recommended by the committee, and/or as directed by the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka.(vi) Submit a risk assessment report within a week of each meeting to the Board seeking the Board’s views, concurrence and/or specific directions.(vii) The committee shall establish a compliance function to assess the Company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations. A dedicated compliance officer selected from key management personnel shall carry out the compliance function and report to the committee periodically.

Independenceand objectivity ofthe Auditors

D.3.2 8 (2) (d) The Independence of the internal and external auditors is monitored by the Board/ Audit Committee in order to ensure that the Company gets a good service and their work has not been impaired due to lack of independence. The Company’s External Auditors during the period under review were Messrs. Nihal Hettiarachchi & Co., Chartered Accountants. Internal Auditors of the Company during the year were Messrs. SJMS Associates, Chartered Accountants. The Auditors do not have any relationship or interest in the Company or its subsidiaries. Further, the external auditor has not provided any non-audit service during the period which is substantial in nature.




Code of Business

Adoption of aCode of BusinessConduct

D.4 The Code of Business Conduct includes provisions to,● Protect the Company’s reputation when associating with people, organizations, products or transactions that could potentially damage the reputation.● Comply with legal and regulatory authorities in protecting stakeholder interest.● Each member must maintain the highest standards of integrity, honesty and personal conduct in all matters, which affect the Softlogic Group.● Staff is encouraged to report any suspicions of wrong doing to the Senior Management.● Seek business relationships which are mutually beneficial and lead to success through fair dealing and high standards of business integrity.● Seek competitive proposals from suitable suppliers and service providers.● Acknowledge responsibility for all employee related issues including health and safety.● Encourage a healthy work-life balance among staff.●Employees are encouraged to be a part of the good performance of the Company while making them responsible towards work and encompassing self imposed disciplines.●Softlogic Finance’s discipline policy is aiming at corrective actions rather than punitive and sets reasonable standards of performance and behaviour to ensure consistency and fairness of treatment of all employees when the standards are not met.●Support local communities through charitable donations, and gifts in kind and encourage the involvement of staff voluntarily.●Responsible lending through a better understanding of customer needs.●Maintain a clear link between equality, diversity and business excellence.

ConfidentialInformation

D.4.1 2 (1) (e) The Directors regard the confidentiality of customer information as highly important. Systems and controls within the Company ensure that the information is secured and integrity is maintained to avoid insider trading.

Affirmationfrom the Boardregarding notviolating theprovisions of thecode

D.4.2 There were no violations of the Company’s Code of Ethics during the year.

Practice ofgood CorporateGovernance

D.5 7.10 The Company is taking steps to be compliant with the Code of Best Practice on Corporate Governance jointly issued by the ICASL and SEC as well as the Corporate Governance Rules for listed Companies issued by the CSE.

Inclusion ofa CorporateGovernanceReport in theAnnual Report

D.5.1 2 (7) The Corporate Governance Statement states to what extent the Company is compliant with the Corporate Governance guidelines.


Conduct and Ethics



Shareholders

Institutional Investors

Ensure institutionalshareholders’voting intentions are translated into practice.

E.1 All shareholders are encouraged to participate and vote at the AGM. The names and the number of shares held by the 20 largest shareholders and percentage of such shares are presented in page 54 of this Annual Report along with other shareholder information.

Regular andstructureddialog withshareholders

E.1.1 The primary mode of Communication between the Company and the Shareholders is through the Annual General Meeting. The Chairman ensures the views of shareholders are communicated to the Board as a whole.

Other Investors

Investing/DivestingDecisions

F.1 The Annual Report is circulated to all shareholders in a timely manner and includes adequate information to enable the shareholders to make decisions relevant to their investment in the Company. The following reports aim at providing an overall assessment of the Company’s activities and future prospects.

Chairman’s Review 3-4CEO’s Review 5-6Management Discussion 9-11Annual Financial Statements 37-53

During the financial year under review, the Company conducted one Rights Issue. Information relating to the said Right Issue is presented in the page 32 of the Annual Report.

Encourage individualshareholdersto participatein generalmeetings andexercise voting rights

F.2 All shareholders are encouraged to participate and vote at the AGM.


BOARD MEETINGS

The Board met 11 times in the year under review and the attendance at these meetings was as follows,

Name No. of Meetings

Mr A K Pathirage (Chairman) (Appointed w.e.f 30th August 2010) 6

Mr P M B Fernando (CEO) 11

Mr N H G Wijekoon 11

Mr B H S Jayawardene 11

Mr R P Pathirana (Appointed w.e.f 30th August 2010) 4

Mr S A B Rajapaksa (Appointed w.e.f 30th August 2010) 5

Mr T M I Ahamed (Appointed w.e.f 30th August 2010) 6

Mr C J E Corea (Appointed w.e.f 23rd November 2010) 3

Mr D T C Soza (Appointed w.e.f 24th March 2011) 1

Mr H L L M Nanayakkara (Resigned w.e.f 20th August 2010) 5

Mr. M N R De Silva (Resigned w.e.f 31st August 2010) 5

Mr C Ramachandra (Resigned w.e.f. 23rd August 2010) 5

Mr D Muthukumarana (Resigned w.e.f. 31st August 2010) 4

Mr P A Schaffter (Resigned w.e.f. 16th September 2010) 3



Risk Management

Risk Management has become a vital but complex tool with which the company has to balance its costs and returns. This involves the identification and control of the myriad of processes and mechanisms which characterize Softlogic Finance’s corporate structure as well as the multitude of inter-related transactions which define its core business. The integrity of data collected, as well as the quality of these controls, therefore constitutes the vital foundation stone upon which the Risk Management system is based.

The ‘appetite’ of the risk is decided by the Board and its policies are formulated in accordance with this. At various stages in the process acceptable levels of risk are routinely measured against bench-marks established under these policies. In other words, the risk is continuously monitored and reviewed in order to achieve the optimum trade off of risk and value creation.

The Board has appointed an Integrated Risk Management Committee during the financial year under consideration in accordance with the Corporate Governance requirements of the Central Bank. The Committee is represented by the members of both Board and Management and the Committee reviews the risk policies of Softlogic Finance on an ongoing basis whose risks are assessed via MIS reports, market reports, internal audits as well as process tests.

The Credit Risk of the company is covered primarily by the Credit and Recovery Policies, and the former was twice amended during the financial year under to cater for the fast changing credit environment in which Softlogic Finance operates.

Softlogic Finance has undertaken stringent credit analysis in order to identify areas of potential weakness within the Policy while the Credit quality threshold is routinely measured against key KPIs. Credit Risk is first evaluated at the time of granting a facility and continues to be monitored during the performance period through a variety of mechanisms.

Mechanisms utilized in order to do this include:

Liquidity Risk arises mainly from discrepancies within the borrowing and lending cycles, and volatile market conditions render RFCs vulnerable to this risk. The market can react swiftly to such negative sentiments, which can in turn precipitate a run on deposits.

Fortunately, Softlogic Finance has very strong liquidity policies to cater for sudden shocks of this type within the system.

Interest Rates Risk is that which arises from lending at fixed rates while borrowing at floating rates, thereby exposing the company to a continuous Repricing Risk if not managed properly. After a highly volatile year, interest rates stabilized during the second half of the year which enabled the company to reduce its market risk considerably.

The Repricing Risk also reduced with most investors/depositors in the market taking increasingly long positions on their investments. This Risk continues to be monitored closely. Mechanisms utilized in order to do this include:

An active Senior Management ALCO committee consisting of 6 members which meets on a monthly basis.

Monthly Gap Analysis coupled with routine repricing of company products.

Interest Rates Risk measured monthly and remedial actions enforced to suit.

Implementation of a proper Cash Management policy.

Daily monitoring of the Disbursement:Recoveries ratio.

Maintaining Liquid Assets ratio as per Central bank requirements.

Enhancing fee-based income to minimize dependency on fund-based products.

Segregating the duties of back-office staff at the Treasury.

Maintaining a well diversified loan portfolio whose sector exposures are strictly maintained and whose asset types are monitored on a monthly basis.

Appointment of qualified panels to evaluate collateral independently.

Proper training of staff in credit evaluation.

Monitoring and rescheduling of facilities.

Educating staff on provisions of the Finance Leasing Act and other statutes.

Obtaining external legal opinion where necessary.

Strict adherence to single borrower limits and the regulatory guidelines of Central Bank on facility classification, interest in suspense and provisioning.

Regular review of financial market situations and industry exposures.



Risk Management

Operational Risk has become increasingly material within the context of the rapid expansion of the company. The volumes processed per head increased during the year and the company had to find ways to maximize the efficiency of the process time-lines without sacrificing the integrity of security controls.

Legal Risks were managed through well-defined processes intended to counter mismanagement and fraud, with modifications undertaken where needed as a result of ongoing monitoring. Mechanisms utilized in order to do this include:

Establishing appropriate delegated authority levels. Formulating a succession plan. Maintaining a pleasant working environment to minimize staff

turnover. Implementing effective internal audit functions. Monthly statutory compliance inspections. Implementation of a back-up system.

Softlogic Finance has devised a Business Continuity Plan to counter any unforeseen disasters including off-site storage of data and software backups of all hard copies.

The organizational structure and job descriptions are also regularly updated to ensure continuity of the business processes.

Strategic Risks in the form of those decisions taken by the management and Board of Directors are routinely tested through scenario probability and impact studies, and Softlogic Finance’s Risk Overview may be summarized schematically as follows:

Measures

Limits/ Thresholds

Policies

Data Integrity/Good Controls/Internal Audits/Periodic Reviews



Management Committee

Left to Right: MR. ROHANA DAHANAYAKE - ASSISTANT GENERAL MANAGER, MR. DIHAN ERIYAGAMA - ASSISTANT GENERAL MANAGER, MR. NALINDA RANARAJA - ASSISTANT GENERAL MANAGER, MS. DEVIKA GUNASEKERA - DEPUTY GENERAL MANAGER,

MR. COLIN SAMARATUNGE - ASSISTANT GENERAL MANAGER, MR. SANJAYA VITHANAGE - DEPUTY GENERAL MANAGER, MR. SAMPATH HEWAPATHIRANA - ASSISTANT GENERAL MANAGER, MR. MAYURA FERNANDO - DIRECTOR /CEO,

MR. ANANDA WICKRAMASINGHE - SENIOR MANAGER, MR. NALIN WIJEKOON – DIRECTOR/DCEO, MR. SURENDRA RODRIGO - MANAGER, MR. SUDATH JAYAWARDHANA – GENERAL MANAGER, MR. T DILHAN MANOJ KUMAR - ASSISTANT GENERAL MANAGER,

MR. LASANTHA PERERA - MANAGER, MR. CHAMILANTHA FERNANDO - ASSISTANT GENERAL MANAGER, MS. SHALIKA HEWAWICKRAMA – MANAGER



MR. SUDATH JAYAWARDHANA - GENERAL MANAGER

Mr. Jayawardhana holds a Masters of Business Administration Degree from University of Lincoln (UK). He has received his Diploma in Credit Management from Ceylinco Institute of Credit Management of Sri Lanka, Diploma in Marketing from National Institute of Business Management (NIBM) and Diploma in Management from Open University of Sri Lanka. He has over 23 years of experience in diverse areas of Leasing, including Marketing, Credit, Recoveries Legal Recoveries and Administration.

He joined LOLC in 1986 as a Marketing Assistant and in 1990 August he joined Central Finance Co. Ltd. as Marketing Executive. In 1993 February he joined Vanik Incorporation Ltd. as an Assistant Manager in the Leasing Department where he continued to work till 1999 when he was seconded to Capital Reach Leasing Ltd. (CRLL) as Head of Marketing and Business Development and subsequently was promoted as the General Manager of Softlogic Finance PLC.

Apart from the above he has undergone numerous training programs pertaining to Leasing industry in Sri Lanka and Overseas, including Amembal, Deane & Associates- Leasing Training program.

MS. DEVIKA GUNASEKERA - DEPUTY GENERAL MANAGER

She holds a B.Sc.(Eng.) from University of Moratuwa and Masters in Business Administration, University of Colombo. Prior to joining Capital Reach Leasing Ltd (CRLL), she had been engaged at Clean Technologies (Pvt.) Ltd. as a Process Engineer. She has over 13 years of managerial experience in diverse areas of Leasing, including Marketing, Credit and Lease Operations (back office). She joined Vanik Incorporation Ltd. as an Asst. Manager to Leasing Dept. in February 1997 and was seconded as Manager to CRLL in 1999. She has undergone several training programs pertaining to Leasing Industry including Amembal, Deane & Associates - Leasing Training program.

MR. SANJAYA VITHANAGE - DEPUTY GENERAL MANAGER

He holds a B.Sc (Agri.) Degree (2nd Class Lower) from university of Peradeniya and Post Graduate Diploma in Business Statistics from university of Ruhuna.

He has over 13 years of managerial experience in diverse areas of Leasing, Hire Purchase, Factoring, Bill Discounting, Margin trading and mobilization of funds. He joined Vanik Incorporation Ltd. as

Management Committee Profiles

an Assistant Manager in 1997 and was seconded to Capital Reach Business Development (Pvt) Ltd. (CRBDL) in 2005. He has undergone several training programs pertaining to Leasing Industry including Amembal, Vinod Kothari – Leasing Training Programs.

MR. ROHANA DAHANAYAKE - ASSISTANT GENERAL MANAGER

Mr. Dahanayake is a Graduated with a Bsc (Hons) degree from the University of Peradeniya. He also a holder of an advanced certificate in Information Technology from the Boxhill College, Victoria, Australia and Master of Business Management at the University of Peradeniya.

Mr. Dahanayeke commenced his carrier as a research assistant at Tea Research Institute and later served DFCC as a Project Officer and latter Lankem Ceylon Ltd. as a Research and Development Manager. He was at Vanik Incorporation Limited from 1996 to 2005 and was the Assistant General Manager in charge of Kandy Branch.

MR. SAMPATH HEWAPATHIRANA - ASSISTANT GENERAL MANAGER

He functions as the Head of Finance of Softlogic Finance PLC. He holds a B.Sc. (2nd Class Lower) Degree in Business Administration, University of Sri Jayawardhanapura and is reading for Final Stage of Institute of Chartered Accountants of Sri Lanka.

He joined Vanik Incorporation Ltd. in January 1998 and was appointed as an Accountant of Vanik Money Brokers. He has handled Group Financial Accounts of Vanik Incorporated Ltd. and was seconded to Vanik Leasing as the Manager Finance and later appointed as Senior Manager at Capital Reach Leasing Ltd. He has over 12 years of experience in Auditing, Treasury, Taxation and Accounting in Financial Services Sector.

MR. T DILHAN MANOJ KUMAR - ASSISTANT GENERAL MANAGER

Manoj is an Associate member of the Institute of Bankers in Sri Lanka (IBSL). He holds a Masters in Financial Economics from University of Colombo, Post Graduate Diploma in Economic Development from University of Colombo, a Post Graduate Diploma in Business Management from Greenwich School of Business Management in UK and partly qualified in ACCA. He has 18 years of experience in Locally & Internationally in Banking & Finance Sector with knowledge in Credit Management, General Banking, Marketing and also exposed into Manufacturing Sector related to Trading & Technical Arena.




MR. DIHAN ERIYAGAMA - ASSISTANT GENERAL MANAGER

Dihan Eriyagama has over 15 years of Experience in Banks covering Commercial and Personal Banking, Brand Management, Sales Management in Assets and Liability products. Prior to joining the company he had worked at HSBC as the Manager in Charge of the Business Banking Sales Team, Standard Chartered as the Manager Sales for Personal Loans and at Seylan Bank as the Manager Marketing Services / Brand Manager for Deposits. Further Dihan has exposure to the Insurance and Media Industries during the early stages of his career when employed as a Marketing executive at Union Assurance and MTV Channel (Pvt) Ltd. respectively. He is currently reading for an MBA at Edith Coven University, Australia.

MR. COLIN SAMARATUNGE - ASSISTANT GENERAL MANAGER

Colin Samaratunge holds a B. Sc. (Agric.) Special Degree from University of Peradeniya and Post Graduate Diploma in Information Technology from University of Kelaniya. He has one year experience as an Assistant Lecturer at the University of Peradeniya and over nine years experience in Financial Services Sector.

He has been in various managerial positions in Vanik Incorporation Limited and Capital Reach group including the position of branch manager of Polonnaruwa, Kurunegala and Nuwaraeliya branches. Currently he is overlooking the leasing operations of Western, North Western and North Central provinces including the operations of Chilaw and Polonnaruwa branches. His experience varies from leasing, hire purchase, factoring, bill discounting, margin trading, fund mobilization and recovery.

MR. CHAMILANTHA FERNANDO - ASSISTANT GENERAL MANAGER

Chamilantha Fernando has over 12 years of experience in Banks, covering Retail and Personal Banking. He was heading the Sales teams in Assets, Liability and Retail Banking products. Prior to joining the Company he had worked at Standard Chartered Bank as the Head of Consumer Sales in Retail Banking and at Nations Trust Bank as Manager American Express Card Sales and prior to that he was at HSBC.

He is an Associate Member of Institute of Bankers of Sri Lanka also a Member of Chartered Institute of Marketing - UK and a Degree holder of the University of Western Sydney – Australia.

He is currently reading for an MBA at Edith Coven University, Australia.

MR. NALINDA RANARAJA - ASSISTANT GENERAL MANAGER

Nalinda Ranaraja is a Fellow Member of The Association of Accounting Technicians of Sri Lanka (FMAAT), Passed Finalist of the International Association of Bookkeepers and he has completed the Foundation stage of the Certified Management Accountants of Sri Lanka (CMA).

He started his career at Thornton, Panditharathne and Company (Chartered Accountants) as an Audit Assistant and then worked as a Senior Audit Examiner in the same firm. He then joined E.W. Balasooriya (EWB) and Company as an Accounts Clerk and he held the position of Senior Book Keeper when he was leaving EWB, after which he joined Marigold Hotels (Pvt) Ltd. (subsidiary of Vanik Incorporation) as an Accountant. Subsequently he was employed at Vanik Incorporation Ltd. as a Manager. He joined to Capital Reach Ltd. and contributed in several positions, Senior Manager – Branch Operations, Senior Manager- Recoveries (Capital Reach Credit Ltd), Senior Manager – Marketing in Capital Reach Business Development (Pvt) Ltd. (CRBDL) Trading Unit. Presently he is Assistant General Manager in charge of Recoveries. He has over 20 years experience in Auditing, Finance, and Accounting and also in other fields.

MR. ANANDA WICKRAMASINGHE - SENIOR MANAGER Mr Wickramasinghe is a Member of the Institute of Certified Management Accountants of Sri Lanka (CMA),a Member of Certified Professional Manager(CPM) and also a member of Association of Accounting Techniques of Sri Lanka (MAAT). Further he has completed Professional I Examination of Chartered Accountants of Sri Lanka. He started his professional career at KPMG Ford Rhodes Thornton & Company and was a Senior Audit Examiner of the firm. He joined Vanik Incorporation Ltd. in 1993 and was appointed as the Accountant of Vanik Money Brokers and was able to gain managerial experience in diverse areas of Financial Accounts. In 2000 he was appointed as the Accountant of Vanik Factors Ltd. and year 2001 he was assigned as the Head of Finance Operations of Vanik Incorporation Ltd. In 2005 he joined with Asset Line Leasing where he gained experience of Marketing and Credit Operations, holding many senior positions at Vanik Incorporation and Asset Line Leasing Co. Ltd. He has over 11 years experience in Financial Services.



MR. LASANTHA PERERA - MANAGER

Mr. Lasantha Perera holds a Degree in Business Administration from University of Sri Jayawardanepura. Apart from that he has obtained special training programme in Credit and Risk entrepreneur assessment in EDI University of Ahamadadabad, Special Training programme in Legal & regularly aspects for Micro - Finance and Livelihood Development in International Law Organization.

He has over 20 years managerial experience in Micro Finance Sector. Previously he has worked at SEEDS (Guaratee) Ltd. In 2009, he joined Softlogic Credit Ltd. as an Assistant Manager in the Consumer Credit Unit. He was Promoted as Manager in his current assignment at Softlogic Finance PLC in 2010.

MS. SHALIKA HEWAWICKRAMA – MANAGER

Shalika Hewawickrama was an Executive Secretary and Administrative Assistant, with 12 years of experiences in difference industries. She has started her career as a Junior Secretary to the Director at Dewelco (Pvt) Ltd in 1999. Then she joined Asian Alliance Insurance Company Ltd as the Junior Secretary to the Assistant General Manager – Operations and in 2003 she joined Virtusa (Pvt) Ltd. as the Secretary to the Asian Region Finance Director.

Shalika joined Capital Reach Holdings Limited in 2005 and worked as Secretary to the Group Chairman and moved to Human Resources as a Senior Executive in 2007 and currently she is heading the Human Resources Department of Softlogic Finance PLC.

Shalika is currently reading for the Professional Qualification in Human Resource Management and National Diploma in Human Resource Management at Institute of Personnel Management.

MR. SURENDRA RODRIGO - MANAGER

Mr. Surendra Rodrigo has 10 years of experience in Finance Industry. He has started his career as a Sales Consultant at Ceylinco Insurance Company Ltd. in 2001. Then he joined The Finance PLC as a Recoveries Executive in Kandy Region. Then he joined Central Investment and Finance as a Senior Executive and he was mainly handling Real Estate projects.

Surendra joined Capital Reach Credit Limited in 2009 as an Assistant Manager Recoveries and he was over looking Nuwara Eliya, Badulla, Polonnaruwa, Kandy and Western Province. In addition to his main functions he was handling Leasing Marketing and Dealer Finance. Subsequently in 2010 he has moved to Gold Loan Division and he is heading the Gold Loan Department of Softlogic Finance PLC. Surendra is currently reading for the Credit Management Diploma at the Institute of Credit Management and he has completed 1st stage of Sri Lanka Institute of Marketing and also he has undergone numerous training programs.




The Directors of Softlogic Finance PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements for the Year ended 31st March 2011.

GENERAL

Softlogic Finance PLC was re-registered as per the Companies Act, No. 07 of 2007 on 29th September 2008, listed on the Colombo Stock Exchange on 22nd January 2009 and assigned with PB641PQ as its new number. The name of the Company was changed from Capital Reach Leasing PLC to Softlogic Finance PLC on 12th November 2010.

PRINCIPAL ACTIVITIES OF THE COMPANY AND REVIEW OF PERFORMANCE DURING THE YEAR

The principal activities of the Company were granting lease facilities, hire purchases, vehicle hiring, group personal loans, business loans, other credit facilities, pawning, accepting fixed deposits, real estate sales and operation of savings accounts.

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

This report together with the Financial Statements, reflect the state of affairs of the Company.

FINANCIAL STATEMENTS

The Financial statements of the Company are given on pages 37 to 53.

SUMMARIZED FINANCIAL RESULTS

2010/2011 2009/2010 Rs.000 Rs.000

Net Operating Income 343,628 154,597Profit before Tax 84,786 26,162Taxation 16,250 2,558Net Profit for the Year 68,536 23,604 AUDITORS’ REPORT

The Report of the Auditors on the Financial Statements of the Company is given on page 36.

Annual Report of The Board of Directorson The Affairs of The Company

ACCOUNTING POLICIES

The accounting policies adopted by the Company in the preparation of Financial Statements which are given on pages 41 to 45 are consistent with those of the previous period.

DIRECTORATE

The names of the Directors who held office as at the end of the accounting period are given below and their brief profiles appear on page 7 to 8.

EXECUTIVE DIRECTORS

Mr P M B Fernando – Director/CEOMr N H G Wijekoon – Director/Deputy CEO

NON EXECUTIVE DIRECTORS

Mr A K Pathirage - ChairmanMr R P Pathirana - DirectorMr S A B Rajapaksa - DirectorMr T M I Ahamed - Director Mr B H S Jayawardene - DirectorMr C J E Corea - Director*Mr D T C Soza - Director*

* Non Executive Independent Directors

- Mr P A Schaffter resigned as a Director with effect from 16th September 2010. Therefore, Mr R Schaffter ceased to be the Alternate Director to Mr P A Schaffter with effect from 16th September 2010. - Messrs C J E Corea and D T C Soza were appointed as Directors with effect from 23rd November 2010 and 24th March 2011 respectively.

In terms of the Articles of Association, Messrs C J E Corea and D T C Soza will hold office until the conclusion of the forthcoming Annual General Meeting and being eligible, offer themselves for re-election.

- Mr R P Pathirana retires by rotation at the conclusion of the Annual General Meeting in terms of Articles 91 and 92 of the Articles of Association and being eligible is recommended for re-election.



INTERESTS REGISTER

The Company maintains an Interest Register in terms of the Companies Act, No.7 of 2007. 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 applicable rules and regulations of the relevant Regulatory Authorities.

REMUNERATION OF DIRECTORS

The Directors’ remuneration is disclosed in Note 22.1.3 to the Financial Statements on page 53.

DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING

The Directors are responsible for the preparation of Financial Statements of the Company to reflect a true and fair view of the state of its affairs. A further statement in this regard is included on page 35.

AUDITORS

Messrs Nihal Hettiarachchi & Co., Chartered Accountants served as the Auditors during the year under review. The Auditors do not have any interest in the Company other than that of Auditor.

The fee payable to Auditors for the year under review is Rs. 215,000/-.

Based on the recommendations of the Audit Committee, the Board is recommending to the shareholders, the appointment of Messrs PricewaterhouseCoopers, Chartered Accountants of No. 100, Braybrooke Place, Colombo 2 as the Auditors of the Company to hold office from the conclusion of the forthcoming Annual General Meeting in place of the retiring Auditors, Messrs Nihal Hettiarachchi & Co., Chartered Accountants.

Notice of the proposed resolution has been served on the retiring Auditors as required by the Companies Act, No. 07 of 2007.

STATED CAPITAL

The Stated Capital of the Company is Rs.468,174,410/- represented by 26,752,822 Ordinary Shares.

RIGHTS ISSUE

The Company had a Rights Issue of shares in December 2010 in the proportion of One (01) new Ordinary Share for every Three (03) Ordinary Shares held as at the relevant date, at an issue price of Rs.40/- per share for the purpose of expanding the capital base of the Company in line with the statutory requirements in order to enhance and sustain the pattern of growth achieved by the Company. Resulting from the said Rights Issue, the Stated Capital increased by Rs.267,528,200/- and the number of shares by 6,688,205 Ordinary Shares. The proceeds of the issue were utilized

for the working capital requirement of the Company on leasing and hire purchase business.

The Directors have recommended a further Rights Issue of shares in the proportion of Two (02) new Ordinary Shares for every Five (05) Ordinary Shares held as at 29th July 2011 date, at an issue price of Rs.50/- per share. An Extraordinary General Meeting has been convened for the 29th of July 2011 to place before the shareholders the requisite resolution for the issue of the said shares.

DIRECTORS’ SHAREHOLDINGThe relevant interests of Directors in the shares of the Company are as follows; Shareholding Shareholding as at 31/03/2011 as at 31/03/2010

Mr A K Pathirage 120,000 -Mr P M B Fernando 3,600 30,000Mr N H G Wijekoon 3,333 10,000Mr R P Pathirana - -Mr S A B Rajapaksa - -Mr T M I Ahamed 21,300 -Mr B H S Jayawardene - -Mr C J E Corea (Appointed w.e.f. 23rd November 2010) - - Mr D T C Soza (Appointed w.e.f. 24th March 2011) - -

DIRECTORS’ TRANSACTION WITH THE COMPANY / RELATED PARTY DISCLOSURES

Fixed Deposits accepted by the Company from Directors and their relatives (as defined in the Finance Companies Act No.78 of 1988) during the year under review were Rs. 7,617,571/-

These deposits were accepted in compliance with the Finance Companies (Deposits) direction No. 01 of 2005 and Finance Companies (Interest) direction No. 02 of 2005 and on terms and conditions that were for the time being applicable to the other depositors of the Company, and to payment of interest to similar deposit.

Transactions with entities that are controlled, jointly controlled or significantly influenced by key managerial personnel or their close members of family or shareholders who have either control, significant influence or joint control over entities are set out in Note 22.1.2 to the Financial Statements on page 53.

MAJOR SHAREHOLDERS, DISTRIBUTION SCHEDULE AND OTHER INFORMATION

Information on the twenty largest shareholders of the Company, the distribution of shareholding, percentage of shares held by the public, market values per share as per the requirements of the Listing Rules of the Colombo Stock Exchange are given on page 54 to 55 under Investor Information.



RESERVES

The movements of reserves during the year are given under the Statement of Changes in Equity on page 39.

PROPERTY, PLANT & EQUIPMENT

Details and movements of Property, Plant and Equipment owned by the Company are given in Note 13 to the Financial Statements on page 50.

LAND HOLDINGSThe Company does not own any freehold land.

INVESTMENTS

Details of the Company’s quoted and unquoted investments as at 31st March 2011 are given in Note 8 to the Financial Statements on pages 47 to 48.

DIVIDEND

An interim dividend of Rs.1/- per share for the year under review was paid on 18th March 2011.

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.

MATERIAL FORESEEABLE RISK FACTORS

The Risk Management Report on pages 24 to 25 sets out the processes currently practiced by the Company to identify and manage the risks.

STATUTORY PAYMENTS

The 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 employees of the Company and all other known statutory dues as were due and payable by the Company as at the Balance Sheet date have been paid or, where relevant provided for.

EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

No material circumstances have arisen as at the date of the Auditors’ Report, which would require adjustment to, or disclosure in the Financial Statements.

CORPORATE GOVERNANCE

The Company aspires to adhere to the best practices in Corporate Governance and the Corporate Governance Rules of the Colombo Stock Exchange.

The Corporate Governance Statement on pages 14 to 23 explains the practices within the Company in this respect.

An Audit Committee, Remuneration Committee and an Integrated Risk Management Committee function as Board Sub Committees, with Directors who possess the requisite qualifications and experience. The composition of the said Committees [which was constituted in terms of the said direction No. 3 of 2008] is as follows:

AUDIT COMMITTEE

Mr C Corea (Chairman)Mr R P Pathirana (Resigned with effect from 28th July 2011) Mr S A B RajapakseMr D T C Soza

REMUNERATION COMMITTEE

Mr A K Pathirage (Chairman)Mr D T C SozaMr C Corea

INTEGRATED RISK MANAGEMENT COMMITTEE

Mr T M I Ahamed (Chairman)Mr P M B FernandoMr N H G WijekoonMr S H Jayawardhana – General ManagerMr P D D S Gunasekara – Deputy General ManagerMr D S Hewapathirana – Assistant General Manager

AMENDMENT TO THE ARTICLES OF ASSOCIATION

A resolution will be placed before the shareholders at the Annual General Meeting for amending the Articles of Association to enable the Company to carry on the business as money changers.

ANNUAL GENERAL MEETING

The Annual General meeting will be held on 30th September 2011 at the Auditorium, Central Hospital (Pvt) Ltd, No. 114, Norris Canal Road, Colombo 10 at 2.30 p.m. The Notice of the Annual General Meeting is enclosed with this Annual Report.

By Order of the BoardSOFTLOGIC FINANCE PLC

Sgd. Sgd.P M B Fernando N H G WijekoonDirector Director

Sgd.P W Corporate Secretarial (Pvt) LtdSecretaries

28th July 2011Colombo



COMPOSITION OF THE COMMITTEE

The Audit Committee was reconstituted on 25th January 2011 and now comprises :

Mr Chris Corea BSc ACMA MSc MBA (Chairman)Mr Samantha Rajapakse FCA FCMA MCIM MBAMr Ranil Pathirana FCMA BComMr Dushan Soza FCMA (with effect from 24th

February 2011).

The above named are non executive directors of the Company. Messrs Chris Corea and Dushan Soza are independent Directors.

TERMS OF REFERENCE

These terms of reference for the Audit Committee are drawn up as per the guidelines incorporated in the “Code of Best Practice on Corporate Governance” drawn up by the Institute of Chartered Accountants of Sri Lanka together with the Securities and Exchange Commission of Sri Lanka in the year 2008.

The Purpose of the Audit Committee is to assist board oversight of :

• Preparation, presentation and adequacy of disclosures in the financial statements, in accordance with Sri Lanka Accounting Standards

• Company’s compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements

• Processes to ensure that the Company’s internal controls and risk management procedures are adequate to meet the requirements of the Sri Lanka Accounting Standards

• Assessing the Company’s ability to continue as a going concern in the foreseeable future

• Independence and performance of the Company’s external auditors

Duties and responsibilities of the Audit Committee

• To make recommendations to the Board pertaining to appointment, reappointment and removal of external auditors and to approve the remuneration and terms of engagement of the external auditors.

• Discussion of the audit plan, key audit issues and their resolution, management responses and the proposed remuneration of the Auditor

• Discussion of the Company’s annual audited financial statements and quarterly financial statements with management and the auditor

Audit Committee Report

• Discussion of the Company’s earnings press releases and financial information and earnings guidance provided to analysts and rating agencies

• Discussion of policies and practices with respect to risk assessment and risk management

• Meeting separately, periodically, with the management, auditors and internal auditors

• Establishing mechanisms for the confidential receipt, retention and treatment of complaints alleging fraud, received from internal/ external sources and pertaining to accounting, internal control or other such matters

• Assuring confidentiality to whistle blowing employees• Setting clear hiring policies for employees or former

employees of the auditors• Reporting regularly to the Board of Directors

MEETINGS

The reconstituted Committee held three meetings during the period 25th January 2011 to 31st March 2011.

INTERNAL AUDIT

Discussions were held with representatives from SJMS Associates to whom the Company has outsourced the Internal Audit function. The internal systems and controls and suggestions for improvements were discussed.

In view of the rapid expansion of the operations of the Company, it was decided to recruit a Chartered Accountant to be in charge of the Internal Audit function and report to the Audit Committee. The position was advertised and applications are currently being processed.

EXTERNAL AUDIT

Meetings were held with representatives of our auditors Nihal Hettiarachchi & Co. It was noted that all matters in their Management Letter had been adequately addressed in a written response from the Management. This adequacy was confirmed by the representative from the Auditors.

Compliance with Central Bank regulations was also discussed with the auditors and again found to be adequate and in order.

Our Auditors M/s Nihal Hettirachchi & Co were originally engaged for a three year period ending in the year under review. As such we wrote to several reputed audit firms to submit proposals to conduct our audit. The responses were reviewed and we have pleasure in recommending M/s PriceWaterhouseCoopers to function as our Auditors for the year 2011/2012.



The Directors are required by the Companies Act, No. 7 of 2007 to prepare financial statements for each financial year, which give a true and fair view of the statement of affairs of the Company as at the end of the financial year and the income and expenditure of the Company for the financial year.

The Directors are also responsible to ensure that the financial statements comply with any regulations made under the Companies Act which specifies the form and content of financial statements and any other requirements which apply to the Company’s financial statements under any other law.

The Directors consider that the financial statements presented in this Annual Report have been prepared using appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates and in compliance with the Sri Lanka Accounting Standards, Companies Act, No. 7 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 and Finance Companies Act, No. 78 of 1988 and the Directions issued thereunder.

Statement of Directors’ Responsibilities

The Directors are responsible for ensuring that the Company keeps sufficient accounting records, which disclose the financial position of the Company with reasonable accuracy and enable them to ensure that the financial statements have been prepared and presented as aforesaid. They are also responsible for taking measures to safeguard the assets of the Company and in that context to have proper regard to the establishment of appropriate systems of internal control with a view to prevention and detection of fraud and other irregularities.

The Directors continue to adopt the going concern basis in preparing the financial statements. The Directors, after making inquiries and review of the Company’s Business Plan for the financial year 2011/2012, including cash flows and borrowing facilities, consider that the Company has adequate resources to continue in operation.

By Order of the BoardSoftlogic Finance PLC P W Corporate Secretarial (Pvt) LtdSecretaries26th May 2011



REPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying financial statements of Softlogic Finance PLC., of which comprise the balance sheet as at March 31, 2011, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. SCOPE OF AUDIT AND BASIS OF OPINION

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

Independent Auditor’s ReportTo The Shareholders Of Softlogic Finance PLC

OPINION

In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended March 31, 2011 and the financial statements give a true and fair view of the Company’s state of affairs as at March 31, 2011 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

These financial statements also comply with the requirements of Section 151(2) of the Companies Act No. 07 of 2007 and the Finance Companies Act No. 78 of 1988.

COLOMBO, NIHAL HETTIARACHCHI & CO.,May 26, 2011 Chartered Accountants



Note 2010/2011 2009/2010

Rs. Rs.

GROSS INCOME 1 650,609,912 346,881,422

Interest Expenses 2 (336,587,217) (202,372,563)

INCOME NET OF INTEREST 314,022,695 144,508,859

Other Income 3 29,605,823 10,088,102

NET OPERATING INCOME 343,628,518 154,596,961

OPERATING EXPENSES 4

Personnel Costs 69,776,951 25,666,386

Staff Retirement Benefits 1,089,742 1,514,987

Provision For Bad & Doubtful Debts 2,169,229 3,418,307

Administrative & General Expenses 5 166,069,896 89,779,681

PROFIT BEFORE TAX & VAT ON FINANCIAL SERVICES 104,522,700 34,217,600

VAT on Financial Services 19,736,157 8,055,393

PROFIT BEFORE INCOME TAX 84,786,544 26,162,207

Income Tax Expense 6 16,250,538 2,557,560

Net Profit for the Year 68,536,006 23,604,647

Earnings Per Share 7 3.07 1.18

The Accounting policies and notes from pages 41 to 53 form an integral part of these Financial Statements.

Income Statement Year Ended 31St March 2011



Balance Sheet As At 31St March 2011

Note 31/03/2011 31/03/2010

Rs. Rs.

ASSETS

Bank & Cash Balances 64,874,455 82,870,946

Investment In Government Securities 156,572,402 55,000,000

Placements with Banks & Financial Institutions 50,000,000 50,000,000

Investment in Dealing Securities 8 37,368,600 30,600

Investment in Government Treasury Bonds 55,284,450 -

Prepayments & Other Receivable 9 233,602,684 78,610,421

Amount Due From Related Companies 10 - 7,712,720

Loans & Advances 11 283,956,085 23,080,066

Lease & Hire Purchase Rentals Receivables 12 3,371,328,433 1,526,853,925

Pawning Advances 124,322,109 -

Vehicle Stock 4,855,172 10,288,618

Real Estate Stock 16,647,132 15,848,001

Property, Plant & Equipment 13 39,587,010 17,412,771

TOTAL ASSETS 4,438,398,532 1,867,708,068

LIABILITIES

Bank Overdrafts 55,307,922 -

Time Deposits 1,567,900,684 806,620,584

Certificate of Deposits - 9,000,000

Savings Deposits 16,906,309 6,195,667

Borrowings 14 1,952,786,077 633,221,572

Trade & Other Payables 15 266,807,706 163,289,521

Deferred Liabilities 16 47,503,689 31,859,922

TOTAL LIABILITIES 3,907,212,387 1,650,187,266

SHARE HOLDERS’ FUNDS

Stated Capital 17 468,174,370 200,646,170

Reserve Fund 7,375,479 3,948,678

Retained Profit) 55,636,296 12,925,954

Shareholders’ Funds 531,186,145 217,520,802

TOTAL LIABILITIES AND SHARE HOLDERS’ FUNDS 4,438,398,532 1,867,708,068

Net Assets Per Share 19.86 10.84

(Sgd.) D.S.Hewapathirana,Assistant General Manager - Finance The Accounting policies and notes from pages 41 to 53 form an integral part of these Financial Statements. The Board of Directors is responsible for preparation of these Financial Statements. Signed for and on behalf of Board by; (Sgd.) P.M.B.Fernando (Sgd.) N.H.G.Wijekoon Director Director Date : May 26, 2011

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



Stated Capital Retained Reserve Total

Profit/ (Loss) Fund

Rs. Rs. Rs. Rs.

Balance as at April 1, 2008 200,646,170 (2,637,761) 2,073,503 200,081,912

Net Profit for the year - 13,898,860 - 13,898,860

Reserve Fund - (694,943) 694,943 -

Balance as at March 31, 2009 200,646,170 10,566,156 2,768,446 213,980,772


Dividends - (20,064,617) - (20,064,617)

Reserve Fund - (1,180,232) 1,180,232 -


Rights Issue of Shares 267,528,200 - - 267,528,200

Effect of Deferred Tax Adjustment - 4,353,959 - 4,353,959


Dividends - (26,752,822) - (26,752,822)

Reserve Fund - (3,426,800) 3,426,800 -


Statement Of Changes In Equity For The Year Ended 31St March 2011

The Accounting Policies and notes from pages 41 to 53 form an integral part of these Financial Statements.



2010/2011 2009/2010

Rs. Rs.

Cash Flow from Operating Activities

Net Profit before Taxation 84,786,544 26,162,207

Adjustments for

Depreciation 8,592,965 9,003,106

(Profit)/Loss on Disposal of Property, Plant & Equipment (1,680,803) (913,270)

Provision For Bad & Doubtful Debts 2,169,229 3,418,307

Provision for Defined Benefit Plans 1,089,742 1,514,987

Interest Expenses 336,587,217 202,372,563

Operating Profit before Working Capital Changes 431,544,895 241,557,899

(Increase)/Decrease in Lease & Hire Purchase Rental Receivable

(1,846,643,737)

(527,608,818)

(Increase)/Decrease in Loans & Advances (260,876,019) (5,404,476)

(Increase)/Decrease in Pawning Debtors (124,322,109) -

(Increase)/Decrease in Vehicle Stocks 5,433,446 (29,870)

(Increase)/Decrease in Prepayments & Other Receivable (152,217,817) (34,258,990)

(Increase)/Decrease in amounts due from Related Companies 7,712,720 2,217,722

(Increase)/Decrease in Real Estate Stocks (799,132) (482,815)

Increase/(Decrease) in Public Deposits 762,990,742 415,048,513

Increase/(Decrease) in Borrowings 1,309,343,230 180,100,038

Increase/(Decrease) in in Trade & Other Payables 103,518,184 99,944,881

Cash Generated from/(Used in) Operations 235,684,404 371,084,085

Interest Paid (336,587,217) (202,372,563)

Defined Benefit Plan Costs Paid (117,000) (96,000)

Net Cash from/(used in) Operating Activities (101,019,813) 168,615,522

Cash Flows from/(used in) Investing Activities

Purchase of Property, Plant & Equipment (21,067,126) (5,764,258)

Proceeds from Disposal of Property, Plant & Equipment 2,202,000 3,593,232

Purchase/Sale of Investments (194,194,852) (91,798,821)

Net Cash from/(used in) Investing Activities (213,059,978) (93,969,847)

Cash Flows from/(used in) Financing Activities

Proceeds from Rights Issue of Shares 267,528,200 -

Dividend Paid (26,752,822) (20,064,617)

Net Cash from/(used in) Financing Activities 240,775,378 (20,064,617)

Net (Decrease)/Increase in Cash & Cash Equivalents (73,304,414) 54,581,058

Cash & Cash Equivalents at the beginning of the year 82,870,946 28,289,888

Cash & Cash Equivalents at the end of the Year 9,566,533 82,870,946

Reconciliation of Cash & Cash Equivalents

Cash & Bank Balance 64,874,455 82,870,946

Bank Overdrafts (55,307,922) -

9,566,533 82,870,946

Cash Flow Statement Year Ended 31St March 2011

The Accounting policies and notes from pages 41 to 53 form an integral part of these Financial Statements.



1. CORPORATE INFORMATION

1.1 GeneralSoftlogic Finance PLC (formerly known as Capital Reach Leasing PLC) is a Quoted Public Limited Liability Company incorporated and domiciled in Sri Lanka and governed by Finance Companies Act No: 78 of 1988. The registered office of the Company and principal place of the Company is located at No. 1, Lake Crescent, Colombo 2. Ordinary shares of the Company were listed on the Colombo Stock Exchange on January 22, 2009.

1.2 Principal Activities and Nature of OperationsDuring the year, the principal activities of the Company were granting lease facilities, hire purchases, vehicle hiring, group personal loans, business loans, other credit facilities, pawning, accepting fixed deposits, real estate sales and operation of savings accounts.

1.3 Parent Enterprise and Ultimate Parent EnterpriseThe Company’s parent undertaking is Softlogic Capital Ltd (formerly known as Capital Reach Holdings Ltd). In the opinion of the directors, the Company’s ultimate parent undertaking and controlling party is Softlogic Holdings Ltd which is incorporated in Sri Lanka.

1.4 Date of Authorisation for IssueThe Financial Statements of Softlogic Finance PLC for the year ended 31st March 2011 were authorised for issue in accordance with a resolution of the Board of Directors on May 26, 2011. 2.1 Basis of PreparationThe Financial Statements have been prepared on a historical cost basis. The Financial Statements are presented in Sri Lankan Rupees. The preparation and presentation of these Financial State-ments is in compliance with the Companies Act. No. 7 of 2007.

Significant Accounting Policies – Year Ended 31St March 2011

2.1.1 Statement of ComplianceThe balance sheet, statements of income, changes in equity and cash flows, together with accounting policies and notes, (“Financial Statements”), of the Company as at 31st March 2011 and for the year then ended; comply with the Sri Lanka Accounting Standards.

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

2.1.3 Comparative InformationThe accounting policies have been consistently applied by the Company and are consistent with those used in the previous year.

2.2 SIGNIFICANT ACCOUNTING JUDGEMENTS

Judgements In the process of applying the Company’s accounting policies, management has made the following judgements, apart from those involving estimations, which has the most significant effect on the amounts recognized in the Financial Statements.

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



2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.3.1 Borrowing Costs Borrowing costs are recognised as an expense in the year in which they are incurred. However, borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets that take a substantial period of time to get ready for its intended use or sale, are capitalized as part of the assets.

2.3.2 TaxationCurrent 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 substantially enacted by the balance sheet date.

The provision for income tax is based on the elements of income and expenditure as reported in the Financial Statements and com-puted in accordance with the provisions of the relevant tax legisla-tions.

2.3.3 Deferred TaxationDeferred income tax is provided, using the liability method, on tem-porary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial re-porting purposes.

Deferred income tax liabilities are recognised for all taxable tempo-rary differences except where the deferred income tax liability aris-es from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transac-tion, affects neither the accounting profit nor taxable profit or loss.

Deferred income tax assets are recognised for all deductible tem-porary 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 utilised 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 com-bination and, at the time of the transaction, affects neither the ac-

Significant Accounting Policies – Year Ended 31St March 2011 (Contd.)

counting profit nor taxable profit or loss; and the carrying amount of deferred income tax assets is reviewed at each balance sheet 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 utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. 2.3.4 Investments in Dealing SecuritiesThe marketable equity securities or quoted ordinary shares acquired with the intention of resale over a short period of time were classified under the dealing securities in accordance with Sri Lanka Accounting Standards SLAS 22, Accounting for Investments. The carrying value of the dealing securities were recorded at market value, with any resulting gain being credited or loss being charged to the Income Statement of the current year. The cost of acquisition of dealing securities was inclusive of brokerages, fees, duties and bank charges.

2.3.5 Investments in Government SecuritiesInvestments in Treasury Bills and Repurchase Agreements held to maturity are carried at the value of the Bills purchased and the discount / premium accrued thereon. Discount received / premium paid is amortized and recognized in the Income Statement based on a pattern reflecting a constant periodic rate of return, in accordance with the Sri Lanka Accounting Standard No. 22 on Accounting for Investments.

2.3.6 Other Investment Investments in Fixed Income Securities and Credit Information Bureau are stated at cost.

2.3.7 Loans and Advances Loans and Advances are stated in the Balance Sheet net of provisions for possible loan losses and net of interest, which is not accrued to revenue.



2.3.8 Property, Plant and Equipment

2.3.8.1 Owned AssetsProperty, Plant and Equipment is stated at cost, excluding the costs of day to day servicing, less accumulated depreciation and accumulated impairment in value. Where an item of Property, Plant and Equipment comprises major components having different useful lives, they are accounted for as separate items of Property, Plant and Equipment.

2.3.8.2 Leased AssetsProperty, Plant and Equipment on finance leases, which effectively transfer to the Company substantially all of the risk and benefits incidental to ownership of the leased item are capitalised at the inception of the lease at the fair value of the leased property, or if lower, at the present value of the minimum lease payments. Capitalised leased assets are disclosed as Property, Plant and Equipment and depreciated consistently with that of owned assets as described under Property, Plant and Equipment. The corresponding principle amount payable to the lessor together with the interest payable over the period of the lease is shown as a liability. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.

2.3.8.3 Subsequent ExpenditureExpenditure incurred to replace a component of an item of Property, Plant and Equipment is accounted for separately, including major inception & overhaul expenditure and capitalized only when it increases the future economic benefits embodied in the item of Property, Plant and Equipment. All other expenditure is recognized in the income statement as an expense incurred.

2.3.8.4 DepreciationDepreciation is calculated on a straight line basis over the useful life of the assets using the following rates.

These rates used are:Office Equipment 20%Furniture & Fittings 15%Office Partitioning 15%Motor Vehicles 25%Computer Software 20%


2.3.8.5 Impairment of AssetsThe Company assesses at each reporting date or more frequently if events or changes in circumstances indicate that the carrying value may be impaired, whether there is an indication that an asset may be impaired. If such indication exists, or when an annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. When the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

2.3.9 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 Balance Sheet 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.

2.3.9.1 Provision for bad and doubtful debtsIn accordance with finance companies (provision for bad and doubtful debts) direction No. 3 of Central Bank regulations of 2006, accommodations are classified as ‘non–performing’ in the following circumstances

(i) whether payment of principal and/ or interest have been in arrears for a period of 6 months or more;

(ii) in the case of rescheduled accommodations, when, in aggregate, the period of time the payment of instalments have been in arrears before rescheduling (if any) and after rescheduling is 6 months or more; and/ or

(iii) in the case of an accommodation, where the asset financed under a leasing /hire purchase agreement has been repossessed and sold or where the asset taken as collateral has been sold by the finance Company and when there still exists a balance to be received.



In accordance with directions refer to above, the Company makes provision for bad and doubtful debts in accordance with the following criteria;

a) 50 percent of all accommodations in arrears for a period of 6 months or more but not exceeding 12 months;

b) 100 percent of all accommodations in arrears for a period over 12 months; and

c) 100 percent with regard to the portion of the un-recovered amount of an accommodation where the asset financed under a lease/ hire purchase agreement has been repossessed and sold or where the asset taken as collateral has been sold by the finance Company.

2.3.10 Real Estate StocksReal Estate Stocks of the Company represents the purchase value of properties acquired and any subsequent expenditure incurred on such development including the borrowing costs up to the completion of developments less repayments.

2.3.11 Vehicle StocksVehicles stocks are valued at cost or net realizable value whichever is lower. Net realizable value is the estimated selling price less estimated cost of completion and the estimated cost necessary to make the sale.

2.3.12 Preliminary and Pre-Operational ExpensesPreliminary and pre-operational expenditure are charged to the Income Statement in the period in which they are incurred.

2.3.13 Other AssetsOther assets are stated in the Financial Statements at their estimated realisable value.

2.3.14 Commitments and ContingenciesAll discernible risks are accounted for in determining the amount of Liabilities of the Company.

2.3.15 Liabilities and ProvisionsLiabilities are recognised in the Balance Sheet when there is a present obligation as result of past event, the settlement of which is expected to result in an outflow of resources embodying economic


benefits. Liabilities classified as current liabilities on the balance sheet date are those which fall due for payment on demand or within one year from the balance sheet date. Non current liabilities are those balances that fall due for payment later than one year from the balance sheet date.

2.3.15.1 Interest bearing loans and borrowingsInterest bearing loans and borrowings are recognized initially at cost, less attributable transaction costs. Interest is accrued up to the year end.

2.3.15.2 ProvisionsProvisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, where 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. 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 recognised as an interest expense.

2.3.16 Defined Benefit Plans - GratuityThe 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. Accordingly, the employee benefit liability is based on the actuarial valuation carried out by Messrs Piyal S. Goonetilleke & Associates, actuaries. The key assumptions used by the actuary include the following:

Rate of Interest 12%Rate of Salary Increase 12%Retirement Age 55 years

The gratuity liability is not externally funded. This item is grouped under ‘Deferred Liabilities’ in the Balance Sheet.



2.3.17 Defined Contribution Plans-Employees’ Provident Fund & Employees’ Trust Fund Employees are eligible for Employees’ Provident Fund contribution and Employees Trust Fund contribution in line with respective statutes and regulations. The company contributes 12% and 3% of gross emoluments of employees to Employees’ Provident Fund and Employees’ Trust Fund respectively.

2.3.18 Revenue Recognition

a Accounting for Income from Leasing Activities and Hire Purchase Agreements 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 overdue for more than six months.

b Accounting for Income from Hire Rental Income and Operating LeasesIncome from hire rental and operating leases is recognized on a straight line basis over the term of hire and operating leases.

c Real Estate SalesProfit on real estate sales represents the excess of sales value over the cost of the properties sold and is recognised on an accrual basis.

d Accounting for Interest Income from Loans and Advances Interest income from Loans and Advances is recognised on an accrual basis.


e Accounting for Overdue ChargesOverdue charges of leasing/hire purchases/Loans have been accounted for on cash received basis.

f Accounting for Profit/Loss from Sale of Property, Plant and EquipmentGains or losses of a revenue nature on the disposal of Property, Plant and Equipment have been accounted for in the Income Statement.

g Income on Dividend Dividend Income is recognized when the shareholders’ right to receive the payment is established.

2.3.19 Expenses a All expenditure incurred in the running of business and maintaining Property, Plant and Equipment in a state of efficiency has been charged to revenue in arriving at the Profit for the year.

b Interest expenses are accounted for on an accrual basis.

c For the purpose of presentation, of the Income Statement, the directors are of the opinion that the nature of expenses method presents fairly the elements of the Company’s performance and hence such presentation method is adopted.

2.3.20 Cash Flow StatementThe Cash Flow Statement is prepared using the indirect method as stipulated in SLAS 9 - Cash Flow Statements. Cash and Cash Equivalents for Cash Flow Statements comprise mainly of cash in hand, balances at banks and bank overdrafts.

2.3.21 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 5% of the net profit after taxation.

2.4 Directors’ Responsibilities StatementDirectors acknowledge the responsibilities for the true and fair presentation of the financial statements in accordance with the books of accounts and the Sri Lanka Accounting Standards and the requirements of the Companies Act No. 7 of 2007.



2010/2011 2009/2010

Rs. Rs.

1 GROSS INCOME

Finance Leasing 158,847,165 94,559,811

Hire Purchases 433,270,016 226,264,511

Income on Hire 1,096,540 6,119,983

Group Personal Loans 10,645,096 -

Pawning 5,144,718 -

Revolving Loans 1,781,435 -

Profit on Sale of Real Estate - 219,037

Other Lending & Investments 39,824,942 19,718,079

650,609,912 346,881,422

2 INTEREST EXPENSES

Interest on Time Deposits 146,579,428 110,429,919

Interest on Certificate of Deposits 674,277 325,723

Interest on Savings Deposits 833,258 608,416

Interest on Borrowings 72,211,069 51,006,894

Interest on Securitisation 115,935,527 39,654,145

Interest on Finance Lease 353,659 347,466

336,587,217 202,372,563

3 OTHER INCOME

Dividend Income 108,000 14,400

Profit on Disposal of Property, Plant & Equipment 1,680,803 913,270

Income from Dealing Securities 6,374,235 -

Sundry Income 21,442,786 9,160,431

29,605,823 10,088,102

4 OPERATING EXPENSES

Operating expenses include the following

Auditors’ remuneration 542,000 176,000

Secretarial fees 362,226 428,743

Personnel Costs includes

- Defined contribution plan costs - EPF & ETF 7,344,545 3,078,515

- Defined benefit plan costs 1,089,742 1,514,987

5 ADMINISTRATIVE & GENERAL EXPENSES

Depreciation 8,592,965 9,003,106

Loss on Disposal of Repossessed Vehicles 17,924,117 6,487,627

Other overhead expenses 139,552,815 74,288,948

166,069,896 89,779,681

Notes To The Financial Statements Year Ended 31st March 2011



Notes To The Financial Statements Year Ended 31St March 2011

6 INCOME TAXATION

The major components of Income tax expense for the years ended 31 March are as follows :

2010/2011 2009/2010

Rs. Rs.

Current Income Tax

Current Income Tax Charge - -

Deferred Income Tax

Deferred Taxation Charge/(Reversal) 16,250,538 2,557,560

Income tax expense reported in the Income Statement 16,250,538 2,557,560

6.1 A reconciliation between tax expense and the product of accounting profit

multiplied by the statutory tax rate is as follows :

2010/2011 2009/2010

Rs. Rs.

Accounting Profit before Income Tax 84,786,544 26,162,207

At the statutory income tax rate of 33 1/3% (2010 : 33 1/3%) 28,262,181 8,720,736

Deductible expenses (25,594,303) (17,264,659)

Non deductible expenses 13,582,660 11,101,483

At the effective income tax rate of 19.17% (2010 : 9.78% ) 16,250,538 2,557,560

7 EARNINGS PER SHARE

7.1 Basic Earnings Per share is calculated by dividing the net profit for the year attributableto ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

7.2 The following reflects the income and share data used in the basic Earnings Per Share computations.

2010/2011 2009/2010

Rs. Rs.

Net profit for the year 68,536,006 23,604,647

Number of Ordinary Shares used as the denominator

Weighted average number of ordinary shares 22,294,019 20,064,617

Earnings Per Share 3.07 1.18

8 INVESTMENTS As at As at

31-03-2011 31-03-2010

Rs. Rs.

Quoted Public Companies Shares: (note 8:1) 37,338,000 -

Investment In Unquoted Shares: (Note 8:2) 30,600 30,600

37,368,600 30,600



8.1 Quoted Public Companies Shares

No of Cost of Market Cost of Market

Shares Investment Value Investment Value

31-03-2011 31-03-2011 31-03-2011 31-03-2010 31-03-2010

Rs. Rs. Rs. Rs.

Sampath Bank PLC 20,000 4,838,326 5,766,000 - -

Seylan Bank PLC (Non Voting) 200,000 10,816,110 7,860,000 - -

Distilleries Company of Sri Lanka PLC 100,000 17,880,541 18,000,000 - -

John Keells Holdings PLC 20,000 6,458,310 5,712,000 - -

340,000 39,993,287 37,338,000 - -

Provision for Increase/(Decrease) in Market Value

(2,655,287)

37,338,000

8.2 Investment In Unquoted Shares

No of Shares As at As at

31-03-2011 31-03-2010

Rs. Rs.

Investment In CRIB 306 30,600 30,600

30,600 30,600

11 LOANS AND ADVANCES As at As at As at

31-03-2011 31-03-2011 31-03-2010

Rs. Rs. Rs.

Short Term Lending - Related Companies - 15,135,000

- Others 2,679,566 7,945,066

Revolving Loans 35,635,191 -

Group Personal Loans

Receivable 387,178,725 -

Unearned Income (141,537,397) 245,641,328 -

283,956,085 23,080,066

9 PRE PAYMENTS & OTHER RECEIVABLE

Advance, Deposits & Pre payments 54,468,641 11,146,247

Receivable From Inland Revenue 98,143,263 27,223,579

Other Receivable 80,990,780 40,240,595

233,602,684 78,610,421

10 AMOUNTS DUE FROM RELATED COMPANIES

Amount due from Softlogic Capital Ltd - 7,059,655

Amount due from Capital Reach Business Develop-ment (Pvt) Ltd

- 653,066

- 7,712,720



12 LEASE & HIRE PURCHASE RENTAL RECEIVABLE

As at As at

31-03-2011 31-03-2010

Rs. Rs.

Lease Rental Receivable ( Note 12.1 ) 1,047,896,838 413,020,278

Hire Purchase Rental Receivable ( Note 12.2 ) 2,323,431,595 1,113,833,647

3,371,328,433 1,526,853,925

12.1 Lease Rental Receivable Current Non-Current As at As at

Receivable Receivable 31-03-2011 31-03-2010

within one year

1-5 Years Rs. Rs.

Total Total

Gross Investment in Leases 481,205,708 1,026,616,277 1,507,821,985 604,365,989

Rentals Received in Advance (95,681) (2,385,624) (2,481,305) (956,746)

481,110,027 1,024,230,653 1,505,340,680 603,409,243

Unearned Income (195,898,631) (256,375,998) (452,274,629) (188,073,295)

Net Receivable 285,211,396 767,854,655 1,053,066,051 415,335,948

Interest in Suspense (1,073,788) - (1,073,788) (613,293)

Provision for Doubtful Recoveries (4,095,426) - (4,095,426) (1,702,377)

280,042,182 767,854,655 1,047,896,838 413,020,278

12.2 Hire Purchase Rental Receivable As at As at

Current Non-Current 31-03-2011 31-03-2010

Receivable Receivable Rs. Rs.

within one year

1-5 Years Total Total

Gross Investment In Contracts 1,217,212,041 2,074,268,396 3,291,480,437 1,656,081,159

Unearned Income (447,828,903) (514,341,544) (962,170,447) (534,315,474)

Net Receivable 769,383,138 1,559,926,852 2,329,309,989 1,121,765,685

Interest in Suspense (1,929,090) - (1,929,090) (2,427,751)

Provision for Doubtful Recoveries (3,949,304) - (3,949,304) (5,504,287)

763,504,743 1,559,926,852 2,323,431,595 1,113,833,647

All loans, advances and leases where capital or interest due is in arrears for six and more than six months have beenclassified as non performing loans.



13.1 Gross Carrying Amount Balance Additions Disposal Balance

as at 01-04-2010 to 01-04-2010 to as at

01-04-2010 31-03-2011 31-03-2011 31-03-2011

Rs Rs Rs Rs

At Cost

Office Equipment 10,805,168 10,573,509 - 21,378,676

Furniture & Fittings 5,797,649 4,587,277 - 10,384,926

Motor Vehicles 5,568,194 2,612,063 (355,000) 7,825,257

Office Partitioning 330,530 742,906 - 1,073,436

Computer Software 8,533,821 2,551,372 - 11,085,193

Motor Vehicles-given out on hire agreements 4,175,625 - (1,019,375) 3,156,250

35,210,987 21,067,126 (1,374,375) 54,903,738

Assets on Finance Leases

Furniture & Fittings 3,590,487 - - 3,590,487

Motor Vehicles - given out on hire agreements 4,129,962 - (498,749) 3,631,213

Motor Vehicles - 10,221,275 - 10,221,275

Office Equipment 707,000 - - 707,000

8,427,449 10,221,275 (498,749) 18,149,975

Total Value of Depreciation Assets 43,638,436 31,288,401 (1,873,124) 73,053,713

13.2 DEPRECIATION Balance Charge for Disposal Balance

as at the Year for the Year as at

01-04-2010 31-03-2011

Rs. Rs. Rs. Rs.

At Cost

Office Equipment 6,238,765 2,699,725 - 8,938,490

Furniture & Fittings 1,727,467 1,158,085 - 2,885,552

Motor Vehicles 1,635,741 1,716,074 (62,396) 3,289,419

Office Partitioning 111,889 79,686 - 191,575

Computer Software 7,584,429 438,705 - 8,023,133

Motor Vehicles - given out on hire agreements 3,036,507 689,336 (1,019,375) 2,706,467

20,334,797 6,781,610 (1,081,771) 26,034,636

Assets on Finance Leases

Furniture & Fittings 2,154,291 538,573 - 2,692,864

Motor Vehicles - given out on hire agreements 3,406,644 492,552 (270,156) 3,629,040

Motor Vehicles - 638,830 - 638,830

Office Equipment 329,933 141,400 - 471,333

5,890,868 1,811,355 (270,156) 7,432,067

Total Depreciation 26,225,665 8,592,965 (1,351,927) 33,466,703

13.3 Net Book Values As at As at

31-03-2011 31-03-2010

At Cost 28,869,102 14,876,190

Assets on Finance Leases 10,717,908 2,536,581

Total Carrying Amount of Property, Plant & Equipment 39,587,010 17,412,771

13 PROPERTY, PLANT AND EQUIPMENT



14 BORROWINGS Payable within Payable after As at As at

one year one year 31-03-2011 31-03-2010

Total Total

Rs. Rs.

Central Bank - Susahana Loans 1,014,286 1,428,570 2,442,856 3,557,142

Borrowings 451,804,353 194,810,717 646,615,070 223,725,726

Finance Lease Creditors ( Note 14.1 ) 1,649,455 8,188,271 9,837,726 403,571

Lease Securitisation 678,986,067 614,904,357 1,293,890,424 405,535,133

1,133,454,161 819,331,915 1,952,786,077 633,221,572

14.1 Finance Lease Creditors

As at Not later Later than 1 Year &

31-03-2011 than I Year not later than 5 years

Gross Liability 12,831,606 2,701,391 10,130,215

Finance Charge allocated to future periods (2,993,879) (1,051,936) (1,941,944)

Net Liability 9,837,726 1,649,455 8,188,271

15 TRADE & OTHER PAYABLES As at As at

31-03-2011 31-03-2010

Trade Payables 95,295,890 84,168,252

Other Payables 171,511,816 79,121,270

266,807,706 163,289,521

16 DEFERRED LIABILITIES As at As at

31-03-2011 31-03-2010

Provision for retirement gratuity 8,394,865 4,647,676

Deferred Taxation 39,108,824 27,212,246

47,503,689 31,859,922

2010/2011 2009/2010

17 STATED CAPITAL Number Rs. Number Rs.

Issued and Fully Paid Ordinary Shares 26,752,822 468,174,370 20,064,617 200,646,170



18 MATURITY OF ASSETS AND LIABILITIES

An analysis of the assets and liabilities by their remaining periods of repayment as at the balance sheet date is as follows,

Company

Less than 3 months to less 1 year to less Over 3 years Total

3 months than 12 months than 3 years

Rs. Rs. Rs. Rs. Rs.

Assets

Bank & Cash Balances 64,874,455 - - - 64,874,455

Investment in Government Securities

79,254,002 77,318,400 - - 156,572,402

Placements with Banks & Financial Institutions

50,000,000 - - - 50,000,000

Investment in Dealing Securities 37,338,000 - - 30,600 37,368,600

Investment in Government Treasury Bonds

- - - 55,284,450 55,284,450

Prepayments & Other Receivable 135,459,421 98,143,263 - - 233,602,684

Pawning Debtors 124,322,109 124,322,109

Loans & Advances 14,882,033 87,746,590 145,263,100 36,068,831 283,960,554

Lease & Hire Purchase Rentals Receivable ( Gross )

418,398,251 1,255,194,752 2,049,179,989 1,049,319,060 4,772,092,051

Total Non-Interest Earning Assets 83,346,692

Total 924,528,270 1,518,403,005 2,194,443,089 1,140,702,941 5,861,423,996

Liabilities

Bank Overdrafts 55,307,922 - - - 55,307,922

Time Deposits 522,291,756 844,650,456 185,260,490 15,697,983 1,567,900,684

Certificate of Deposits - - - - -

Savings Deposits 4,979,778 7,817,082 2,319,786 1,779,663 16,896,309

Borrowings 585,055,965 548,398,196 764,787,048 54,544,868 1,952,786,077

Creditors & Accruals 23,374,510 239,956,473 2,830,596 646,127 266,807,706

Total Non-Interest Bearing Liabilities

- - - - 47,513,689

Total 1,191,009,931 1,640,822,206 955,197,919 72,668,641 3,907,212,387

19 COMMITMENTS AND CONTINGENCIES

2010/2011 2009/2010

Rs. Rs.

Guarantees issued and in force 10,800,000 5,800,000

10,800,000 5,800,000

20 EVENTS AFTER THE BALANCE SHEET DATE

No circumstances have arisen since the balance sheet date, which would require adjustments to or disclosure in the financial statements.



21 ASSETS PLEDGED

The following assets have been pledged as security for liabilities.

Nature of assets

2010/2011 2009/2010

Rs. Rs.

Lease Rental Receivable 2,159,971,577 715,683,446

2,159,971,577 715,683,446

Nature of liability

The above Lease Rental Receivables have been pledged in order to obtain term loans and securitisation facilities.

22 RELATED PARTY TRANSACTIONS

Details of significant related party disclosures are as follows:

22.1 Transactions with Key Managerial Personnel (KMPs)

22.1.1 Key Managerial Personnel includes Members of the Board of Directors of the Company and of it’s Holding Company.

22.1.2 The following table provides the total amount of transactions which have been entered in to with Key Managerial Personnel and their close family members

2010/2011 2009/2010

Loans and advances - 900,000

Deposits 7,617,571 4,123,504

22.1.3 Remuneration to Key Managerial Personnel amounted to Rs. 6,621,084/- for the year ended March 31, 2011 ( Rs. 5,648,128/-for the year ended March 31, 2010 )

22.2 Transactions with Group Companies

The Company enters into transactions with group companies and the following tables shows the outstanding balances and corresponding transaction during the year.

Loans & advances

Interest / Hire

Amounts owed by

Reimbursement Guarantees

Earned Group Companies

of expenses Obtained

Received/(Paid)

Softlogic Credit Ltd 2011 Mar - 3,584,630 - 5,960,285 -

(Formerly known as Capital Reach Credit Ltd)

2010 Mar 15,000,000 2,718,680 - 4,955,492 -

Softlogic Capital Ltd 2011 Mar - - - (3,500,000) 25,000,000

(Formerly known as Capital Reach Holdings Ltd)

2010 Mar - 1,000,000 7,059,655 (3,424,055) 25,000,000

Capital Reach Business Development (Pvt) Ltd

2011 Mar 12,297,913 2,772,469 - (9,796,158) -

2010 Mar 15,202,320 3,097,971 653,066 (7,944,020) -



Investor Information

1. SHAREHOLDING INFORMATION 1.1 List of Major Shareholders of the Company as at 31st March 2011 Name No. of Shares (%)

Pan Asia Banking Corporation/Softlogic Capital Ltd 13,209,525 49.376

Vanik Incorporation Ltd 5,376,083 20.095

Softlogic Capital Ltd 1,849,040 6.912

LB Finance PLC 1,540,000 5.756

Waldock Mackenzie Ltd/Mr. L. P. Hapangama 280,000 1.047

Commercial Bank of Ceylon PLC/D S L Investments (Pvt) Ltd 200,000 0.748

Associated Electrical Corporation Ltd 167,900 0.628

Bank of Ceylon No. 1 Account 153,600 0.574

Waldock Mackenzie Ltd/HI-Line Trading (Pvt) Ltd 151,200 0.565

Mr. A.K. Pathirage 120,000 0.449

Waldock Mackenzie Ltd/Mr. S.N.P. Palihena 100,000 0.374

Mrs. S.S. Silva 99,900 0.373

Mr. P.N.P. Sanjeewa 67,500 0.252

Mr. D. S. Hewapathirana 63,600 0.238

Mr. D. G. Wirasekara 60,000 0.224

Mr. T. C. H. Ferdinandis 54,900 0.205

Mr. S. Abishek 51,666 0.193

Mr. K. R. B. Fernando 50,000 0.187

Pan Asia Banking Corporation/Invest Copia Capital 50,000 0.187

Pan Asia Banking Corporation/Mr. S.S.C. Fernando 50,000 0.187

23,694,914 88.570

Others 3,057,908 11.430

TOTAL 26,752,822 100.00 1.2 Distribution of Shareholdings as at 31st March 2011 From To No. of Holders No. of Shares % 1 - 1,000 833 388,286 1.45 1,001 - 10,000 337 1,294,738 4.84 10,001 - 100,000 74 2,022,465 7.56 100,001 - 1,000,000 6 1,072,700 4.01 Over 1,000,000 4 21,974,633 82.14 1,254 26,752,822 100



Investor Information

1.3 Analysis of Shareholders as at 31st March 2011 Category No.of Shareholders No. of Shares % Local Individuals 1,165 2,941,171 10.99 Local Institutions 83 23,761,718 88.82 Foreign Individuals 6 49,933 0.19 Foreign Institutions - - - Total 1,254 26,752,822 100 1.4 Public Holding The percentage of shares held by the public as at 31st March 2011 is 23.06% 1.5 Directors’ Shareholding as at 31st March 2011 Names of Directors No. of Shares Asoka Kariyawasam Pathirage (Chairman) 120,000 Pattage Mayurasiri Bandula Fernando 3,600 Nalin Hemantha Gamini Wijekoon 3,333 Tuan Mihilar Ifthikar Ahamed 21,300 Baddegama Hevege Sirinimal Jayawardene Nil Ranil Prasad Pathirana Nil Samantha Aruna Bandara Rajapakse Nil Chrysanthus John Emmanual Corea Nil Dushan Travice Columban Soza Nil 2. SHARE PRICES FOR THE YEAR 31.03.2011 Market price per share Highest during the Year Rs.74.00 Lowest during the Year Rs.14.75 As at end of the Year Rs.62.50



2010/11 2009/10 2008/09 2007/08 2006/07 2005/06 2004

(Rs.’000) Restated Restated

OPERATING RESULTS

Gross Income 650,610 346,881 309,382 206,663 112,487 60,379 35,001

Profit Before Tax 84,787 26,162 17,761 21,853 17,225 10,058 9,060

Taxation 16,251 2,558 3,862 7,666 6,960 5,275 2,228

Profit After Tax 68,536 23,605 13,899 14,187 10,265 4,783 6,832

As at 31 March

ASSETS

Investments 299,225 105,031 13,232 42,077 33,102 46,124 3,031

Loans & Advances 283,956 30,793 28,294 46,035 30,510 11,694 7,390

Lease & Hire Purchase Rentals Receivables 3,371,328 1,526,854 1,002,663 833,206 502,048 301,773 173,208

Pawning Advances 124,322 - - - - - -

Vehicle Stocks 4,855 10,288 10,259 - - - -

Real Estate Stocks 16,647 15,848 15,365 - - - -

Property & Equipment 39,587 17,413 23,332 28,260 28,951 18,268 4,955

Other Assets 298,478 161,481 74,129 75,417 32,453 17,733 4,472

4,438,398 1,867,708 1,167,274 1,024,995 627,064 395,592 193,056

LIABILITY

Public Deposits 1,584,807 821,816 406,768 225,480 31,573 - -

Borrowings 2,008,094 633,222 453,121 497,749 345,637 148,453 74,855

Other Liability 314,311 195,149 93,404 101,684 63,959 48,377 17,733

3,907,212 1,650,187 953,293 824,913 441,169 196,830 92,588

SHAREHOLDERS’ FUNDS

Share Capital/Stated Capital 468,174 200,646 200,646 200,646 200,646 165,238 84,817

Share Premium - - - - - 32,500 -

Reserves 63,012 16,875 13,335 (564) (14,751) 1,024 15,651

531,186 217,521 213,981 200,082 185,895 198,762 100,468

SHARE INFORMATION

Earnings Per Share (Rs.) 3.07 1.18 0.69 0.71 0.51 0.89 1.07

Net Assets Per Share (Rs.) 19.86 10.84 10.66 9.97 9.26 12.00 12.00

Debt Equity Ratio (times) 7.36 7.59 4.46 4.12 2.37 0.99 0.92

OTHER INFORMATION

No. of Employees 291 103 48 33 19 18 14

Supporting Network 9 8 8 8 8 8 8

7 years Summary



Branch Network & Gold Loan Centres

Polonnaruwa

Chilaw

Kurunegala(Window O�ce)

NegamboKandy

Kegalle

Nuwara Eliya

Badulla

Ratnapura

Horana

Pamankada

DematagodaGrandpass

KandanaModara

Ja-Ela

Borella

Colombo

Galle

Matara

Branch

Gold Loan Centres

TELEPHONE NUMBER FAX EMAIL

Badulla No.30, Anagarika Dharmapala Mawatha, Badulla 055 5635072-3 / 055 2224206 055 2223905 [email protected]

Chilaw No.28B, Kurunegala Road, Chilaw 032 2221415 032 2223754 [email protected]

Galle No-64, Colombo Road, Kaluwella, Galle 091 5458666 / 091 2226501 091 5450020 [email protected]

Polonnaruwa No.125, Batticaloa Road, Polonnaruwa 027 2226727 / 027 5678501-2 027 2225909 [email protected]

Kandy No.165, Kotugodella Veediya, Kandy 081 2224912-3 081 2224916 [email protected]

Kurunegala No. 188, Kandy Road, Kurunegala 037 2232875 037 2232565 [email protected]

Matara No. 8A, 1st Floor, F N Building, Station Road , Matara 041 2220195 / 041 2227257 041 2227257 [email protected]

Nuwara Eliya No.72, Kandy Road, Nuwara Eliya 052 2223382 052 2223383 [email protected]

Ratnapura No.1/200, Ground Floor, Main Street, Ratnapura 045 2230677 045 2223574 [email protected]

Negombo 121 & 123, St. Joseph's Street, Negombo 031 2224714 / 031 2224715 031 2224716 [email protected]

Head Office No. 01, Lake Crescent, Colombo 2 011 2307284-8 / 011 2359700 011 2307289 / 011 2359759 [email protected]

Metro Branch No. 315, R.A.De Mel Mawatha, Colombo 3 011 2577455 011 2577447

BRANCH NETWORK

BRANCH ADDRESSCONTACT DETAILS OF THE BRANCH

CENTRE ADDRESS TEL

Chilaw No.28/B,Kurunegala Road,Chilaw 052 2223383

Polonnaruwa No.125,Batticaloa Road,Polonnaruwa 027 2225909

Badulla No.30,Anagarika Dharmapala Mawatha,Badulla 055 2224206

Ratnapura No.1/200,Main Street,Ratnapura 045 2230677

Pamankada No.491,Havelock Road,Colombo 06. 011 2367901

Ja-Ela No.38,Old Negambo Road,Mainstreet,Ja-Ela. 011 2232155

Galle No.64,Colombo Road,Kaluwella,Galle 091 5458666

Grandpass No.408,Grandpass Road,Colombo14. 011 2337040

Dematagoda No.93,Kolonnawa Road,Dematagoda,Colombo 09. 011 2679089

Negombo No.121/123,St.Josephs Street,Negombo. 031 2224714-15

Modara No.305,Muthuwella Mawatha,Modara. 011 2540711

Kandana No.264/A,Station Road,Kandana. 011 2232290

Borella No.1167,Maradana Road,Borella,Colombo 08. 011 2698016

Kegalle No.1/32,Main Street,Kegalle 035 2222163

N-Eliya No.72,Kandy Road,Nuwaraeliya 052 5674990

Horana No.55,Panadura Road,Horana. 034 2267671

GOLD LOAN CENTRES

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