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C O N T E N ts

Corporate Information Notice of Meeting Chairmans Review Oprational Review Board of Directors & Senior Management Corporate Governance Audit Committee Report Risk Management Annual Report of the Board of Directors Shareholders Information Board Report on Internal Controls Statement of Directors Responsibilities in Relation to Financial Statments Chief Executive Officers and Chief Financial Officers Responsibility Statement Independent Auditors Report Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Financial Highlights Ten Years Summary The Human Capital Form of Proxy

3-4 5 6-8 9-11 12-14 15-21 22 23-24 25-27 28-29 30 31 32 33 34 35 36 37 38-66 67 68 69 Enclosed

Arpico Finance Company PLC Annual Report 2011/2012

Arpico Finance Company PLC Annual Report 2011/2012

Corporate Information

BOARD OF DIRECTORS

Chairman Managing Director


Bri Ponnambalam (Appointed with effect from 01/01/2012) H Rajudin


DipM(UK) ,GC.Mgt.(USQ),FCIM(UK),Finst CM (UK),FSLIM

(Appointed with effect from 01/06/2012) Ruvini E Weerasinghe (Mrs)


Attorney-at-Law

Director Legal Finance Director Director Director

Bede Jayalath
ACMA , MBA (Sri J)

Lyle Dennis Peiris


FICM (SL)

Nilanka Mevan Pieris


ACMA , A.I.B

(Appointed with effect from 01/01/2012) Pratapkumar de Silva Former Chairman F.I.C.M (SL) , F.I.C.M (ENG) JP (Relinquished duties with effect from 31/12/2011) D.L.S.R Perera Former Deputy Chairman F.C.A (Relinquished duties with effect from 31/12/2011) Senakke R Bandaranayake Former Joint Managing Director (Relinquished duties with effect from 31/05/2012) Romani de Silva Former Director FICM (SL) (Relinquished duties with effect from 31/12/2011)

Quoted Public Limited Liability Company. Incorporated under the Companies Ordinance No. 51 of 1938. The company was re-registered under the companies Act No. 7 of 2007. Registered under The Finance Business Act No.42 of 2011 and Finance Leasing Act No. 56 of 2000. An approved Credit Agency under The Mortgage Act No.6 of 1949 and The Trust Receipt Ordinance No.12 of 1947.
Company RE-Registration NO. Registered Office E-Mail Telephone

Statutory Status

PQ 92 146, Havelock Road, Colombo 5. info@arpicofinance.com 5553663, 2598490 /1 2500259

Fax

Arpico Finance Company PLC Annual Report 2011/2012

Corporate Information

Secretaries

Alliance Management Services (Pvt) Ltd., No: 84, Ward Place, Colombo 7. M/s SJMS Associates, Chartered Accountants, No. 02, Castle Lane, Colombo 04. Seylan Bank PLC Sampath Bank PLC Hatton National Bank PLC Bank of Ceylon Peoples Bank Standard Chartered Bank Deutsche Bank Union Bank NDB Bank PLC M/s HLB Edirisinghe & Co., Chartered Accountants, 45, 2nd Floor, Braybrooke Street, Colombo 2. Mr Pratapkumar de Silva Senior Advisor
F.I.C.M (SL) , F.I.C.M (ENG) JP


Auditors


Bankers


Internal Auditors


Advisory Council


Audit Committee

Mr Romani de Silva
FICM (SL)

Mr D.L.S.R Perera
F.C.A

Mr Nilanka Mevan Pieris - Chairman


ACMA , A.I.B

Mr Lyle Dennis Peiris


FICM (SL)

Mr Bri Ponnambalam ( By Invitation) Mr Bri Ponnambalam - Chairman Mr Nilanka Mevan Pieris Mr Lyle Dennis Peiris

Remuneration Committee

Arpico Finance Company PLC Annual Report 2011/2012

Notice of Meeting

Notice is hereby given that the Sixty First Annual General Meeting of Arpico Finance Company PLC, will be held on Wednesday, 22nd August, 2012 at 10.00 a.m., at the Auditorium, Institute of Chartered Accountants of Sri Lanka, 30A, Malalasekera Mawatha, Colombo 7. The business to be brought before the meeting will be: 1. 2. 3. 4. 5. 6. 7. 8. To receive and consider the Report of the Directors and the Statement of Accounts for the Financial Year ended 31st March 2012. To declare a Dividend. To re-elect a Director Mr. W.J.D.B.L. Jayalath retires under Articles numbered 130 and 131 To re-elect a Director Mr. B. Ponnambalam retires under Article No. 135. To re-elect a Director Mr. N.M. Pieirs retires under Article No. 135. To re-appoint Auditors to hold office until the next Annual General Meeting and to fix their remuneration. To authorize the Directors to determine and make donations. To consider any other business of which due notice has been given.

By Order of the Board of Directors Sgd. ALLIANCE MANAGEMENT SERVICES (PVT) LTD Secretaries 26th July, 2012 Note: (i) (ii) (iii) (iv) A member is entitled to appoint a proxy to attend and vote in his/her place. A proxy need not be a member of the Company. A member wishing to vote by proxy at the meeting may use the Form of Proxy enclosed and interpolate the words right to vote. To be valid, the completed Form of Proxy must be lodged at the office of the Company Secretaries, Alliance Management Services (Pvt) Ltd, No 84, Ward Place, Colombo 7 not less than 48 hours before the time appointed for the holding of the meeting. Shareholders/ Proxy holders are requested when attending the Annual General Meeting to bring with them their National Identity Card or any other form of valid identification. Shareholders appointing proxies (other than Directors) to attend the Meeting are requested to indicate the National Identity Card numbers of the Proxy holders on the Form of proxy. Only registered proxy holders will be permitted to attend the Annual General Meeting.

(v) (vi)

Arpico Finance Company PLC Annual Report 2011/2012

Chairmans Review

May 16, 2012

It is with great pleasure that I welcome all the members to the 61st Annual General Meeting of the Company. Once again, it was another successful year for the Company with the profitability recording a commendable year on year growth. The customer service aspect was also improved by the addition of three new heritage delivery channels to the existing network. During the year under review pre- and post tax profits were respectively Rs 51.8 M and Rs 32 M which accounted for growths of 58% and 48% respectively. The disbursements grew by 33% to record Rs 1743 M. The credit assets which were an important driver of revenue stood at Rs 2149 M from Rs 1413 M, a year earlier which translated to a 52% growth. The credit assets as a proportion of total assets stood at 75%. The deposit base and total assets too grew respectively to Rs 1700 M and 2872 M with the corresponding growth rates being 36% and 42%. These results were a reflection of the efforts and hard work of the staff at all levels which remain the main strength of the Company. Most of the above growth rates were comparable with the industry. These achievements were attributable to the cohesive integration of personnel at all levels from Directors, management to staff. Much credit is due to the former members of the Board too who gave strategic leadership to most part of these achievements. Mr J E P A de Silva, in particular, was a director of the Company for 28 years of which 19 years was at the helm as the Chairman. He made all these achievements possible through his amiable leadership. He resigned from service and relinquished his post in December, 2011 after a distinguished service to the Company. He was a pioneer of the financial services industry with over five decades of industry knowledge at all levels, both in corporate and industry representative associations. In compliance with the new Corporate Governance direction which came into effect on the first day of the year, two other long standing directors with wide ranging industry experience, Messrs D L S R Perera and Romani de Silva, too stepped down having completed the maximum period of service specified for Non-Executive Directors by the direction. We take this opportunity to thank the directors for the services rendered over the years with a unique combination of business acumen and industry knowledge. The Company is fortunate because all Directors who relinquished office have availed their services by being members of the re-constituted advisory council. In the same spirit of assuring governance and compliance, I was appointed to the Board as the Chairman and Mr N M Pieris as a Director. Both will work in the capacity of independent non-executive directors and possess industry specific and general business experience. Mr N M Pieris is also a professionally qualified accountant and a banker. Mr S R Bandaranayake, the Jt Managing Director of the Company relinquished his duties with effect from 31st May, 2012 having served the Company for 8 years. Whilst thanking him for the valuable services rendered we wish him well in his future endeavors. The new Managing Director Mr Hefeez Rajudin took office from 1st

Arpico Finance Company PLC Annual Report 2011/2012

Chairmans Review

June, 2012. Formerly, he was the Chief Executive Officer of Merchant Credit of Sri Lanka and was also a past Chairman of the Finance Houses Association. Professionally, he is a chartered marketer with commercial qualifications too. I welcome Mr Rajudin on Board and look forward to a long and mutually rewarding association. Following the appointment of new Directors to the board, the Board Committees were also re-constituted. Messrs Bri Ponnambalam, L D Peiris and N M Pieris have been appointed as Chairmen respectively to the Remuneration, Risk Review and Audit committees. The other members of the committees are as detailed on page 04 of the report. This was mainly to uphold governance structures which receive utmost importance as much as performance in the corporate culture of the Company. We at Arpico Finance consider our pivotal role being in the economic advancement of those with least accessibility to credit and assuring protection to those who provide funding to the Company. Our specially designed three / two wheeler and DIMO Batta financing schemes helped economic empowerment of the target segment and for them to reap the benefits of the growing macro economy. Our investments are mainly to feeder industries and individuals who provide primary support to the growing service economy such as transport, tourism etc. Our success has been the adaptation to the macro economy through various strategies for steady and sustainable growth. Given the current positive economic environment, our obvious strategic option at present is to accelerate growth. Towards this end, the Company has been adding to its existing network of distribution channels to reach the depth and breadth of the target segment. We added three heritage channels in Minuwangoda, Godagama and Mullaitivu together with other business partners during the year under consideration. The new financial year will evidence the opening of four new branches in Matara, Matugama, Kandy and Narammala. The development of IT infrastructure with wider accessibility will be another initiative for the forthcoming year. This focus is important if we are to realize cost efficiencies with geographical expansion. Dividends The Board has recommended to pay a dividend of Rs 2.00 per share subject to approval by the shareholders. Corporate social responsibility The major CSR initiative of the company is the project to uplift Siyambalagoda village. The project entered its 21st year for which the company is a joint sponsor and has been making donations continuously. Additionally there are other regular beneficiaries which are entitled for donations annually from the Company. Even the regular list of beneficiaries happen to receive contributions for a long period now.

Arpico Finance Company PLC Annual Report 2011/2012

Chairmans Review

ECONOMY AND FUTURE The provisional statistics indicate that the GDP growth for 2011 as 8.3% vis--vis 8% a year earlier. The transport sector, which is of particular importance to the Company, grew almost on par with last year by 11.3% with new registrations too achieving an appreciable growth but at a slower pace than 2010. The Companys results and the growth rates of key macro economic statistics indicate that there is sufficient correlation between them. However, the substantial depreciation of the rupee and the increase of taxes/ duties for vehicles affected the growth momentum. The transport sector is an important feeder industry to massive infrastructure and development projects. Further, the regulated credit expansion in the banking sector may shift customers to the licensed finance industry. Therefore, there certainly are opportunities in both traditional and non-traditional products. The Company has initiated a plan to capture business volumes for the sustenance of the growth momentum hitherto accustomed to by the Company. ACKNOWLEDGEMENTS This year it was an all round performance be that in the sphere of profitability, disbursements, recoveries and containing delinquencies, funding and market development. This was only possible due to the efforts of a well knit team and an integrated execution. I congratulate all employees for the accomplishments and as the new Chairman, I look forward to strengthening the team spirit to translate it to results both quantitative and qualitative. The objective is to bench mark the Company with the best in the industry with an exponent performance. Credit is equally due to the Directors and Advisory Councillors for the strategic direction, guidance and constructive performance feedback. I thank them for the valuable contributions. Our shareholders and depositors are a distinctive strength who have been standing firmly with us for years and I am grateful to them for the trust and confidence placed in the Company. The Finance Business Act No 42 of 2011 was an important legislation that was enacted during the year. This was a long felt need of the Finance Industry in the light of various threats from unscrupulous players. I thank the Governor, Director and all the officers of the Department of Supervision of Non Banking Financial Institutions for their untiring efforts, regulatory guidance and directions. The external auditors SJMS Associates, internal auditors H L B Edirisinghe & Co., Secretaries Alliance Management Services perform the all important assurance, compliance and governance functions. I place on record my appreciation for their professional services. All the stakeholders, I trust, will complement the efforts of each other to accomplish both short and long term aspirations of the Company.

Bri Ponnambalam Chairman 8

Arpico Finance Company PLC Annual Report 2011/2012

operational Review

The Company continued its expansion programme into 2011/12 by opening three new heritage channels at Minuwangoda, Godagama and Mullativu. The geographical expansion was supplemented by the appointment of business partners in various other locations. These were the market development efforts undertaken in order to penetrate the market with a view to make credit accessible and to build market share in core investment products. The emphasis was to grant low value high yield investments and as such reaching the depth and breadth of the market was an absolute necessity. Another initiative that was pursued with vigour was to attract deposit funds to finance the credit expansion. Several campaigns were launched to attract new deposits the results of which were encouraging. The Company was able to accomplish a remarkable growth in the deposit base in the last quarter of the year with the concerted efforts. Both credit and deposit growths are complementary whilst being key drivers of growth of the asset base of the Company. PROFITABILITY The Company capitalised on the conducive business environment that prevailed for most part of the year. The interest rates moved favourably for most part but edged up from late 2011. There was an increase in the new vehicle registrations though at a slower pace than last year. The Companys pre and post tax profits grew respectively by 58% and 48% to reach Rs 51.8 M and Rs 32 M. The taxation charge for the year includes an accounting charge of Rs 15.9 M in respect of deferred tax. The charge was both due to the decline in corporate tax rate and change in timing differences. The gross margin as measured by net interest to gross interest was 50% recording a marginal 4% increase over last year. The year on year growth in net interest income was 34%. The interest income grew by 24% to Rs 471 M whilst the interest expenditure increased only by 15% to Rs 233M. The operating expenses increased by Rs 57 M or 32% to Rs 234M. Given the expansion into new channels, the increase was in line with the expectations. The focus of the Management is to improve cost efficiency with the accrual of increased revenue from new channels adding to a faster growth in income than the pace of increase in expenditure. Together with the increase in channels there is also the need to recruit personnel and improve infrastructure. The efficiencies are to be derived in the medium term with the new channels achieving profitability. The Companys only associate Alfinco Insurance Brokers completed another successful year. The share of profit from Alfinco for the year was Rs 5.6 M. Alfinco declared a dividend of Rs 2.1 M and the income earned by placing insurance business was Rs 2.7 M

Arpico Finance Company PLC Annual Report 2011/2012

operational Review

Investments The total disbursements for the year stood at Rs. 1743 M. This is a 33% growth over the preceding year. Lease and Hire Purchase which are the core investment products accounted 88% of the total disbursements. The Lease and Hire Purchase stock was Rs. 2149 M at the end of the year and the growth was 52%. The credit expansion can be directly attributable to the geographical expansion with high yield low value credit investments. This strategy which had been proved successful would be continued to the new financial year too. Recoveries and Asset Quality Whilst increasing the disbursements the Company was successful in tightening the grip on recoveries too. The total collections stood almost on par with the total rental debits for the year. The recoveries performance has been one of the main strengths of the Company which effectively complements the aggressive pursuit of credit investments. The gross NPL ratio improved further to 1.9% from 3% in the year earlier. As the Company is accustomed to the latest NPL indicator is better than the industry average of 4.7 % in December 2011. In absolute terms, the total provision stood at Rs. 25.6 M with the charge for the year being only Rs. 12.8 M. However, the adverse movements, particularly, in cost of essentials and complementary goods to transport and travelling vehicles will pose a threat to recoveries. The talented teams across functions from credit appraisals, approvals, monitoring to final recovery have proved their competence in containing any risks in this sphere. Therefore, the Company is aware and await in readiness of the short term challenges in attaining and maintaining recoveries and credit quality. Funding Funding for investments mainly comes from deposits. At the year end, the composition of

funding from deposits and borrowings were respectively 59% and 21% with the remainder coming, mainly, from shareholder funds. The Company conducted many campaigns to capitalise on the Companys unparallel history being the 2nd oldest Finance Company with 61 years of operations. The campaign was successful and enabled the Company to achieve a deposit growth policy rates to offer competitive rates to of Rs 448 M or 36%. This growth too was comparatively better than the industry. During the last quarter interest rates were increased in line with depositors. The Company certainly is bestowed with unique propositions such as reputed brand and unblemished track record of 61 years. The trust built on these attributes contributes immensely to mobilize deposits. Even the branch network was instrumental in achieving the above results for the year. We have also given attention to raise long term funds from the local financial market.

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Arpico Finance Company PLC Annual Report 2011/2012

operational Review

Rating RAM ratings once again affirmed long term BB rating and stable outlook to the Company at the conclusion of the latest review. The Company is working consciously to improve its market share both in terms of asset base and disbursements thereby to achieve cost efficiencies and profitability. These are the elements that the Company has to work on in order to progress on the rating. IFRS Transition Financial statements of the Company should be compliant with SLFRSs and LKASs with effect from financial years starting from January 1, 2012. The company has obtained the services of Ernst & Young (E&Y) as consultants for the project. Our finance and operations staff would work alongside E&Y to ensure that the financial statements are fully compliant with the requirements. The project involves the following steps. 1. Identification of the gaps between the current accounting practices and SLFRSs/ LKASs 2. Determination of SLFRS/ LKAS first time adoption options and corresponding accounting policies for implementation 3. Implementation of SLFRS/ LKAS requirements and preparation of financial statements 4. Technical training for both finance and operations staff The deliverables to be drawn from the exercise are: 1. Re-statement of SLFRS/ LKAS compliant opening balance sheet as at 1st April, 2011 2. Re-statement of SLFRS/ LKAS compliant comparative financial statements for the year ended 31st March, 2012. 3. Preparation of SLFRS/ LKAS compliant financial statements for the year ending 31st March, 2013 together with disclosures. We have already completed the diagnostic study for the identification of gaps and prepared the report based on the degree of importance of each area. The work related to implementation has already commenced.

Arpico Finance Company PLC Annual Report 2011/2012

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Board of Directors & Senior Management

Mr Bri Ponnambalam - Chairman ( Appointed with effect from 01/01/2012) He was a Non-Executive Director of Alliance Finance Co.PLC since 1994. He is also the Chairman & Jt Managing Director of Cars-R-US and is a Director of Macbertan (Pvt) Ltd and Mc Larens Lubricants Ltd and also holds several Directorates. He has many year of experience in the motor industry and corporate management.

Mr Hafeez Rajudin - Managing Director (Appointed with effect from 01/06/2012) He is a Chartered Marketer and a Fellow of the Chartered Institute of Marketing,UK(FCIM).He holds a Postgraduate Diploma in Marketing, from the Chartered Institute of Marketing(CIM), UK and a Postgraduate Diploma in Business & Financial Administration awarded by the Institute of Chartered Accountants of Sri Lanka in association with the Cranfield University School of Management, UK,Fellow of the Institute of Commercial Management,UK and Fellow Member, Sri Lanka Institute of Marketing. He is a senior faculty member of the Faculty of Graduate Studies of the University of Colombo and a Senior Lecturer of the Business School of the Institute of Chartered Accountants of Sri Lanka.He is also a member of the Sri Lanka Foundation Teaching Faculty. He was the former Chief Executive Officer of Merchant Credit of Sri Lanka Ltd. He serves as the immediate Past Chairman of The Finance Houses Association of Sri Lanka, the apex body that comprises of over 40 registered Finance Companies. MS RUVINI E WEERASINGHE - Directress Legal An Attorney at Law. Joined the Company in 1997, formed the Legal Department and held several positions within the Department before being appointed to the Board in 2004. A past Chairperson and an active member of the Legal Circle of The Finance Houses Association of Sri Lanka. MR BEDE JAYALATH - Finance Director Joined as the Finance Manager in 2002 and was appointed to the Board in 2004. An Associate of the Chartered Institute of Management Accountants, UK. Holder of Masters Degree in Business Administration (MBA) from the PIM of University of Sri Jayewardenepura. He had been awarded the Competent Communicator and Competent Leader certificates from the Toastmasters International-USA. He was a Past President of the CIMA Toastmasters club. Formerly, he was the General Manager, Finance and Administration of Jardine Fleming HNB. He posesses nearly 30 years experience in a multitude of industries sush as manufacturing, trading, hospitality, financial services, stock brokering and investment banking.

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Arpico Finance Company PLC Annual Report 2011/2012

Board of Directors & Senior Management

MR. LYLE DENNIS PEIRIS - Director He is a Fellow member of the institute of Credit Management Sri Lanka. He has over 30 years exeperience as a Senior Manager out of which 22 years are at Board level. He was the Deputy Chairman of Delmege Insurance Brokers (Pvt) Ltd. prior to which he held the post of Managing Director. He had functioned as the Managing Director of LB Finance Ltd. & Delmege Financial Services (Pvt) Ltd. He had held many board positions within the Delmege Group of Companies. A past Chairman of Finance Houses Association of Sri Lanka, he is presently the Vice President of SL Institute of Credit Management. Mr Nilanka Mevan Pieris - Director ( Appointed with effect from 01/01/2012) He is an Associate Member of the Institute of Bankers of Sri Lanka and also an Associate Member of the Chartered Institute of Management Accountants -UK. He is also a Chartered Global Management Accountant - He has over 10 years of experience in Senior Management. He is the Managing Director of Global Convention (Pvt) Ltd and holds directorships in many other companies. MR. D V DHARSHAN SILVA - Chief Operating Officer Product of Royal College Colombo. Registered Investment Advisor (Financial Services Academy - Securities and Exechange Commission of Sri Lanka), Finalist CIMA (UK), Diploma holder of Computer system Design (NIBM Sri Lanka) with a distinction pass, Certificate holder of TOT in Micro Finance (Frankful School of Management Germany). He also has participated in extensive workshops, seminars and training and development programmes within Sri Lanka and also in Thailand, and in Australia. 26 year consecutive experience in the financial services in public limited companies in Sri Lanka, DFCC Bank, and Commercial Leasing Company PLC.

Arpico Finance Company PLC Annual Report 2011/2012

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Board of Directors & Senior Management

MR PRATAPKUMAR DE SILVA - Former Chairman (Relinquished duties with effect from 31/12/2011) He is a Fellow member of the Institute of Credit Management, Sri Lanka. Fellow member of the Institute of Credit Management, England and Justice of the Peace. First Sri Lankan to be honoured as a Fellow of the Institute of Credit Management, England. He is the Honorary Consul of the Republic of Peru in Sri Lanka. He carries 55 years experience in the Finance Sector. He is a Director of HNB Assurance PLC and several other companies too. President - Sri Lanka Institute of Credit Management. Director representing Finance Companies on the Board of the Credit Information Bureau of Sri Lanka. Advisory Councillor - Council of The Finance Houses Association of Sri Lanka . MR D L S R PERERA - Former Deputy Chairman (Relinquished duties with effect from 31/12/2011) He is a Fellow member of The Institute of Chartered Accountants of Sri Lanka. He is the Finance Director of Alliance Finance Co.PLC. He has wide experience in the field of finance and corporate management. A successful businessman, he manages family-owned businesses and is on the Boards of several companies. Counts over 30 years experience in the Financial sector. MR ROMANI DE SILVA - Former Director (Relinquished duties with effect from 31/12/2011) He is a Fellow member of the Institute of Credit Management, Sri Lanka. He is the Deputy Chairman and Managing Director of Alliance Finance Co.PLC, He holds Directorates in many companies. He counts over 25 years experience in the finance industry. He is also the Deputy Chairman of several companies within the Alliance Group. He is the pioneer of Collaboration Financing - a unique financing concept designed to provide finance for entrepreneurs to expand their businesses. The creation of this concept resulted in Alliance Finance becoming the first and only Finance Company in Sri Lanka to be awarded the ISO 9001 Certification for designing business-specific financial solutions. He was also awarded two Bronze Awards for this innovation at Provincial and National levels at the Sri Lankan Entrepreneur of the year 2001 contest. He is a Life Member of the Sri Lanka Institute of Directors, a Member of the Chamber of Young Lankan Entrepreneurs, Represents the Company as a Council Member of the Finance Houses Association of Sri Lanka. MR S R BANDARANAYAKE - Former Jt Managing Director (Relinquished duties with effect from 31/05/2012) Joined the Company as Jt Managing Director to the Board in 2004. Director of Alfinco Insurance Brokers (Pvt) Ltd. Former Executive Director of The Finance Co. PLC.

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Arpico Finance Company PLC Annual Report 2011/2012

Corporate Governance

1. Finance Companies (Corporate Governance) Direction No.3 of 2008 as amended The objectives of governance, in main, is to ensure conformance with applicable Statutes, rules and regulation. It is also meant for that the system of internal control, risk managment, responsibilities are properly identified, allocated and given adequate emphasis in pursuit of performance objectives. The outcome would be the balance of both risks and returns with proper checks. The compliance by the Company with the above governance direction is tabulated below. Description and paragraph reference Responsibilities of the Board- paragraph 2 Approving and overseeing strategic objectives and corporate values and communicate them. 2(1) a Compliant. -Business plan and budget are approved and KPIs stemming from plans are communicated. Compliant. Compliant. By the board appointed Risk Committee. Compliant. There is timely dissemination of information and financial report. Compliant. Through group internal audit and internal auditors Compliant. Compliant. Through descriptions. job Ref code Degree of compliance

Approving business strategy, risk policy and management with measurable goals for at least three years. Identification and management of risks prudently Approving a process of communication with all stakeholders.

2(1) b 2(1) c 2(1) d

Review adequacy and the integrity of internal control system and MIS Identification and designation of key management personnel Defining areas of authority and key responsibilities for the board and key management Ensuring that key management personnel oversee the affairs appropriately. Assessing effectiveness of governance practices including nomination/ selection of directors & key management, managing conflict of interests, determining weaknesses and effecting changes Periodically assessing the effectiveness of the governance practices ensuring that there is a succession plan for key management.

2(1) e

2(1) f 2(1) g 2(1) h 2(1) i

Compliant. By the functions of management committee. Compliant. Board was restructured with the required balance. Key recruitments are approved by the directors. Compliant.

2(1) j

Arpico Finance Company PLC Annual Report 2011/2012

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Corporate Governance

Description and paragraph reference Regular meetings with key management to assess policies, communication lines and progress towards corporate objectives. Understanding the regulatory environment Exercising due diligence in hiring and oversight of external auditors. Board shall define and approve the functions of chairman and Chief Executive Officer Procedure to enable the directors to seek independent professional advice upon reasonable request. Board shall have a formal schedule of matters reserved to it and ensure that direction and control is under its authority Board shall include in Annual Report a corporate governance report setting out compliance with this Direction Meetings of the Board - Paragraph 3 Board shall meet twelve times in a financial year. Arrangements for the directors to add agenda items pertaining to the promotion of business and the management of risks. At least seven days notice for the regular board meetings and reasonable notice for other meetings. Appointment of Company Secretary to handle statutory, regulatory and secretarial services. Preparation of the agenda for a Board Meeting by Company Secretary. Directors access to advice and services of the Company Secretary. Maintenance of Minutes of Board Meetings by the Company Secretary and make it available for inspection by any Director. Recording of the Minutes of Board Meetings with sufficient detail to gather whether the Board acted with due care and prudence in performing its duties.

Ref code 2(1) k 2(1) l 2(1) m 2(2) 2(3) 2(5) 2(7)

Degree of compliance Compliant. Compliant. Attend regular trainings when necessary. Compliant. Appointed at the AGM. Compliant. Compliant. Compliant. As specified in the agenda. Compliant.

3(1) 3(2)

Compliant. Compliant. Agenda is circulated in advance permitting time for changes. Compliant. Compliant. Compliant Compliant. Compliant. Compliant.

3(3) 3(5) 3(6) 3(7) 3(8) 3(9)

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Arpico Finance Company PLC Annual Report 2011/2012

Corporate Governance

Description and paragraph reference Composition of the Board- Paragraph 4 Directors on Board shall not be less than 5 and not more than 13

Ref code

Degree of compliance

4(1)

Compliant. Six directors on the board. Compliant.

Period of service of a Director other than an Executive Director shall not exceed nine years. Number of Executive Directors shall not exceed one-half of the number of Directors on the board. The Number of Independent Non-Executive Directors of the Board shall be at least one fourth of the total number of Directors. Non-Executive Directors shall have necessary skills and experience on strategy, performance and resources. The Independent Non-Executive Directors shall be expressly identified in all corporate communications and in the annual corporate governance report A formal and transparent procedure for the appointment of the new Directors and for their orderly succession.

4(2)

4(3)

Compliant. Three executive directors on the board. Compliant. Three directors are independent non-executive.

4(4)

4(6)

Compliant. Refer profiles of directors on pages 12 and 13 Compliant. Few corporate communications need modifications Compliant.

4(8)

4(9)

Criteria to assess the fitness and propriety of directorsParagraph 5 A person over the age of 70 years shall not be a Director. A Director shall not hold office as a Director or other equivalent position in more than 20 companies/ societies/ body corporates nor in 10 specified business entities. 5(1) 5(2) Compliant. Compliant.

Delegation of functions Paragraph 6 Board shall not delegate any matters to anyone so as to significantly hinder or reduce the ability of the Board to discharge its functions. 6(1) Compliant.

Arpico Finance Company PLC Annual Report 2011/2012

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Corporate Governance

Description and paragraph reference The Chairman and the Chief Executive Officer Paragraph 7 Separation of the roles of Chairman and Chief Executive Officer The Chairman shall be an Independent Non-Executive Director. Chairman shall provide leadership to the Board, ensure effective discharge of responsibilities and all issues are discussed in a timely manner. Responsibility of the Chairman for either the preparation or delegating the preparation of agenda to the company secretary. Chairman shall encourage directors to make a full and active contribution and ensure that the Board acts in the best interest of the company. Chairman shall facilitate effective contribution by Non-Executive Directors and constructive relationships among Directors Chairman shall not engage in direct supervision of key management personnel or any other executive duties. Chairman shall ensure the effective communication with the shareholders and the views of shareholders are communicated to the Board. Chief Executive Officer shall be the apex executive in charge of the day to day management. Board Appointed Committees Paragraph 8 Company shall have at least two board committees (Audit & Risk) reporting directly to the board. Audit Committee Chairman shall be a Non-Executive Director with accounting qualification. Members shall be Non-Executive Directors. Shall make recommendations about the appointment of auditors, service period, audit fee, period of an engagement of an audit partner and the application of accounting standards. 18
Arpico Finance Company PLC Annual Report 2011/2012

Ref code

Degree of compliance

7(1) 7(2) 7(4)

Compliant. Compliant Compliant.

7(5) 7(7)

Compliant. Compliant.

7(8)

Compliant

7(9) 7(10)

Compliant. C o m p l i a n t . A l l communications in turn are referred to the Board. Compliant.

7(11)

8(1) 8(2) 8(2) a 8(2) b 8(2) c

Compliant.

Compliant. Mr. N.M. Pieris-ACMA-UK Compliant. Compliant.

Corporate Governance

Description and paragraph reference Review the effectiveness of audit process and monitor the external auditors independence & objectivity. Shall develop an approved policy for the engagement of external auditors to provide non audit services, to assure independence of external auditors. Prior to audit, committee shall discuss and finalize the nature and scope of audit, assessment of compliance with directions and preparation of financial statements compatible with accounting standards and reporting principles. Monitor integrity, significant judgments, changes in accounting policies and practices, adjustments arising from the audit in the preparation of financial information and reports.

Ref code 8(2) d 8(2) e

Degree of compliance Compliant. Management letter is directed to the Board. Compliant. Non audit assignments were not given to external auditors. Compliant.

8(2) f

8(2) g

Compliant. External and internal auditors and group audit team report incompatibilities direct to committee. C o m p l i a n t . 2 0 1 0 / 1 1 wa s finalized. 2011/12 to be finalized. Compliant. Compliant. New Committee took office on January 1st 2012 and meetings are scheduled. Compliant. Compliant. Meets monthly. Compliant. Refer page 22

Review management letter and management response there to.

8(2) i

Consider findings of internal investigations and management responses there to. Meet external auditors once in 6 months without Executive Directors being present.

8(2) k 8(2) l

Shall have authority to investigate any matter within TOR, acquire resources and access to information. Meet regularly, give notice of issues to be discussed and record conclusions. Annual Report to disclose activities of the Audit Committee, Audit Committee meetings and attendance of each individual member. The Secretary shall record and keep detailed minutes. Review arrangements for employees to raise concerns in confidence about financial reporting and internal control and ensure fair and independent investigation and appropriate follow up action.

8(2) m 8(2) n 8(2) o

8(2) p 8(2)q

Compliant. Compliant.

Arpico Finance Company PLC Annual Report 2011/2012

19

Corporate Governance

Description and paragraph reference Risk Management Committee Consists of one Non Executive Director, CEO and key management personnel. Assess all risks on a monthly basis using risk indicators and MIS. Review adequacy and effectiveness of all management committees and the management of risks. Take actions to mitigate the effects of specific risks if such risks are beyond the internal policy or regulatory limits. Shall meet at least quarterly to assess risk management and BCP. Submit risk assessment report within a week of each meeting for board review and specific directions. Establish compliance function with a Compliance Officer to report about compliance with laws, rules, regulations & directions etc Related party transactions Paragraph 9 Board shall avoid any conflict of interest from any transaction with any person and particularly with persons considered as related parties. Board shall ensure that the Company does not engage in transactions which would grant a related party more favourable treatment than is accorded to other constituents. Disclosures - Paragraph 10 A statement to the effect that audited financial statements are prepared in line with applicable accounting standards and regulatory requirements. A report by the Board that the financial reporting system has been designed to provide a reasonable assurance regarding the reliability and the preparation of financial statements is in accordance with the relevant accounting standards and regulatory requirements.

Ref code 8(3) 8(3)a 8(3)b 8(3)c 8(3)d 8(3)e 8(3)g 8(3)h

Degree of compliance

Compliant. Compliant. Compliant. Compliant. Compliant. Meets monthly Compliant. Compliant.

9(2)

Compliant.

9(4)

Compliant.

10(2) a

Compliant. Refer page 38

10(2) b

Compliant. Refer page 31

20

Arpico Finance Company PLC Annual Report 2011/2012

Corporate Governance

Description and paragraph reference Details of the Directors including names and transactions with the company. Fees and remuneration paid by the Company to the Directors in aggregate. Net accommodation outstanding in respect of each category of related parties and net accommodation outstanding as a percentage of the finance companys capital funds. Aggregate values of remuneration paid and transactions with its key management set out by broad categories such as remuneration paid, accommodation granted and deposits or investments A report setting out details of compliance with prudential requirements, regulation, laws, internal controls and measures to rectify non-compliances, if any.

Ref code 10(2) d 10(2) e 10(2) f

Degree of compliance Compliant. Refer page 64 Compliant. Refer page 63 Compliant. Refer page 64

10(2) g

Compliant. Refer pages 63

10(2) h

Compliant. Directors, auditors, internal control, audit and risk committees and governance reports form part of this requirement. Compliant. Refer page 33

The external auditors certification of compliance with the Act, rules and directions issued by the Monetary Board

10(2) j

Remumeration Committee The composition of the remumeration Committee is given on page 04 The Committee is mandated with the responsibilities of determining the remumeration of working directors and senior managment , recruitment of key management personnel, determination and transmission of KPIs and monitor progression in the achievement. The Committee extends its responsibilities to install a succession plan and organisation structure. The approval of the annual increments and bonuses too come under the purview of the Committee.

Arpico Finance Company PLC Annual Report 2011/2012

21

audit committee report

The audit committee was re-constituted with the appointment of new Directors to the Board. The members of the Committee are given on page 04. The Committee is headed by Mr. N.M. Pieris who is a qualified accountant. All members of the Committee are Non-Executive Directors. M/S HLB Edirisinghe and Co Chartered Accountants are the Internal Auditors of the Company. The Internal Auditors liase with the Audit Committee to assure governance in terms of both performance and conformance. The audit work extends to all the business units, processes and products. The Committee approved the audit plan at the beginning of the year. The plan emphasizes the assessment of the efficacy and effectiveness of internal control, financial processes, compliance with internal policies and procedures, IT governance, regulatory and statutory compliances, budgetary performance among other areas. In compiling the audit plan and work the Committee took into consideration of the requirements set out in Central Bank direction No 3 of 2008 on Corporate Governance. The new Committee took office only on 1st January 2012. An initiative that will be given more emphasis would be the furtherance of ties with external auditors. The dialogue with external auditors would be enriched by having regular meetings with a wider scope. Committee meetings are held monthly with Board Secretary functioning as the committee secretary. The committee minutes are kept with secretary and circulated to members. The company has operational manuals encompassing all functional areas and an employee hand book to promote ethical business practices. These manuals are mainly aimed at avoiding or mitigating operational risks. The audit reports, the responses by the relevant sectional head, audit review and re-confirmation of the corrective actions on findings are overseen by the Audit Committee. The committee has implemented a programme with strict time lines to assure adherence in responding to audit findings. During the year an exercise was carried out to finalise and roll out procedure manuals/ employee hand book to each and every employee to promote awareness. The manuals are updated regularly with the changes and approval of new policies. The work of internal auditors are supplemented by the in-house group internal audit team. The in house audit team conducts continuous and ad-hoc assignments mainly in business units which are highly vulnerable to operational risks. Even the group internal audit team reports direct to the Audit Committee. There is a monthly assurance report to the Board by the Finance Director confirming statutory and regulatory compliance, efficacy of internal control system, completeness and accuracy of records, and in turn the financial reports. This would lead to a reasonable assurance of the integrity and true and fairness of financial statements. At present the Committee meets monthly and internal audit reports, the responses and verification of the corrective meassures are deliberated at length. Attendance at Meeting - January 2012 onwards Mr. N.M. Pieris Mr. L.D. Peiris Mr. B. Ponnambalam Meetings Held 3 3 3 Meetings Present 3 3 1

22

Arpico Finance Company PLC Annual Report 2011/2012

Risk Management

Company has a Risk Management Committee comprising Executive Directors and the other operational heads with line responsibilities which is chaired by a Non-Executive Director. The Committee is entrusted with the responsibility of identification and effective management of risks. Meetings of the Risk Committee are held monthly and the members of the Committee constantly monitor and evaluate the effectiveness of the existing risk management processes. The potential threats that could arise in the future and any further actions or modifications to existing systems are also constantly reviewed by the Committee. The Committee appreciates that risks form part and parcel of business and therefore, the aim is to establish the framework to support business growth whilst managing the associated risks. 1. Market Risk Market risk indicates the susceptibility of the Company to the fluctuations in market prices. Overall revenue of the Company and in particular the net interest earnings have shown a commendable growth highlighting the positive overall market conditions. In the case of lending activities the main risk is the more frequent re-pricing of liabilities over assets which could turn disadvantageous in a rising interest rates environment. This is constantly monitored by the Committee with regular revision of lending rates as the situation warrants. Although the market value of some of the securities in the equity investment portfolio fell, drastic growth in the values of other securities in the portfolio led to an increase in the value of the overall portfolio. The investments in the equity market are very much below the regulatory limits and hence the exposure to any adverse market movement is contained. The Company does not hold a trading portfolio of fixed income securities. All fixed income investments of the Company are held till maturity and therefore, are stated at net realizable value. The Company is mainly susceptible for the changes in market interest rates and to a limited degree to the prices of various investments. 2. Liquidity Risk Liquidity risk highlights the risk arising from the failure or inability of the Company to meet the repayment of liabilities in a timely manner. This arises mainly due to the mismatch between the maturity periods of the liabilities and the corresponding assets held there by creating a possible constrain for the Company. Liquidity risk management is particularly important in the finance business to assure credibility of the Company among the depositors and general public. A major strength possessed by the Company to mitigate this risk is evident from the higher renewal ratio of term deposits. Healthy growth in the term deposits base is also proof of the confidence by depositors which too augurs well in the management of liquidity risk. The statutory liquid assets as requisitioned by the regulation were maintained with an additional buffer. The Company has adopted many promotional techniques to maintain the current deposit base and also to attract new deposits. There is great emphasis on recoveries and to contain contracts which would go into arrears with a view to preserving liquidity. Bank borrowings and securitization funding are the other sources of cash inflows to the Company. The maturities of these sources are generally compatible with the investment period of the Company. The liquidity is expected to pose the biggest challenge given the decline in market liquidity, intense rivalry among the finance companies to attract deposits and also regulatory constraints on the credit expansion by banks. 23

Arpico Finance Company PLC Annual Report 2011/2012

Risk Management

3. Credit Risk The greatest of the credit risks assumed by the Company is the default risk. NPL (Non Performing Loan) ratio is an important measure which highlights the credit risk representing the default or non-payment of loans and advances by the customers. NPL ratio decreased to nearly 2.7 % during the current financial year in comparison to 3.1 % in the last year. The ratio has been declining continuously for the last nine years from March, 2004. This ratio is the key indicator of credit risk from a Balance Sheet perspective since credit investments account for 52% of the total assets. The above outcome is the result of prudent and effective measures adopted by the Company in recovery efforts and careful assessment of the creditworthiness of the customers. There is in place a comprehensive credit manual which deals extensively with initiations, limits of authority, exposures, follow-up, recoveries and settlement. We have focused our efforts to further improve the ratio to a minimal level. 4. Operational Risk Operational risks are associated with the inefficiencies or failure of internal systems, processes or failure of people to prevent and detect occurrence of material frauds and errors. The operational risk may emerge due to deliberate manipulation of the accounting and other systems, the technical weaknesses in the systems and controls and also lack of knowledge and ability in application by the employees. The outcome would be losses and damages both financial and reputational. Various internal controls are in place at the Head Office and also in the branches and Gold Loan Centers to ensure that those controls are adhered to and errors and likely frauds are kept on check. These measures have so far been proven to be effective and enabled the company to maintain risk exposure at a minimal level. The operational risks could be the result of unexpected external events too. Such Events which are not fully controllable by the Company may cause detrimental effect to the profitability, cash and possibly to reputation. Even the regulatory and reputational risks stemming from non compliances with laws and regulatory requirements are included under operational risk. The Company to the best of its knowledge and effort is in compliant with all the statutory and regulatory requirements. These compliances are subject to review by the compliance team headed by the Compliance Officer and various Committees. The operational risk mitigation mechanism would involve system and process improvements, established policies and procedures, employee training and obtaining cover for insurable losses. The Company has comprehensive operational manuals extending to all processes, products and business units. A Business Continuity Plan (BCP) is available with the detail steps in restoring the operations in the event of a sudden partial or total discontinuity of operations. The Disaster Recovery Plan (DRP) is tested regularly to minimize the risk of system down time. The Company employs the group audit team and Internal Auditors M/S H L B Edirisnghe & Co for assurance of substantial compatibility between actual operations and internal policies and procedures.

24

Arpico Finance Company PLC Annual Report 2011/2012

Annual Report of the Board of Directors

It is with pleasure that the Directors present their Report to the Members with the Audited Accounts of the Company of Arpico Finance Company PLC for the financial year ended 31st March 2012. Board of Directors - Structure In the year under review changes were effected to the Board of Directors in order to be compliaant with the Corporate Governance Direction No. 3 of 2008. Thereby the Chairman, Mr. J.E.P.A. De Silva resigned from the Board in December 2011 and Mr. B. Ponnambalam was appointed as Chairman from January 2012. The Deputy Chairman, Mr. D.L.S.R. Perera and Non Executive Director, Mr. R.K.E.P. De Silva resigned in December 2011. Mr. N.M. Pieris was appointed to the Board in January 2012. Our present Board of Directors is given on page 03. PRINCIPAL ACTIVITIES The principal Lines of Business are Hire Purchase, Leasing, Term Loans, Consumer Durable Loans, Gold Loans and Real Estate. Operational Review This is coverd under a special report which appears on pages 09 to 11. RISK MANAGEMENT REVIEW A detailed report on the risks appears on page 23 to 24 of the Annual Report. Corporate GOVERNANCE This subject has been dealt with separately in the Annual Report and is on pages 15 to 21. BOARD COMMITTEES Audit Committee This subject is dealt with in detail on page 22. Remuneration Committee This subject is dealt with under Corporate Governance. Results and Appropriations Year ended 31.03.2012 Rs. TURNOVER Profit Before Income Tax Taxation Net Profit for the year Add: Retained Profit brought forward from previous year Additional depreciation on revaluation Less: Prior Year adjustment Less: Oridnary Dividend Paid Profit available for appropriation Your Directors recommend the following appropriations; Transfer to Reserve Fund (20% of profit after Tax) Transfer to Investment Fund Dividend on 8% Irredeemable Cumulative Preference Shares Retained Profit carried forward (6,408,990) (5,887,267) (40,000) 101,526,496 (5,013,499) (40,000) 85,042,804 1,006,245,657 51,854,496 (19,809,546) 32,044,949 85,042,804 5,700,000 (8,925,000) 113,862,753 (Restated) Year ended 31.03.2011 Rs. 912,853,194 32,793,579 (11,133,925) 21,659,654 74,737,358 (1,838,209) (4,462,500) 90,096,303

Arpico Finance Company PLC Annual Report 2011/2012

25

Annual Report of the Board of Directors

DIVIDENDS The Board of Directors have recommended a First and Final Dividend of Rs. 2/- per share. The Directors confirm that the Company satisfies the solvency test set out in Section 56 of the Companies Act No.7 of 2007. The Certificate of Confirmation was obtained from the Auditors in respect of the recommended dividend. RESERVES The Directors have transferred a sum of Rs. 6,408,999/- to the Reserve fund and the total Reserves including retained profit now stand at Rs. 278,854,724/-. RATING Ram Ratings Lanka Limited has assigned our Company a long term financial institution rating of BB. STATED CAPITAL The Stated Capital of the Company as at 31st March 2012, is Rs. 96,312,500/- represented by 4,462,500 Ordinary Shares and 50,000 Irredeemable Preference Shares. SHAREHOLDERS INFORMATION The detailed Shareholders information appears on Pages 28 and 29 of the Annual Report. TWENTY MAJOR SHAREHOLDERS The names and number of shares held by the 20 major shareholders appear on page 29. PUBLIC HOLDING The public holding percentage appears on page 28. SHARE INFORMATION Information with regard to Dividend per Share, Dividend Pay Out, Net Asset Value per share and Market Value per share appear with the Ten Year Summary on page 68. DIRECTORS Mr. B. Ponnambalam, Mr. N.M. Peiris joined the Board as Independent Non Executive Director w.e.f. 1st January, 2012. DIRECTORS INTEREST IN CONTRACTS Directors interests in contracts of the Company have been set out in the Notes to the Accounts. These interests have been disclosed at Directors Meetings. They have no direct or indirect interest in any other existing or proposed contract with the Company. RE-ELECTION OF DIRECTORS

Mr. W.J.D.B.L. Jayalath retires by rotation under Articles numbered 130 and 131 of the Company and being eligible offers himself for re-election with the unanimous support of the Directors. Mr. B. Ponnambalam retires under Article Number 135 and being eligible offers himself for re-election with the unanimous support of the Directors. Mr. N.M. Pieirs retires under Article Number 135 and being eligible offers himself for re-election with the unanimous support of the Directors.

26

Arpico Finance Company PLC Annual Report 2011/2012

Annual Report of the Board of Directors

DIRECTORS REMUNERATON The Directors remuneration is disclosed under Note 39.1 to the Financial Statements. Directors Shareholdings NAME Mr B. Ponnambalam Mr. Bede Jayalath Mrs. R. E. Weerasinghe Mr Lyle D. Peiris Mr N. M. Peiris 31.03.2012 100 11,100 2,709 100 100 31.03.2011 11,100 2,709 -

EMPLOYEE SHARE OWNERSHIP The Company has not implemented an Employee Share Ownership scheme. PROPERTIES OF THE COMPANY Land and building of the Company were last revalued by professionaly qualified independent valuers A Y Daniel and Sons on 31st March 2012. The registered Finance Companies are allowed to carry out revaluation of their land and buildings every seven years and treat 50% of the surplus as supplementary capital in the Tier II capital base. DONATIONS The Company donated a sum of Rs. 289,250/- during the year under review. AUDITORS The Auditors, M/s. SJMS Associates Chartered Accountants, have audited the accounts as at 31st March 2012. The re-appointment rests in your hands and they have offered their services at an all inclusive fee of Rs. 675,000/- for the ensuing year.

(Sgd.) By Order of the Board of Directors ALLIANCE MANAGEMENT SERVICES (PVT) LTD. Secretaries 28th June 2012

Arpico Finance Company PLC Annual Report 2011/2012

27

Shareholders Information

Distribution of share HOLDING As at 31st March 2012 No. of Holdings Range (No. of Shares) Shareholders Total Percentage of Share Holding Holding % As at 31st March 2011 No. of Total Percentage of Shareholders Share Holding Holding %

1 - 1000 1001 - 10000 10001 - 100000 100001 - 1000000 1000001 & Over

522 93 25 4 1 645

112,769 295,954 841,200 1,402,536 1,810,041 4,462,500

2.53 6.63 18.85 31.43 40.56 100.00

575 112 24 3 1 715

140199 335648 847247 1329365 1810041 4462500

3.14 7.52 18.99 29.79 40.56 100.00

The shares in the hands of the public as at 31st March 2012 were 1,762,231 representing 34.77% of the Odinary Shares in Issue and as at 31st March 2011 there were 1,551,862 shares representing 34.78% of the Odinary Shares in Issue.

28

Arpico Finance Company PLC Annual Report 2011/2012

Twenty Major Shareholders


As at 31st March 2011 No. of Shares % No. % 40.56 19.52 6.67 3.59 88,665 82,677 82,800 70,495 67,000 56,684 53,583 52,500 47,800 45,000 Elgin Investments Ltd. Mrs.S.R.L. Marcelline Alliance Travel Services Ltd. 16 17 18 0.39 0.32 19 20 Mrs.R.M.V. de Fonseka Alliance Tech Trading (Pvt) Ltd. 0.39 Mrs.E.S. Seneviratne Mrs.S.E. Canekeratne 25,022 23,085 18,248 17,510 14,471 12,748 1.99 1.85 1.86 1.58 1.50 1.27 1.20 1.18 1.07 1.01 0.56 0.52 0.41 0.39 0.32 0.29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Mr.J.E.P.A. de Silva Mr.A.P. Arumugampillai Mr.G.C.W. de Silva Mr.M.A.H. Esufally Dr.(Mrs.) K.G.G.S.L. Perera Mr. O.D. Liyanage Mr.S. Abishek Orient Hotels Ltd. Mr. R.K.E.P. de Silva Mr.J.R. de Silva Mr. K.D.D. Perera 297,495 160,143 Alliance Finance Co.PLC 871,127 Alfinco Insurance Brokers (Pvt) Ltd. 1,810,041 Name of Shareholder 40.56 19.53 6.60 5.30 1.99 1.85 1.86 1.58 1.50 1.38 1.27 1.20 1.07 0.56 0.52 0.53 0.41 No. of Shares

As at 31st March 2012

No.

Name of Shareholder

1 871,727 294,495 236,314 88,665 82,677 82,800 70,495 67,000 61,500 56,684 53,583 47,800 25,022 23,085 23,553 18,248 17,510 17,400 14,471

Alfinco Insurance Brokers (Pvt) Ltd. 1,810,041

Alliance Finance Co.PLC

Mr. K.D.D. Perera

Dawi Investment Trust (Pvt) Ltd.

Mr. R.K.E.P. de Silva

Orient Hotels Ltd.

Mr.S. Abishek

Mr. O.D. Liyanage

Mr.M.A.H. Esufally

10

Mr.A.P. Arumugampillai

11

Dr.(Mrs.) K.G.G.S.L. Perera

12

Mr.J.E.P.A. de Silva

Shareholders Information

13

Est. of the Mr.G.C.W. de Silva

14

Mrs.S.R.L. Marcelline

15

Alliance Travel Services Ltd.

16

Mr.J.R. de Silva

17

Mrs.R.M.V. de Fonseka

18

Alliance Tech Trading (Pvt) Ltd.

Arpico Finance Company PLC Annual Report 2011/2012

19

Elgin Investments Ltd.

20

Mrs.E.S. Seneviratne

29

Board Report on Internal Controls

Internal control, in the given context, is meant, amongst other things to accomplish the following purposes 1. Efficiency and effectiveness of systems and operations as a whole. 2. Identification and management of risks, especially, the operational risks. 3. Reasonable assurance about the reliability of financial reports and management information and the preparation of financial reports which meet the requirements of Statutes, applicable accounting standards and regulations. 4. Compliance with relevant laws, regulations and directions. The Board of Directors and the management of the entity have to ensure the implementation of an appropriate internal control mechanism for the above purposes. Whilst ensuring that the systems and processes operate economically, the internal control mechanism should safeguard the resources which would lead to the achievement of objectives. The Board has implemented requisite prudential requirements as a means to accomplish a sound internal control mechanism. It has established procedure manuals encompassing all processes, employee hand book, business continuity and disaster recovery plans, reconciliations and control systems, set limits of authority for key management etc. These help to detect and prevent errors and frauds. The effectiveness, adequacy, compatibility with best practices and accompanying modifications are constantly vetted by internal, external auditors and group audit team. This evaluation process is initiated through the annual internal audit plan which is extensively deliberated and approved by the Board. Once implemented, the audit plan will result in the appraisal of the actual operations of each process vis--vis the procedure manual. The reports which are the outcome of the audits are evaluated, mainly, by the audit committee to ascertain any reported deviations from the set procedures and to recommend improvements. There are various other Board and management committees appointed under the aegis of the Board to evaluate the efficacy of systems and controls. The risk committee assesses the operational risks in each product and process as a result of any deficiencies arising from internal controls and systems as part of the standing items in the agenda. The Board is apprised of the findings of committees by circulation of minutes and a brief presentation by committee chairs. There is direct follow up by the Board with respect to implementation of recommendations with a view to continuously improve the internal control mechanism. The external auditors review the financial reporting system and financial statements. This is with a view to confirm compliance with applicable accounting standards, rules and regulations and to assure a reasonable degree of reliability. Reports which are part and parcel of the annual report also provide information pertaining to efficacy of internal controls. Given the findings, the Board is of the view that to the best of its knowledge and belief, there is a reasonable assurance of the soundness of internal control mechanism.

H Rajudin Managing Director 28th June 2012

Bede Jayalath Finance Director

30

Arpico Finance Company PLC Annual Report 2011/2012

Statement of Directors Responsibilities in Relation to Financial Statements

The Directors responsibilities in relation to Financial Statements are set out in this report. The external auditors responsibilities in relation to Financial Statements are set out in Auditors Report. The Companies Act No 7 of 2007 requires the Directors to prepare the Financial Statements for each financial year giving a true and fair view of the state of affairs of the Company as at end of the financial year and of the profit or loss of the Company for the year thus ended. In preparation of the Financial Statements for the year appropriate accounting policies have been selected and applied consistently, reasonable and prudent judgments and estimates have been used and applicable accounting standards have been followed. The Directors, therefore, confirm that the Financial Statements of the Company which comprise of the audited income statement for the financial year ended 31st March, 2012 and the Balance Sheet as at the said date give a true and fair view of the state of affairs of the Company. The Directors are responsible for ensuring that the Company keeps sufficient accounting records to disclose with reasonable accuracy the financial position of the Company and for ensuring that the financial statements have been prepared and presented in accordance with the Sri Lanka Accounting Standards and provide the information required by the Companies Act No 7 of 2007. They are also responsible for taking reasonable measures to safeguard the assets of the Company, and in that context to have a proper regard to the establishment of appropriate systems of internal control with a view to prevent and detect fraud and other irregularities. The Directors continue to adopt the going concern basis in preparing accounts. The Directors, after making inquiries and following a review of the Companys budget for 2012/13 including cash flows and borrowing facilities, consider that the Company has adequate resources to continue in operation.

By Order of the Board of Directors ALLIANCE MANAGEMENT SERVICES (PRIVATE) LIMITED Secretaries 28th June 2012

Arpico Finance Company PLC Annual Report 2011/2012

31

Chief Executive Officers and Chief Financial Officers Responsibility Statement

The Financial Statements of Arpico Finance Company PLC are prepared in compliance with the Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka and the requirements of the Companies Act, No 7 of 2007 and any other applicable statutes. The accounting policies used in the preparation of the financial statement are appropriate and are consistently applied, except unless otherwise stated in the notes accompanying the financial statements. The Board of Directors and the management of our company accept responsibility for the integrity and objectivity of these financial statements. The estimates and judgments relating to the financial statements were made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the form and substance of transactions, and reasonably present the companys state of affairs. To ensure this, the company has taken proper and sufficient care in installing a system of internal control and accounting records, for safeguarding assets, and for preventing and detecting frauds as well as other irregularities, which is reviewed, evaluated and updated on an ongoing basis. Our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the company were consistently followed. However, there are inherent limitations that should be recognized in weighing the assurances provide by any system of internal controls and accounting. The Financial Statements were audited by M/s SJMS Associates Chartered Accountants, the independent auditors. The audit committee of our Company meets periodically with the internal auditors and the independent auditors to review the manner in which these auditors are performing their responsibilities, and to discuss auditing, internal control and financial reporting issues. To ensure complete independence, the independent auditors and the internal auditors have full and free access to the members of the audit committee to discuss any matter of substance.

H Rajudin Managing Director 28th June 2012

Bede Jayalath Finance Director

32

Arpico Finance Company PLC Annual Report 2011/2012

SJMS
S O C I A T E
Touche

Independent Correspondent Firm to

SJMS Associates Chartered Accounts No. 02, Castle Lane, Colombo 04, Sri Lanka. Tel: +94(11) 2580409, 2503262 Fax: +94(11) 2582452 Restructure & Corporate Recovery Tel: 5364293, 5444420 Fax: 5364295 Email: sjmsa@sjmsassociates.com Website:www.sjmsassociates.lk

Deloitte

Tohmatsu

Independent Auditors Report


TO THE SHAREHOLDERS OF ARPICO FINANCE COMPANY PLC Report on the Financial Statements We have audited the accompanying financial statements of Arpico Finance Company PLC, which comprise the balance sheet as at 31st March 2012, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Managements 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. The responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, 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 misstatements. 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. Opinion In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31st March 2012 and the financial statements give a true and fair view of the Companys state of affairs as at 31st March 2012 and of its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. Report on Other Legal Requirements These financial statements also comply with the requirements of Section 151(2) of the Companies Act No. 7 of 2007 and the requirements of the Finance Business Act No. 42 of 2011.

SJMS ASSOCIATES Chartered Accountants Colombo 28th June 2012

P. E. A. Jayewickreme, M. B. Ismail, Ms. A. M. J. Patrick, T. Krishnakumar, Ms. S. L. Jayasuriya, D. S. W. Andradi, G. J. David, Ms. F. M. Marikkar, Ms. M. S. J. Henry, Ms. A. U. M. Keppetipola,R. H. M. Minfaz, Ms. S. Y. Kodagoda

Arpico Finance Company PLC Annual Report 2011/2012

33

for the year ended 31st March 2012

Income Statement

Note

2011/2012 Rs. 523,625,172 471,127,348 (235,297,862) 235,829,486 14,796,026 37,701,798 288,327,310

Restated 2010/2011 Rs. 425,066,837 380,241,149 (204,878,633) 175,362,516 (11,944) 44,837,632 220,188,204

Income Interest Income Interest Expenses Net Interest Income Trading Profit Other Income Operating Expenses Personnel Costs Premises, Equipment and Establishment Expenses Provision for Staff Retirement Benefits Loan Losses & Provisions Other Expenses Operating Profit Before VAT on Financial Services and Income Tax Share of Profit from Associate Company Profit Before VAT on Financial Services and Income Tax VAT on Financial Services Profit Before Income Tax Taxation Net Profit for the Year Basic / Diluted Earnings per Share Dividend per Ordinary Share

4 5 6

8 100,558,852 76,463,635 6,294,910 12,761,207 38,012,039 234,090,643 75,196,528 61,935,836 5,718,468 14,240,726 19,993,936 177,085,494

9 10

11

54,236,667 5,576,454 59,813,121 (7,958,625) 51,854,496 (19,809,546) 32,044,949 7.17 2

43,102,710 1,789,253 44,891,963 (12,098,384) 32,793,579 (11,133,925) 21,659,654 4.84 2

12 13

The significant accounting policies and notes from 1 to 41 form an integral part of these financial statements.

34

Arpico Finance Company PLC Annual Report 2011/2012

Balance Sheet
AS AT 31st March 2012

Restated Note Assets Cash and bank balances Treasury bills and bonds Placement with banks and other financial institutions Commercial Papers Dealing securities Inventories Loans and advances to customers Net investment in lease Other receivables Income tax refund due Investment securities Investment in associate company Deferred taxation Property and equipment Intangible assets Total Assets Liabilities Bank overdraft Customer deposits Interest bearing borrowings Trade and other payables Retirement benefit obligations Total Liabilities Equity Stated capital Statutory reserve fund Investment fund Revaluation reserves Capital equalisation reserve Revenue reserves Shareholders funds Total Liabilities and Equity 31.03.2012 Rs. 31,965,804 199,600,265 45,000,000 11,696,757 117,336,013 933,081,946 1,216,624,009 62,363,264 26,377,570 28,035,931 10,179,419 19,274,408 168,998,737 1,474,623 2,872,008,746 31.03.2011 Rs. 46,388,885 154,262,854 50,000,000 40,000,000 6,981,040 41,077,801 835,161,058 578,303,887 53,056,890 20,585,031 27,420,452 5,041,715 46,114,325 113,588,530 2,190,895 2,020,173,363

14 15 16 17 18 19 20 21 22 23 24 25 26 27

28 29 30 31 32

28,651,573 1,699,257,579 584,879,680 162,938,175 21,114,515 2,496,841,522 96,312,500 41,827,557 5,887,267 107,505,369 123,634,531 375,167,224 2,872,008,746

1,251,714,232 311,128,684 121,553,460 16,682,597 1,701,078,973 96,312,500 35,418,567 75,212,484 5,000,000 107,150,839 319,094,390 2,020,173,363

33 34 35

36

I certify that these financial statements also comply with the requirements of the Companies Act No. 07 of 2007.

The Board of Directors is reponsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the Board:

Finance Manager

Managing Director
28th June 2012

Finance Director

The significant accounting policies and notes from 1 to 41 form an integral part of these financial statements.
Arpico Finance Company PLC Annual Report 2011/2012

35

Ordinary Shares Rs. 95,812,500 30,405,068 5,013,499 35,418,567 - (5,700,000) 1,603,000 - (7,723,170) - 48,957,751 - (4,844,696) - 32,044,949 5,700,000 - (5,000,000) - 75,212,484 5,000,000 22,035,535 (40,000) - (5,013,499) 72,500 85,042,804 - (4,462,500) (4,462,500) (40,000) (5,000,000) 319,094,390 32,044,949 (4,844,696) 48,957,751 (7,723,170) 1,603,000 - 21,659,654 - (1,838,209) 21,659,654 (1,838,209) 72,500 74,737,358 308,775,445 95,812,500 500,000 500,000 - 75,212,484 10,000,000 22,035,535 Rs. Rs. Rs. Rs.

Stated Capital
Preference Shares Statutory Reserve Fund Rs. Investment Revaluation Capital Fund Reserve Equalisation Reserve Rs. Rs. Rs. General Reserve Dividend Equalisation Reserve Rs. Retained profit Total

Restated

36
6,408,990 41,827,557 95,812,500 500,000 - (5,000,000) 5,887,267 - 22,035,535 5,887,267 107,505,369 - (8,925,000) (40,000) - (12,296,257) 72,500 101,526,496 (8,925,000) (40,000) (5,000,000) 375,167,224

Arpico Finance Company PLC Annual Report 2011/2012

Statement of Changes in Equity


for the year ended 31st March 2012

Balance as at 01st April 2010 Net profit for the period Prior period adjustment (Note 1) Dividend on - Ordinary shares 8% Irredeemable cumulative Preference shares Paid during the year Transfers during the year Balance as at 31st March 2011 Net Profit for the period Deferred tax adjustment relationg to revaluation of buiding in Prior periods Surplus on revaluation Deferred tax relating to revaluation of building in current year Deffered tax relating to additional depreciation Transfer of additional depreciation on Revaluation Dividend on - Ordinary shares 8% Irredeemable cumulative Preference shares Paid during the year Transfers during the year Balance as at 31st March 2012

Note 1 - Previous year figures have been restated due to correction in the profit share of associate company.

The significant accounting policies and notes from 1 to 41 form an integral part of these financial statements.

for the year ended 31st March 2012

Cash Flow Statement

2011/2012 Rs. Cash flows from Operating Activities Interest Receipts Interest Payments Receipts from other Operating Activities Cash payments to employees and suppliers Operating Cash Flow Before Changes in Operating Assets (Increase)/Decrease in Operating Assets: Treasury Bill & Bond/ Fixed Deposits and Commercial Papers Funds Advanced to Customers Others Increase/(Decrease) in Operating Liabilities: Deposits Others Net Cash from Operating activities before Income Tax Tax Paid Net Cash Inflow/(Outflow) from Operating Activities Cash Flows from Investing Activities Dividends Received Ordinary Dividends Received from Associate Proceeds from Sale of Securities Purchase of Securities Purchase of Property and Equipment Net Cash Inflow/(Outflow) from Investing Activities Cash Flows from Financing Activities Proceeds from Borrowings Repayment of Borrowings Redeemed of Capital Equalisation Reserve Dividends Paid Net cash Inflow/(Outflow) from Financing Activities Net increase/(decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at the Beginning of the Year Cash and cash equivalents at end of the year Cash and Cash Equivalents Comprises Cash and Bank Balances and Bank overdraft

2010/2011 Rs.

474,022,104 (239,713,614) 48,218,041 (198,174,492) 84,352,039

372,833,001 (204,270,799) 37,015,077 (155,113,294) 50,463,985

(337,412) (759,994,317) (77,593,040) 447,543,348 25,654,110 (280,375,272) (7,277,964) (287,653,236)

(109,274,797) (308,982,552) (14,727,448) 248,371,601 16,486,208 (117,663,003) (6,985,788) (124,648,791)

3,651,543 438,750 6,565,964 (11,724,916) (14,178,755) (15,247,414)

2,647,335 351,000 57,706,741 (51,079,455) (12,621,816) (2,996,195)

505,000,000 (231,249,004) (5,000,000) (8,925,000) 259,825,996 (43,074,654) 46,388,885 3,314,231

349,036,672 (210,398,194) (5,000,000) (4,462,500) 129,175,978 1,530,992 44,857,893 46,388,885

3,314,231 3,314,231

46,388,885 46,388,885

The significant accounting policies and notes from 1 to 41 form an integral part of these financial statements.

Arpico Finance Company PLC Annual Report 2011/2012

37

Notes to the Financial Statements


for the year ended 31st March 2012

1 1.1

General Information Reporting Entity Arpico Finance Company PLC (the Company) is a public company incorporated on 1st May 1951 and domiciled in Sri Lanka. The Company is re-registered under the new Companies Act No. 07 of 2007 and regulated under the Finance Companies Act No. 78 of 1988. Its registered office and principal place of business is located at No: 146, Havelock Road, Colombo 05. The ordinary shares of the Company have a primary listing in the Colombo Stock Exchange. Principal Business Activities Company

1.2 1.2.1

The principal business activities of the company are accepting public deposits, lending money for facilities including leases, hire purchases, loans, pawning activities and engages in other trading activities such as real estate business, and dealing in securities. 1.2.2 Associate Company The principal business activity of the associate company is insurance brokering services.

2 Preparation of Financial Statements 2.1 Statement of Compliance The balance sheet, income statement, changes in equity and cash flows, together with accounting policies and notes to the financial statements have been prepared in accordance with Sri Lanka Accounting Standards (SLAS) issued by the Institute of Chartered Accountants of Sri Lanka and the requirements of the Companies Act No: 07 of 2007. Date of Authorization for issue

1.2.3

The financial statements of the company for the year ended 31st March 2012 were authorized for issue by the directors on 28th June 2012. 2.2 Basis of Preparation The financial statements have been prepared on the historical cost basis except for the revaluation of certain non-current assets and dealing securities. Historical cost is generally based on the fair value of the consideration given in exchange for assets. 2.3 Functional and presentation currency These financial statements are presented in Sri Lankan Rupees which is the Companys functional currency unless otherwise stated. 2.4 Going Concern The directors have made an assessment of the companys ability to continue as a going concern and they do not intend either to liquidate or to cease trading. 38

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

2.5

Comparative Information

Previous year figures have been re-classified whereever necessary, to conform to the current years presentation. 2.6 Significant Accounting Estimates and Assumptions In the selection and application of the Companys accounting policies the management is required to make judgments, assumptions and use assumptions that affect items reported in the financial statements. These estimates are based on managements knowledge of current facts and circumstances, and assumptions based on such knowledge and expectations of future events. Actual results may always differ from such estimates. Revisions to accounting estimates are recognized in the period in which the estimate is revised or in the period of the revision and future periods, only if the revision affects both current and future periods. The following are those items that the directors consider particularly susceptible to changes in estimates and assumptions. Item Policy Revaluation of property 3.5 Impairment of non financial assets 3.7 Depreciation of property and equipment 3.5 Deferred taxes 3.13.2 3 Significant Accounting Policies 3.1 3.1.1 Financial Investments Dealing Securities

Dealing securities are marketable securities listed on the Colombo Stock Exchange acquired and held with the intention of resale over a short period. These investments are carried in the balance sheet at the lower of cost and market value, determined on aggregate portfolio basis in total. 3.1.2 Investment Securities Investment securities are carried in the balance sheet at cost, which includes incidental costs of acquisition, less provision for any permanent diminution in value. The provision for permanent diminution in value is determined on an individual investment basis. 3.1.3 Securities sold under Repurchase Agreements (Repos) This relates to treasury bills and bonds sold subject to a commitment to repurchase them at a predetermined price. Such treasury bills and bonds remain on the balance sheet and the liability is recorded in respect of the consideration received. The liability is disclosed as borrowings under repurchase agreements. These treasury bills and bonds are not marked to market and the corresponding liability is also not marked to market.

Arpico Finance Company PLC Annual Report 2011/2012

39

Notes to the Financial Statements

3.1.4. Investment in Associate Company The results of associate are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with SLAS 38 Non-Current assets held for sale and discontinued operations. Under the equity method, investment in associate is carried in the Companys balance sheet at cost as adjusted for post-acquisition changes in the Companys share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Companys interest in that associate (which includes any long-term interests that, in substance, form part of the Companys net investment in the associate) are not recognized, unless the Company has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Companys share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognized at the date of acquisition as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Companys share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss. When the Company transacts with an associate, profits and losses are eliminated to the extent of the Companys interest in the relevant associate. Financial statements of the associate are prepared for a common financial year, which ends on 31st March. 3.2 Inventories 3.2.1 Real Estate Real estates represent land acquired for development and resale. These are carried at the lower of cost and net realizable value. Cost include the purchase price and legal expenses and subsequent expenditure incurred on development cost is determined by assigning the direct cost arising specific identification approach.. 3.2.2 Vehicles Vehicles acquired for leasing to customers and are carried at the lower of cost or net realizable value. 3.3.1 Loans and advances Loans and advances to customers represent loans and advances originated by the company and are recognized when cash is advanced to borrowers. They are initially recorded at the amount disbursed and subsequently reduced by provision for uncollectible loans and advances. They are de-recognized when either borrower repays their obligations, or the loans are written-off, or substantially all the risks and rewards of ownership are transfered. Fallen Due Rentals of Lease Fallen due rentals of lease represent the total sum of rentals fallen due for payment and left unpaid.

3.3.2

40

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

3.3.3

Hire Purchase Assets Assets hired to customers under hire purchase agreements, which transfer all the risks and rewards incidental to ownership as well as the legal title at the end of such contractual period, are classified as hire purchase receivables. Such assets are accounted for in a similar manner as those of finance lease. Finance Leases Leases that transfer substantially all the risks and rewards incidental to ownership of an asset to the lessee (customer) are classified as finance leases. Amounts due under such leases are recorded as receivables at the amount of the Companys net investment in leases. Property and Equipment

3.4

3.5

Land and buildings held for use in the supply of services, or for administrative purposes, are stated in the balance sheet at their cost or revalued amounts, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the balance sheet date. Any revaluation increase arising on the revaluation of such land and buildings is credited in equity to the properties revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged. A decrease in the carrying amount arising on the revaluation of such land and buildings is charged to profit or loss to the extent that the loss exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. Upon disposal or retirement of a revalued property, any corresponding revaluation surplus remaining is transferred to retained earnings.Each year the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the assets original cost is transferred from revaluation reserve to retained earnings. Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is charged to profit or loss so as to write off the cost or valuation of assets, other than freehold land and properties under construction, over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in such estimates accounted for prospectively. Depreciation is provided from the date the asset is available for use up to the date it is derecognized. The company provides depreciation for the following assets on the straight line method over the estimated useful life stated below: Useful Life Years Buildings 40 Motor vehicle 05 Office equipment 08 Computer Equipment 05 Furniture and fittings 10 Office lift 10
Arpico Finance Company PLC Annual Report 2011/2012

41

Notes to the Financial Statements

3.6 Intangible Assets 3.6.1 An intangible asset is an identifiable non monitory asset without physical substance held for use in the production or supply of goods or services, for rental to others or for administrative purpose. Computer Software All computer software costs incurred, licenced for use by the company, which are not integrally related to associated hardware, which can be clearly identified reliably measured and its probable that they will lead to future economic benefits, are recognized as an asset. Amortization of Computer Software

3.6.2

Computer software are amortized on a straight line basis, over the estimate useful economic life. The estimated useful life of software is five years. Amortization expense is included the profit or loss for the year. 3.7 Impairment of Non-Financial Assets At each balance sheet date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. 3.8 Cash and Cash Equivalents Cash and cash equivalents comprise cash in hand and demand deposits and short-term highly liquid investments, readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand and cash at banks net of outstanding bank overdrafts. Investments with short maturities i.e. three months or less from the date of acquisition are also treated as cash equivalents. 3.9 Other Receivables Other receivables balances are stated at the amounts expected to be received, after providing for doubtful receivables.

42

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

3.10

Customer Deposits

A liability is recognised when the Company receives a deposit from a customer under the terms and conditions specified. The liability is measured at the consideration received while interest payable if any are accrued on a time proportionate basis 3.11 Provisions Provisions are recognized 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. As per the provisions of Economic Service Charge Act No: 13 of 2006 amendments thereto, ESC is payable on the liable turnover at specified rates. ESC is deductible from the income tax liability. Any unclaimed liability can be carried forward and set-off against the income tax payable in the four subsequent years as per the relevant provision in the Act. 3.12 Retirement Benefit Obligations 3.12.1 Defined Benefit Plan Gratuity The company is liable to pay gratuity in terms of the Payment of Gratuity Act No. 12 of 1983, according to which an obligation to pay gratuity arises only on completion of 5 years of continued service. The Companys obligation under that the said Act is determined based on an actuarial valuation, using the projected unit credit method, carried out by a professional actuary once in every three years. Actuarial gains and losses that exceed 10 per cent of the present value of defined benefit obligation at the end of the prior period are amortized over the expected average remaining working lives of the employees. The liability is not externally funded. 3.12.2 Defined contribution plans EPF & ETF All employees of the company are members of the Arpico Employees Provident Fund (EPF) and Employees Trust Fund (ETF), to which the Company contributes 20% and 3% of their gross emoluments, respectively. These contributions are included in the income statement as an expense in the period in which the contribution was due. 3.13 Taxation 3.13.1 Current Taxes Current tax assets and liabilities consist of amounts expected to be recovered from or paid to the taxation authorities. The provision for current tax is based on the taxable profit for the year and computed based on the provisions of Inland Revenue Act No. 10 of 2006 and amendments thereto. Taxable profits differ from profit as reported in the Companys Income Statement because it exclude items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

Arpico Finance Company PLC Annual Report 2011/2012

43

Notes to the Financial Statements

3.13.2 Deferred Taxes Deferred taxes are recognised using the balance sheet liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for the financial reporting purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognised for temporary differences arising from goodwill or from initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax asset 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 tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current liabilities and when they relate to income taxes levied by the same taxation authority and intends to settle its current assets and liabilities on a net basis. Deferred tax relating to items recognized directly in equity is recognized in Equity and not in the income statement. 3.13.3 VAT on Financial Services VAT on financial services is calculated in accordance with the amended VAT Act No. 07 of 2003. 3.14 Revenue Recognition 3.14.1 Lease Income Finance income on leasing is recognised based on a pattern reflecting a constant periodic rate of return on capital outstanding. The excess on aggregate lease rentals receivable over the cost of the leased assets constitutes the total un-earned finance income at the commencement of a lease. The unearned finance income included in the lease rental receivable is not taken into revenue. Accounting for lease is done on the basis of the financing method. The excess of aggregated contract rental receivable over the cost of the lease assets constitute the total unearned income at the commencement of contract. The unearned income is recognized as income over the terms of the lease commencing from the month in which the lease is executed in proportion to the declining receivable balance of the lease, so as to provide a constant periodic rate of return of the lessors net outstanding of the lease. 3.14.2 Hire Purchase Income Income arising from the residual interest in the hire purchase agreement is credited to the income statement as occurring in proportion to, the declining receivable balance of the agreement.

44

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

3.14.3 Interest Income The interest income on fixed income securities is recognized on a time proportionate basis. Interest ceases to be taken in to revenue when the recovery of interest and/or principal is in arrears for six months. Interest receivable on loans and advances classified as debtors, if in arrears for over six (06) months (Rentals receivable on lease, loans and other advances), is accounted for on cash basis. Interest falling due from Hirers and Loans is credited to interest in suspense account after they are classified as non-performing. 3.14.4 Real Estate Revenue Revenue is normally recognized when properties are sold and the buyer has taken possession of such properties. (When there is insufficient assurance as to the receipt of the total considerations, income is accounted for on a cash basis.) Revenue is recognized in full on Land sales under Loans on Easy Payment contracts upon the receipt of 30 % down payment and signing of a formal easy payment agreement but before the transfer of property to the buyer. In case of early termination of the contract, the 30% down payment can be forfeited. The down payment is higher than the amount taken credit as profit and hence the reason for taking credit for profit in full. The company also has the right to resell the plot since the ownership is not transferred until the payment of all easy payment installments. 3.14.5 Easy Payment Income Easy payment income is recognized on an accrual basis. 3.14.6 Default Interest Default charges for late payment of finance lease rentals, easy payment rentals and hire purchase rentals are recognized as income on receipt basis. 3.14.7 Gains or Losses on Disposal of Property and Equipment The difference between the net selling price and the carrying amount is recognized in the income statement in the period in which the disposal occurs. 3.14.8 Sale and repurchase agreements Where treasury bills/bonds and other corporate debt securities are sold subject to a commitment to repurchase them at a predetermined price (Repo), the difference between sale and repurchase price is recognized as other income over the terms of the agreement using straight line method. 3.14.9 Trading income Gains or losses arising from the sale of investment securities and dealing securities are accounted in the income statement. 3.15 Expense Recognition a) Interest Expenses Interest expenses on customer deposits and borrowings are recognized using accrual basis.
Arpico Finance Company PLC Annual Report 2011/2012

45

Notes to the Financial Statements

3.16 Segment Reporting A segment is a distinguishable component engaged in providing services subject to risks and rewards that are different to those of other Segments. The primary format is based on the core businesses namely leasing, hire purchase, real estate and other financial products. The Companys activities are located only in Sri Lanka. Consequently, the economic environment in which the Company operates is not subject to risk and returns that are significantly different on a geographical basis. Hence, disclosure by geographical region has not been provided. Expenses directly identified to a particular segment are charged accordingly. Expenses that cannot be directly identified to a particular segment are allocated on bases decided by the management and applied consistently throughout the period. Financial information about business segments is disclosed in Note 40 to the financial statements. 3.17 Borrowing Cost Borrowing costs are recognized as an expense in the period in which they are incurred.

46

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

2011/2012 Rs. 4 Income Interest income Other income Trading income 5 Interest Income Finance lease Advances to customer Government securities and deposits with banks Other interest income 6 Interest Expenses Interest on deposits from customers Short term borrowings 7 Other Income Service charges Share trading income Dividend income Sundry income Insurance claim income Fixed asset disposal income Bad debts reversed/recovered 8 Operating Expenses Operating expenses include the following: Directors emoluments Directors fees Legal expenses Depreciation Auditors remuneration Donations Contribution to Arpico Employees Provident Fund Employers contribution to Employees Trust Fund Defined benefit plan cost - Retiring Gratuity

2010/2011 Rs

471,127,348 37,701,798 14,796,026 523,625,172

380,241,149 44,837,632 (11,944) 425,066,837

240,427,942 211,154,722 17,042,672 2,502,012 471,127,348

133,584,063 223,914,057 14,842,970 7,900,059 380,241,149

179,013,485 56,284,377 235,297,862

160,540,845 44,337,788 204,878,633

13,910,894 628,240 3,651,543 9,803,980 1,575,000 24,875 8,107,266 37,701,798

21,050,307 10,763,377 2,647,335 2,994,547 7,382,066 44,837,632

6,102,097 251,257 906,928 7,726,302 522,113 289,250 12,013,840 1,802,076 6,294,910

4,440,000 180,000 483,486 5,205,687 429,165 245,500 9,133,481 1,370,022 5,718,468

Arpico Finance Company PLC Annual Report 2011/2012

47

Notes to the Financial Statements

2011/2012 Rs. 9 Loan Losses and Provisions Provision for bad & doubtful debts: Hire Purchases Consent motion Lease Finance Pawning Advance Personal Loan

2010/2011 Rs.

3,012,469 5,420,357 4,213,839 114,542 12,761,207

2,387,725 2,500,634 4,177,596 5,163,276 11,495 14,240,726

10 Other Expenses Entertainment Subscriptions and donations General expenses Advertising Deposits - Insurance Commission on introducing business NBT Real estate expenses Legal expenses Out off pocket expense Badulla expenses Anuradhapura expenses Mulative - expenses Godagama - expenses Minuwangoda - expenses Ja - Ela - expenses Fall-in-value of shares Unadjusted difference Loss due to Maharagama hold-up 11 Income Tax Expenses 11.1 Charge to Taxation is as follows: Income tax for the period (Note - 11.2) Under/(Over) provision previous period Social Responsibility Levy Transfer / (Reversal) to / (from) deferred taxation (Note -11.3)

35,900 289,250 578,311 5,562,966 2,066,347 8,406,871 91,130 107,477 906,928 1,803,515 2,395,466 2,293,010 4,360,617 3,656,154 1,776,682 3,550 455,991 3,221,874 38,012,039

36,000 245,500 757,890 2,148,458 804,302 10,465,038 387,101 483,486 1,540,404 3,112,698 13,059 19,993,936

4,721,860 (787,365) 15,875,051 19,809,546

5,235,668 78,535 5,819,722 11,133,925

48

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

11.2 Reconciliation of Accounting Profit and Taxable Income Leasing Activities Profit before taxation Disallowable expenses Effect of allowable expenses Tax losses utilized Taxable income/(losses) Unutilized tax losses Income tax at 28% (Prior year 35%) Income tax for the year Effective tax rate

General Activities

2011/2012 Rs.

2010/2011 Rs.

27,790,674 18,487,370 46,278,042 31,004,326 509,401,306 17,569,585 526,970,891 317,590,329 (594,643,710) (10,112,667) (604,756,377) (325,580,730) - (9,080,501) (9,080,501) (8,054,873) (57,451,730) 16,863,787 16,863,787 14,959,052 64,229,382 148,576,275 212,805,657 164,709,167 4,721,860 4,721,860 5,235,668 4,721,860 4,721,860 5,235,668 10.20% 16.89%

11.3 Deferred Taxation 11.4 12

Temporary Differences

31.03.2012 Temporary Tax effect Differences

31.03.2011 Tax effect

Balance at the beginning of the period (Note 11.4) (131,755,213) (46,114,325) (148,382,990) (51,934,047) 37,121,645 15,875,051 16,627,777 Amount originated/ (reversed) 5,819,722 25,796,398 10,964,866 Adjustment through eqity statement (68,837,170) (19,274,408) (131,755,213) (46,114,325) Balance at the end of the period (Note 11.4) Deferred Tax arising from Accelerated depreciation for tax purpose Post employment retirement benefits Brought forward loss Timing difference Basic/Diluted Earnings Per Share Earnings per Share has been calculated by dividing the net profit attributable to ordinary shareholders after deducting dividend on preference shares by the weighted average number of ordinary shares in issue as at balance sheet date. 2011/2012 Rs. 32,044,949 (40,000) 32,004,949 4,462,500 7.17 2010/2011 Rs. 21,659,654 (40,000) 21,619,654 4,462,500 4.84 2011/2012 2010/2011 Rs. Rs. 165,083,002 49,636,551 (21,114,515) (16,682,597) (212,805,657) (164,709,167) (68,837,170) (131,755,213)

Profit after Taxation Dividends on Irredeemable Cumulative Preferences Shares Profit Attributable to the Ordinary Share Holders Weighted Average Number of Ordinary Shares used as Denominator (Note - 12.1) Basic /Diluted Earnings per Ordinary Share - Rs.

Arpico Finance Company PLC Annual Report 2011/2012

49

Notes to the Financial Statements

2011/2012 Rs. 12.1 Weighted Average Number of Ordinary Shares Qualifying ordinary shares at the beginning of the year Weighted average number of ordinary shares at the end of the year 4,462,500 4,462,500

2010/2011 Rs. 4,462,500 4,462,500

13 Dividend Per Share This note analyses the total dividend proposed for payment. There were no interim dividends paid to ordinary share holders during the year ended 31st March 2012. The final dividend declared for the year ended 31st March 2011 was paid during the current financial year. The total paid as previous year dividend amounts to Rs. 8,925,000/-. The Directors have recommended a final ordinary dividend of Rs. 2/- for the year ended 31st March 2012, which is to be approved at the annual general meeting to be held on 22nd August 2012. In accordance with SLAS 12 (Revised) Events after the Balance Sheet Date, the proposed final dividend had not been recognised as a liability as at 31st March 2012. However, for the purpose of computing divided per share, the final dividend to be approved has been taken into consideration. 2010/2011 2011/2012 Rs. Rs. 8,925,000 8,925,000 Dividends proposed 4,462,500 4,462,500 Number of ordinary shares 2 2 Dividend per share 31.03.2012 Rs 31,965,804 31,965,804 31.03.2011 Rs 46,388,885 46,388,885

14 Cash and Bank Balances Cash and bank balances 15 Government Treasury Bills and Bonds Treasury bonds REPO investments 16 Placement with banks and other financial institutions Banks Other finance companies

3,477,100 196,123,165 199,600,265 45,000,000 45,000,000

154,262,854 154,262,854 50,000,000 50,000,000

50

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

No. of 17 Dealing Securities Shares as at 31.03.2012 Bank, Financial & Insurance 3,750 Alliance Finance Co. PLC Seylan Bank PLC 24 DFCC PLC 5,700 Lanka Orix Leasing Company 800 LB Finance PLC 4,000 Citicenze Development Bank PLC 104,000 Peoples Leasing PLC Vanik Incorporation Ltd 86 Ordinary Shares 20 Nonvoting Class X 336 Redeemable debentures 1,961 Warrants Beverages, Food & Tobacco 21,600 Lanka Milk Foods PLC Chemical & Pharmaceuticals 42 Lankem Ceylon PLC 4,300 Chemanex PLC Hotel & Tourism 1,600 Sigiriya Village PLC 10,000 Hotel Corporation PLC 10,000 Serendib Hotels PLC (N/V) Power & Energy 8,000 Laugfs Gas PLC Manufacturing 19 Blue Diamond Jewellery PLC 11,900 ACL Cables PLC 104,000 Valible One LTD Motors Diesel & Motor Engineering PLC 1,122

Cost as at 31.03.2012

Rs. 195,474 1,551 511,869 113,335 283,139 1,872,000 2,155 200 33,600 8,400

Market No. of Cost as at Market Shares 31.03.2011 Value as at Value 31.03.2011 as at as at 31.03.2012 31.03.2011 Rs. Rs. Rs. 2,605,125 2,702 307,800 107,920 162,000 1,206,400 2,500 5,000 24 195,474 2,125,250 730,000 958,618 4,123 1,551 -

2,734,628

2,112,480

21,600

2,734,628 2,525,040

3,570 588,773

7,560 436,450

42 4,300

3,570 588,773

16,863 573,620

159,034 404,080 192,128

118,400 229,000 174,000

3,500 10,000 -

159,034 404,080 -

160,160 314,000 -

184,000

206,400

15,900

365,700

551,730

48 780,646 2,600,000

51 744,940 1,976,000

19 11,900 -

30 48 780,646 1,118,600 -

788,919

1,102,028

1,100

788,918 1,633,170

Land and Property 25,000 Seylan Developments PLC 479,309 Total 11,936,859 (240,102) Provision for diminution in market value 11,696,757 Dealing securities net of provision

197,500 11,696,757 11,696,757

6,981,040 9,752,586 6,981,040 9,752,586

Arpico Finance Company PLC Annual Report 2011/2012

51

Notes to the Financial Statements

31.03.2012 Rs. 18 Inventories Real Estate Trucks Three Wheelers 19 Loans and Advances to Customers Fallen due rentals on lease finance Term loans Hire purchases Facilities on real estate Consent motion loans Consent motion lease finance/hire purchases Pawning advances Foreclosed properties Gross loans and advances Specific provision for loans and advances Total provision for loan losses Loans and advances after provision Interest in suspense (Note - 19.3) Net loans and advances 19.1 Movement in Provision for Losses on Loans and Advances Balance at the beginning of the period Provision made during the period (Note 19.1.1) Fully provided loans written off Amount reversed during the period Balance at the end of the period (Note 19.2) 19.1.1 Total Provision for Loan Losses Specific provision charge/(release) for loans and advances Specific provision charge/(release) for hire purchases Specific provision charge/(release) for pawning advances Total provision made during the year for loans and advances Specific provision charge/(release) for leases Total provision made during the year

31.03.2011 Rs.

26,150,953 7,590,000 83,595,060 117,336,013

32,019,692 3,320,000 5,738,109 41,077,801

65,031,646 31,302,549 779,017,755 19,406,363 1,458,432 34,777,603 69,048,562 5,012,505 1,005,055,415 (18,542,787) (18,542,787) 986,512,628 (53,430,683) 933,081,946

65,753,855 22,747,904 603,505,365 28,404,346 1,700,545 47,046,028 143,815,986 7,807,682 920,781,711 (18,969,206) (18,969,206) 901,812,505 (66,651,447) 835,161,058

26,336,494 12,761,207 (6,594,730) (6,902,683) 25,600,288

20,373,891 14,240,726 (3,114,847) (5,163,276) 26,336,494

5,534,899 3,012,469 8,547,368 4,213,839 12,761,207

2,512,129 2,387,725 5,163,276 10,063,130 4,177,596 14,240,726

52

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

31.03.2012 Rs. 19.2 19.3 Provision for Losses on Loans and Advances Loans and advances to customers Finance leases Movement in Interest in Suspense Balance at the beginning of the period Interest suspended during the period Interest recovered/rebate during the period Balance at the end of the period 18,542,787 7,057,502 25,600,289 66,651,447 69,251,366 (82,472,130) 53,430,683

31.03.2011 Rs. 18,969,206 7,367,288 26,336,494 56,234,210 68,186,213 (57,768,976) 66,651,447

20 Net investment in leases Within one year One to five years Less: Unearned finance income Present value of minimum lease payments Allowance for uncollectible lease payments

Gross investment in lease 31.03.2012 Rs. 31.03.2011 Rs.

Present value of minium Lease payments 31.03.2012 Rs. 31.03.2011 Rs.

631,698,738 303,239,712 327,899,568 159,294,839 1,108,432,878 534,006,623 895,781,943 426,376,336 1,740,131,616 837,246,335 1,223,681,511 585,671,175 (516,450,105) (251,575,160) 1,223,681,511 585,671,175 1,223,681,511 585,671,175 (7,057,502) (7,367,288) (7,057,502) (7,367,288) 1,216,624,009 578,303,887 1,216,624,009 578,303,887

31.03.2012 Rs. 20.1 21 Movement in Provision for Loan Lossess Balance at the beginning of the period Provision made (reversal) during the period Balance at the end of the period Other Receivables Interest receivable Advance, deposit and prepayment Amount due from related parties Other receivables 7,367,288 (309,786) 7,057,502

31.03.2011 Rs. 5,793,810 1,573,478 7,367,288

6,017,658 32,372,628 1,020,978 22,952,000 62,363,264

9,133,811 37,287,348 174,926 6,460,805 53,056,890

Arpico Finance Company PLC Annual Report 2011/2012

53

Notes to the Financial Statements

22 Income Tax Refund Due Balance at the beginning of the period Add:- Tax credits Economic Service Charges With-holding Tax Notional tax credit ACT Add :- Income tax payments Self assessment payment Social Responsibility Levy Gross refund during the period Provision for Taxation (Under) / over provision previous year Social Responsibility Levy Balance at the end of the period 23 Investment Securities Listed equity securities (Note -23.1) Unlisted equity securities (Note -23.2) No: of Shares 1,250 6,839 1,749 24 133 600 5,000 95,485 86 20 336 1,961 450 2,000 10,000 Cost as at 31.03.2012 Rs. 12,500 50,000 6,937 2,400 38,395 125,000 1,562,450 3,422 111,665 91,800 2,004,569 (8,282) (720) (3,422) (111,665) (91,800) (215,889) 1,788,680

31.03.2012 Rs. 20,585,031 7,806,227 319,603 1,526,105 75,100 30,312,066 (4,721,860) 787,365 26,377,570 1,788,680 26,247,251 28,035,931 Market Value as at 31.03.2012 Rs. 1,015,625 41,718 52,645 1,680 60,900 444,500 3,867,143 5,484,210 Cost as at 31.03.2011 Rs. 12,500 50,000 6,937 2,400 15,900 38,395 125,000 781,250 2,155 200 33,600 8,400 3,422 111,665 91,800 1,283,624 1,283,624

31.03.2011 Rs. 17,631,499 5,721,289 862,190 1,281,947 402,309 25,899,234 (5,235,668) (78,535) 20,585,031 1,283,624 26,136,828 27,420,452 Market Value as at 31.03.2011 Rs. 912,500 20,517 64,713 2,306 21,586 80,040 515,000 6,406,250 8,022,912

23.1

Listed Equity Securities Ceylinco Insurance PLC Blue Diomands Jewellery World Wide Ltd The Finance Company PLC Central Industries PLC Aitken Spence PLC Chemanex PLC Sinhaputhra Finance Company PLC Citizence Development Bank PLC Vanik Incoperation PLC Ordinary Shares Nonvoting Class X Redeemable debentures Warrants Pure Beverages Co. PLC Lanka Carbons Ltd Carsons Marketing PLC

Provision for fall-in-value of investments Blue Diomands Jewellery World Wide Ltd Central Industries PLC Pure Beverages Co. PLC Lanka Carbons Ltd Carsons Marketing PLC Investment securities net off provision 54
Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

No. of Shares 23.2 Unlisted Equity Securities Alliance Agencies Limited Orient Food Processors (Lanka) Ltd Ranweli Holiday Village Limited Mercantile Credit Limited Credit Information Bureau of Sri Lanka Unit Trusts Finance House Consortium Ltd MBSL Savings Bank Nation Lanka Equities (Pvt) Ltd Alfinco Insurance Brokers Valliable One PLC

Cost as at 31.03.2012 Rs. 18,215 188,495 14,700 250,000 200,000 625,000 5,928,600 19,712,500 26,937,510

Cost as at 31.03.2011 Rs. 18,215 50,000 151,670 2,492 14,700 250,000 200,000 625,000 1,500,000 21,500,000 2,600,000 26,912,077

1,303 5,000 40,444 231 147 17,819 20,000 62,500 514,289 2,150,000 104,000

Provision for-fall-in value of Investments Orient Food Processors (Lanka) Limited Ranweli Holiday Resorts Limited Mercantile Credit Limited MBSL Savings Bank Nation Lanka Equities (Pvt) Ltd Investment securities net off provision

(588,125) (102,134) (690,259) 26,247,251

(49,999) (32,500) (2,491) (588,125) (102,134) (775,249) 26,136,828 Restated 31.03.2011 Rs

31.03.2012 Rs 24 Investment in Associate Company Balance at the beginning of the year Prior period adjustment Share of profit after tax Dividend received

5,041,715 5,576,454 (438,750) 10,179,419

5,441,671 (1,838,209) 1,789,253 (351,000) 5,041,715

Arpico Finance Company PLC Annual Report 2011/2012

55

Notes to the Financial Statements

Note - Previous year figures have been restated due to correction in the profit share of associate company. Details of the Companys Investment in Associates is as follows: 31.03.2012 31.03.2011 Rs Rs

Name of Associate Alfinco Insurance Brokers (Pvt) Ltd

Ownership Interest 39% 39%

Summarised Financial Information of Associate Assets and Liabilities as at 31st March Total Assets Total Liabilities Net Assets Redeemable Preference Shares Net Assets after Redeemable Preference Shares Revenue and Profit for the Year Ended Total Revenue Profit before Tax Profit after Tax

96,666,497 77,058,198 (31,140,424) (21,130,726) 65,526,073 55,927,472 (39,425,000) (43,000,000) 26,101,073 12,927,472

44,216,051 33,809,761 16,115,406 9,304,986 14,423,600 4,687,828

25

Deferred Taxation 46,114,325 51,934,047 Balance brought forward (4,844,696) Deferred tax adjustment relating to revaluation on building in prior periods Deferred tax adjustment relating to revaluation on building in current year (7,723,170) 1,603,000 Deferred tax relating to additional depreciation on revaluation (15,875,051) (5,819,722) Originated/(reversed) during the year - (Note - 11.3) 19,274,408 46,114,325 Balance carried forward

56

Arpico Finance Company PLC Annual Report 2011/2012

Land Rs. 59,025,000 38,047,809 21,375,000 27,582,751 - (12,427,288) 80,400,000 53,203,272 16,689,210 6,431,178 (102,299) 23,018,089 2,359,802 143,490,362 - 14,178,755 - 48,957,751 - (12,427,288) - (102,299) 2,359,802 194,097,280 2,359,802 29,901,832 - 7,726,299 - (12,427,288) - (102,299) 2,359,802 25,098,543 - 168,998,737 - 113,588,530 4,759,032 1,839,219 (102,299) 6,495,951 16,522,137 11,930,178 5,902,726 3,636,024 8,722,335 6,781,662 4,248,267 5,643,000 3,166,598 7,628,257 810,821 2,729,381 3,977,419 10,357,638 513,000 1,394,733 1,907,733 6,802,622 14,409,919 3,077,523 4,670,054 9,880,145 19,079,973 6,156,000 6,156,000 - 11,475,143 952,145 - 12,427,288) 80,400,000 59,025,000 53,203,272 26,572,666 Rs. Total Rs.

26 Property and Equipment Cost or Valuation Balance as at 31 April 2011 Additions Revaluation reserve Transfer depreciation on revaluation Disposals Balance as at 31st March 2012 Accumulated Depreciation Balance as at 01st April 2011 Depreciation charge for the year Transfer depreciation on revaluation Disposals Balance as at 31st March 2012 Carrying Amount As at 31.03.2012 As at 31.03.2011

Buildings Furniture Office Computer & Fittings Equipment Equipment Rs. Rs. Rs. Motor Office Lift Vehicle Rs. Rs.

The carrying amount of the freehold properties, if they were carried at cost less accumulated depreciation would have been as follows:

Cost and Accumulated Depreciation of the Valued Assets

Notes to the Financial Statements

Land Buildings Accumulated depreciation on building

31.03.2012 Rs. 1,115,000 10,302,484 (5,669,065) 5,748,419

31.03.2011 Rs. 1,115,000 10,302,484 (5,256,965) 6,160,519

An independent valuation of the companys land and building was performed by Messers A.Y. Daniel & Sons to determine the fair value of the land and buildings. The effective date of the valuation is 31st March 2012.

Details of the land and building hold by the company is as follows:

Arpico Finance Company PLC Annual Report 2011/2012

Extent

57

18.3 Pcs

Number of buildings Carrying value as at 31st March 2012 Rs. 01 85,597,666

Notes to the Financial Statements

31.03.2012 Rs 27 Intangible Assets Computer Software Cost Balance as at 1st April Reclassified from property, plant and equipment Additions Balance as at 31st March 28 Amortization Balance as at 1st April Reclassified from property, plant and equipment Amortisation Balance as at 31st March Carrying amount Balance as at 1st April Balance as at 31st March Bank Overdraft Seylan Bank - A/c No: 0830 325002 001 Union Bank - A/c No: 4206200018

31.03.2011 Rs.

3,581,359 3,581,359

3,581,359 3,581,359

1,390,464 716,272 2,106,736 2,190,895 1,474,623

674,192 716,272 1,390,464 2,190,895

28,633,220 18,353 28,651,573

29

Customer Deposits Term deposits

1,699,257,579

1,251,714,232

30 Interest bearing Loans and Borrowings Balance at the beginning of the period Loans obtained during the period Loans repayment during the period Balance at the end of the period

311,128,684 505,000,000 (231,249,004) 584,879,680

172,490,206 349,036,672 (210,398,194) 311,128,684

30.1 Details of Interest Bearing Borrowings Securitization Loan - Deutsche Bank PLC (Trustee) Term Loan - Seylan Bank Bank Loan - NDB Bank Loan - HNB Commercial papers

201,612,952 147,316,728 160,950,000 50,000,000 25,000,000 584,879,680

120,891,259 190,237,425 311,128,684

58

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

30.2

Details of Assets Pledged Name of Bank i) Deutsche Bank PLC (Trustee) Nature of Liability Securitization Loan Facility 200 Mn Security Pledged Mortgage over the receivables due to the Company and the motor vehicles leased and/ o r h i r e d a n d i r r e vo c a b l y appoint the trustee as its Attorney to receive the monies due to and receivable by the Company. 1. Assignment over performing lease and hire purchase agreements with a special power of attorney up to a maximum of LKR 300 Mn. 2. Letter of undertaking confirming that the company will settle the full outstanding or substitute same with performing leases if a particular lease matures or falls in to arrears for more than 03 months. 1. Agreement to Mortgage over Lease/ Hire Purchase receivable due to specific lease contracts and hire purchase contracts having a Lease/ Hire Purchase receivable value aggregating for LKR 240 Mn together with Supplementary Mortgage Bonds to be executed bi annually to ensure that the portfolio of Lease/ Hire Purchase receivable is maintained at LKR 240 Mn. 2. Irrevocable Power of Attorney in favour of the Bank Primary floating mortgage bond for LKR 25 Mn over current lease/hire purchase receivable having a minimum total value of LKR 33 Mn. Primary mortgaged bond for LKR 30 Mn, secondary mortgaged bond for LKR 11 Mn and teritary mortgage bond for LKR 14 Mn over property at Havelock Road, Colombo - 5. 59

ii) Seylan Bank

Term loan

200 Mn

iii) NDB

Medium term loan

200 Mn

iv) Union Bank

Overdraft facility

25 Mn

v) Seylan Bank

Overdraft facility

55 Mn

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

31.03.2012 Rs 31 Trade and Other Payables Interest payable on deposits Purchase creditors Lumpsum advances - Threewheelers Advances from real estate projects Accrued expenses Miscellaneous Amount due to related parties Damages payable to Maharagama pawning clients 54,031,695 40,662,829 757,985 44,659,391 19,684,371 45,828 3,096,076 162,938,175

31.03.2011 Rs 44,917,359 23,228,340 783,716 548,057 35,591,970 16,438,190 45,828 121,553,460

32 32.1

Retirement Benefit Obligations Present value of unfunded defined benefit obligation Movement in the present Value of Benefit Obligation Opening defined benefit obligation Current service cost Interest cost Acturial/(gain) or loss Benefit paid Closing defined benefit obligation

21,114,515 21,114,515 16,682,597 3,473,849 1,835,086 985,975 (1,862,992) 21,114,515

16,682,597 16,682,597 12,939,005 1,905,089 1,552,680 2,260,699 (1,974,876) 16,682,597

Messrs Actuarial & Management Consultants (Pvt) Limited, actuaries carried out an actuarial valuation of the defined benefit plan gratuity on 31st March 2012. Appropriate and compatible assumptions were used in determining the cost of retirement benefits. The principal actuarial assumption used were as follows: Discount rate Future salary increases 11.5% 9%

In addition to above demographic assumptions such as mortality, withdrawal, and retirement age were considered for the actuarial valuation. In 2009, 1967/70 mortality table was used by the Institute of Actuaries London was taken as the base for the valuation.

60

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

33 Stated Capital Ordinary Shares Balance at the beginning of the period Balance at the end of the period Preference Shares 50,000 Irredeemable cumulative preference shares

31.03.2012 Rs 95,812,500 95,812,500 500,000 96,312,500

31.03.2011 Rs 95,812,500 95,812,500 500,000 96,312,500

34 Statutory Reserve Fund A statutory reserve fund to secure the deposit holders of the company was created under the directions issued by the Central Bank of Sri Lanka under Finance Companies Act No. 78 of 1988 and Finance Companies (capital funds) Direction No. 01 of 2003. Funds are transferred to reserve fund out of the net profit of each year based on the criteria specified in the said direction. 35 Investment Fund As proposed in the budget proposals of 2011 every person or partnership who is in the business of banking or financial service is required to establish and operate an Investment Fund Account. As and when taxes are paid after 1st January 2011, Registered Finance Companies (RFCs) and Specialized Leasing Companies (SLCs) are required to transfer the funds to the Investment Fund Account and build a permanent fund as explained below: 8% of the profits calculated for the payment of Value Added Tax (VAT) on financial services on dates as specified in the VAT Act for payment of VAT. 5% of the profit before tax calculated for payment of income tax purpose on dates specified in Section 113 of the Inland Revenue Act for the self assessment payments of tax. 36 36.1 Revenue Reserves Dividend equalization reserve - (Note - 36.1) General reserve - (Note - 36.2) Retained profit - (Note - 36.3) Dividend Equalization Reserve Dividend equalization reserve represents the amount set aside by the Directors from its retained earnings for future dividends payable. 36.2 General Reserve General reserve represents the amount set aside by applications. the directors for general 31.03.2012 Rs 72,500 22,035,535 101,526,496 123,634,531 31.03.2011 Rs 72,500 22,035,535 85,042,804 107,150,839

Arpico Finance Company PLC Annual Report 2011/2012

61

Notes to the Financial Statements

36.3

Retained Profit This represents the undistributed earnings held by the Companys operations . This could be used to absorb future possible losses or dividends payable.

37

Contingencies and Commitments Contingent Liability A case was filed in the district court demanding damages for misplacing or misusing a certificate of registration (C/R) of a settled contract. Presently there is a case pending in the magistrate court against the suspects of the fraudulent transaction and the company had not been identified as a suspect in the said case. The company is contesting the Magistrate court case on the grounds that the company was not involved in any fraudulent transaction.

Contingent Asset The company has filed a case in Colombo Magistrate Court through the fraud bureau regarding the loss that occurred in Mattakkuliya Pawning Center. The case came up in the Magistrate Courts Colombo on 08th June 2012. The productions were produced to the courts custody through the police and Magistrate ordered the police to obtain a report regarding all productions through the Gem and Jewellery Authority. The case will be called again on 19th October 2012. Other than stated above, there are no contingencies and capital commitments as at the balance sheet date.

38

Events after the Balance Sheet Date The directors have recommended the payment of a final dividend of Rs 2/- per share for the year ended 31st March 2012 (2010/2011 - Rs. 2/- per share) which requires the approval of shareholders at the Annual General Meeting to be held on 22nd August 2012. No other events have occurred since the balance sheet date which would require adjustments to, or disclosure in the financial statements. Related Party Transactions The Company carries out transactions in the ordinary course of business in an arms length basis at commercial rates with related parties . Transactions with related parties listed below have been at commercial rates.

39

39.1 Transactions with Directors and Other Key Managerial Persons (KMPs) Key Managerial Persons Related parties include Key managerial personnel defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Company and its related companies. Such key managerial persons include the Board of Directors of the Company, key employees who are holding directorship in other related companies of the Company and other key executives who meet the criteria described above.

62

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

Transaction with Key Managerial Persons. Nature of Transaction Amount (Rs.) Directors fee 251,257.00 Emoluments 6,102,097.00 Other emoluments 1,282,897.00 Directors shareholdings Number of Shares as at 31.03.2012 100 4,492 11,100 2,710 100 100

Name of Director Mr B. Ponnambalam Mr S. R. Bandaranayake Mr W. J. D B L. Jayalath Ms R. E. Weerasinghe Mr Lyle D. Peiris Mr N. M. Peiris The following directors ceased holding office during the year: Mr. J.E.P.A. de Silva Mr R. K. E. P. de Silva Mr D. L. S. R. Perera

Arpico Finance Company PLC Annual Report 2011/2012

63

64

39.2

Transactions with related entities

Arpico Finance Company PLC Annual Report 2011/2012

The aggregate value of transactions and outstanding balances relating to entities over which the directors have significant influence are as follows:-

Notes to the Financial Statements

Name of the Company Alfinco Insurance Brokers (Pvt) Ltd Alliance Management Services (Pvt) Ltd Alliance Finance Company PLC Alliance Tech Trading (Pvt) Ltd

Relationship Name of Directors Nature of Transactions Transaction Outstanding As a % of Capital Value - Rs. Amount - Rs. Funds 19,712,500 Associate Mr R.K.E.P. de Silva 5.25% Redemption of preference shares invested in Alfinco 1,787,500 Mr D.L.S.R. Perera Receipt of preference dividend 2,128,500 Mr S.R. Bandaranayake Receipt of ordinary dividend 438,750 8,235 Courier charges 8,235 Management fees 2,677,987 Affiliate Mr J.E.P.A. de Silva Payment of secretarial fees 288,000 Mr R.K.E.P. de Silva Payment of professional fees 1,045,966 Mr D.L.S.R. Perera Affiliate 878,976 Mr J.E.P.A. de Silva Receipt of chief operating officers share of cost 3,116,292 130,767 Mr R.K.E.P. de Silva Receipt of K.H. Fernandos share of cost 130,767 3,000 Mr D.L.S.R. Perera Deposit - Mobile phone payment of share of Affiliate Mr J.E.P.A. de Silva 45,828 Rent advance - refundable Mr R.K.E.P. de Silva Mr D.L.S.R. Perera

Notes to the Financial Statements

40. Segment Information Assets Leasing Hire Purchase and EP Investment in fixed deposits with banks Investment in government securities Other financial products Real Estate Turnover Leasing Hire Purchase and EP Investment in fixed deposits with banks Investment in government securities Other financial products Real Estate Income Leasing Hire Purchase and EP Investment in fixed deposits with banks Investment in government securities Other financial products Trading Income

31.03.2012 Rs. 1,216,624,009 785,698,677 45,000,000 199,600,266 142,370,764 31,163,458 2,420,457,174

% 50.26 32.46 1.86 8.25 5.88 1.29 100.00

31.03.2011 Rs. 578,303,887 571,493,177 50,000,000 154,262,854 251,997,093 39,827,374 1,645,884,385

% 35.14 34.72 3.04 9.37 15.31 2.42 100.00

442,401,443 482,044,717 3,348,003 13,694,670 63,117,750 1,639,074 1,006,245,657

43.97 47.91 0.33 1.36 6.27 0.16 100.00

290,697,252 505,463,095 2,023,499 12,819,471 88,796,220 13,053,657 912,853,194

31.84 55.37 0.22 1.40 9.73 1.43 100.00

240,427,942 164,449,877 3,348,003 13,694,670 63,117,750 14,796,026 499,834,268

48.10 32.90 0.67 2.74 12.63 2.96 100.00

133,584,063 164,068,203 2,023,499 12,819,471 88,796,220 (11,944) 401,279,512

33.29 40.89 0.50 3.19 22.13 100.00

Arpico Finance Company PLC Annual Report 2011/2012

65

66 Note Less than 03 Months Between 03 to 12 Months Between 01 to 03 years Between 03 to 05 years More than 05 years Total as at 31.03.2012 14 15 16 17 18 19 20 21 22 23 24 25 26 27 31,965,804 196,606,099 27,500,000 72,696,500 183,204,495 81,171,463 18,782,168 611,926,529 579,516 17,500,000 11,696,757 44,639,513 152,765,547 243,514,388 34,144,517 26,377,570 531,217,809 1,738,549 307,699,827 489,878,324 1,357,479 1,474,623 802,148,802 676,102 275,631,815 402,059,834 8,004,200 686,371,951 13,780,262 74,900 28,035,931 10,179,419 19,274,408 168,998,737 240,343,657 31,965,804 199,600,266 45,000,000 11,696,757 117,336,013 933,081,946 1,216,624,009 62,363,264 26,377,570 28,035,931 10,179,419 19,274,408 168,998,737 1,474,623 2,872,008,746 28 29 30 31 32 28,651,573 514,834,164 101,663,250 62,878,034 708,027,021 934,902,393 308,721,702 73,321,333 876,280 1,317,821,708 214,314,430 174,494,728 18,466,383 1,390,500 408,666,041 35,206,592 2,676,026 25,875 37,908,493 5,596,399 18,821,860 24,418,259 28,651,573 1,699,257,579 584,879,680 162,938,175 21,114,515 2,496,841,522

Arpico Finance Company PLC Annual Report 2011/2012

Notes to the Financial Statements

41 Maturity Analysis Assets Cash and bank balances Treasury bills and bonds Placement with financial institutions Commercial papers Dealing securities Inventories Loans and advances to customers Net investment in lease Other receivables Income tax refund due Investment securities Investment in associate company Deferred taxation Property and equipment Intangible assets Total Assets Liabilities Bank overdraft Customer deposits Interest bearing borrowings Trade and other payables Retirement benefit obligations Total Liabilities

Financial Highlights
Analysis of Income Lease Hire purchase & EP Fixed Deposits & Government Securities Other Financial Product Other Income 2012 Rs 240,427,942 164,449,878 17,042,673 77,913,776 23,790,904 523,625,173 % 46% 31% 3% 15% 5% 100%

Analysis of Income
Fixed Deposits & Government Securities 3% Other Financial Product 15%

Hire purchase & EP 31% Other Income 5%

Lease 46% Earning Per Share (Rs.)


10 150

Net Assets Per Share (Rs.)

120

Value (Rs.)

Value (Rs.)

90

60

30

2008

2009

Year

2010

2011

2012

0 2008

2009

Year

2010

2011

2012

Share Holders Funds (Rs. Mn)


500

Return on Share Holders Funds (%)


15

400

12

Value (Rs. Mn)

Value (%)

300

200

100

2008

2009

Year

2010

2011

2012

2008

2009

Year

2010

2011

2012

Arpico Finance Company PLC Annual Report 2011/2012

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Ten Years Summary

For Year Ended 31st March Restated OPERATING RESULTS Profit before Tax Less : Tax Profit after Tax BALANCE SHEET Assets Investments and Cash Receivables Stocks Debtors Property & Equipment 81.64 33.15 355.37 6.52 49.77 526.45 Liabilities Term Deposits Bank Overdraft Creditors & Other Liabilities Shareholders Funds NO. OF SHARES 416.16 0.00 65.99 482.15 44.30 427.34 0.00 57.39 484.73 52.50 413.55 10.41 84.35 508.31 65.70 464.43 19.70 97.77 581.90 138.31 720.21 541.86 63.54 75.49 680.89 194.35 767.47 14.16 101.18 169.05 32.04 280.91 7.33 47.90 537.23 103.56 39.51 377.66 7.07 46.21 574.01 89.40 43.39 480.93 9.05 97.44 720.21 111.69 98.46 557.64 10.81 96.64 172.34 93.57 715.14 12.84 96.01 322.24 126.30 2003 (10.65) 0.00 (10.65) 2004 10.95 0.00 10.95 2005 20.43 (4.83) 15.60 2006 27.03 (4.68) 22.35 2007 20.93 (4.63) 16.30 2008 20.13 (5.11) 15.02 2009 15.56 (3.37) 12.19

(in Rupees Million)


2010 9.30 2.42 11.72 2011 32.79 (11.13) 21.66 2012 51.85 (19.81) 32.04

220.12 69.56

330.09 66.70 1,454.54 53.06 115.78 2,020.17

326.46 45.64 2267.02 62.36 170.46 2872.01

818.74 1,153.15 44.00 25.80 100.97 109.08

875.24 1,089.90 1,394.05 1,595.91

796.12 1,003.34 27.66 283.79

1,251.71 449.37 1,701.08

1699.25 28.65 768.94 2496.84

276.49 882.81 1,100.27 1,287.13

308.78 319.09 375.17 207.09 293.78 875.24 1,089.90 1,394.05 1,595.91 2,020.17 2,872.01 1,575,000 1,575,000 1,575,000 1,575,000 1,575,000 1,575,000 4,462,500 4,462,500 4,462,500 4,462,500 526.45 537.23 574.01

INDICATORS OF PERFORMANCE 20.87 Return on Shareholders Funds % (25.58) Return on Total Assets % Earnings Per Share (Rs.) Net Assets Per Share (Rs.) Dividend Payout Ratio (%) Gross Dividend (Rs. Mn) Dividend Per Share (Rs.) (2.02) (6.77) 28.12 2.04 6.95 33.31 21.55 2.36 1.50

23.74 2.72 9.88 41.71 20.19 3.15 2.00

16.16 3.10 14.16 87.81 21.12 4.72 3.00

9.80 2.04 10.33 123.40 24.17 3.94 2.50

7.48 1.53 9.51 131.48 36.68 5.51 3.00

4.87 0.98 6.81 65.83 54.88 6.69 1.50

3.89 0.78 2.62 69.19 38.05 4.46 1.50

6.89 1.19 4.84 71.51 41.32 8.93 2.00

9.22 1.31 7.17 84.07 27.89 8.93 2.00

Earnings Per Share = Net Assets Per Share = Dividend Per Share = Dividend Payout Ratio =

(Net Profit After Taxation - Preference Dividends) / No.of Ordinary Shares in Issue Share holders funds /No. of Ordinary shares in issue Dividend paid (gross) / No. of Ordinary shares in issue Dividend paid (gross)/ Profit after Taxation

2010/2011 2011/2012 (Rs.) (Rs.) Highest Value Recorded During the year 261.00 134.90 Lowest Value Recorded During the year 64.25 88.00 Market Value as at 31st March 114.70 93.00

MARKET VALUE PER SHARE DURING THE YEAR

68

Arpico Finance Company PLC Annual Report 2011/2012

The Human Capital


AS AT 31st March 2012

Nos. Total No. of Staff Management Structure Senior Management Middle Management Executives Clerical & Other Professionals in Management Attorneys at Law Qualified Accountants Graduates MBA Holders Other Professionals Functional Analysis Administration Dept. Human Resources Dept. Legal Dept. Deposits Dept. Credit Marketing Finance Dept. Recoveries Dept. Information Technology Pawning Branches Working Directors 228

6 22 187 13

5 2 14 3 9

5 3 11 11 53 19 22 03 26 72 03 228

Arpico Finance Company PLC Annual Report 2011/2012

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Form of Proxy

I/We ..................................................................................................................................................... (in block letters) of ........................................................................................................................................................ being a member/members of the above-named Company hereby appoint Brihadisvara Ponnambalam, or failing him, Hafeez Rajudin, or failing him, Weheragoda Jayalathge Don Bede Lloyd Jayalath, or failing him, Ruvini Eroshini Weerasinghe, or failing her, Lyle Dennis Peiris, or failing him, Nilanka Mevan Pieris, or failing him, .......... ........................................ of ...........................................................NIC No. .................................... as my/our proxy to represent me/us and to *vote for me/us on my/our behalf at the Sixty First Annual General Meeting of the Company to be held on 22nd August, 2012 and at any adjournment thereof and at every poll which may be taken in consequence thereof.

For

Against

1. Resolution No.1 The Ordinary Resolution No.1 set out in the Notice convening the aforesaid Meeting. 2. Resolution No.2 The Ordinary Resolution No.2 set out in the Notice convening the aforesaid Meeting. 3. Resolution No.3 The Ordinary Resolution No.3 set out in the Notice convening the aforesaid Meeting. 4. Resolution No.4 The Ordinary Resolution No.4 set out in the Notice convening the aforesaid Meeting. 5. Resolution No.5 The Ordinary Resolution No.5 set out in the Notice convening the aforesaid Meeting. 6. Resolution No.6 The Ordinary Resolution No.6 set out in the Notice convening the aforesaid Meeting. 7. Resolution No.7 The Ordinary Resolution No.7 set out in the Notice convening the aforesaid Meeting. Signed this ........................................... day of ........................................2012. .................................. Shareholder N.I.C. No./Co. Reg. No./P.P. No. Signature Instructions as to completion of Form of Proxy given overleaf

Arpico Finance Company PLC Annual Report 2011/2012

form of proxy

INSTRUCTIONS AS TO COMPLETION OF THE FORM OF PROXY 1. A Proxy holder need not be a member of the Company. 2. The Full Name and the Address of the Proxy holder and of the Shareholder appointing the Proxy should be entered legibly in the Form of Proxy. Please perfect the Form of Proxy, by signing in the space provided and filling in the date. 3. To be valid, the completed Form of Proxy should be deposited at the Office of the Company Secretaries, No.84, Ward Place, Colombo 7, 48 hours before the time appointed for the holding of the meeting. 4. In the case of a Company or a Corporate Body, the Form of Proxy should be executed under its Common Seal which should be affixed and attested in the manner prescribed by its Articles of Association. 5. If the Form of Proxy has been signed by an Attorney, the relative Power of Attorney should also accompany the completed Form of Proxy for registration, if such Power of Attorney has not already been registered with the Company. 6. If there is any doubt as to how the vote is to be exercised by reason of the manner in which the Form of Proxy has been completed, the Proxy holder will vote as thought fit.

Note: If you wish your proxy to speak and vote at the Meeting you should interpolate the words to speak and in the space indicated with an asterisk and initial such interpolation.

Arpico Finance Company PLC Annual Report 2011/2012