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238 Pages·2014·9.74 MB·English

ANNUAL REPORT 2013/14
L B Finance PLC
No. 275/75, OPA Building,
Prof. Stanley Wijesundara Mawatha, Colombo 07, Sri Lanka.
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This is an Integrated Annual Report capturing economic, social and environmental value creation of L B Finance PLC
CONTENTS
PREAMBLE MANAGEMENT DISCUSSION AND ANNEXES
ANALYSIS
About Us 02 Awards and Accolades 215
About this Report 03 DERIVING VALUE Ten Year Summary 216
Strategic Goals 05 Outlets 219
Financial Capital 32
Highlights of the Year 06 List of Abbreviations 223
Institutional Capital 41
Independent Assurance Report on Sustainability 224
GRI Content Index 226
DELIVERING VALUE
MESSAGES Glossary of Terms 230
Investor Capital 44
Letter from the Chairman 08 Notice of Annual General Meeting 232
Customer Capital 48
Managing Director’s Review 12 Form of Proxy Enclosed
Employee Capital 57
Business Partner Capital 65
Legislator and Regulator Capital 66
BUSINESS MODEL
Social and Environmental Capital 67
Operating Environment 18
Organisational Profile 20
Operating Structure 21 STEWARDSHIP
Our Strategy 22
Board of Directors 72
Stakeholders 25
Senior Management 78
Materiality 28
Corporate Governance 82
Management Approach 30
Remuneration Committee Report 114
Nomination Committee Report 115
Audit Committee Report 116
Risk Management 118
FINANCIAL REPORTS
Annual Report of the Board of Directors
on the Affairs of the Company 138
Directors’ Responsibility Statement
on Internal Control 143
Statement of Directors’ Responsibilities 144
Independent Auditors’ Report 145
Financial Statements 146
Notes to the Financial Statements 151
Scan to view the PDF version of this Annual Report
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Ahead
The many complexities of being in business in the financial services
industry are truly intriguing.
On the one hand, there are a large number of players in a small market,
making the industry a highly competitive one. On the other, with low
returns on assets resulting from relatively lower net interest margins,
players in the industry need to gear themselves up to operate with high
volumes to generate an acceptable return on capital employed.
We grasped the reality that critical mass would be necessary for us to be
truly successful and accordingly, shifted our overall strategy from one of
being margin driven to one driven by volume.
At a time when financial products are commoditising faster than ever
and financial intermediation is being circumvented, we have successfully
differentiated our offering and remained relevant. With ever tightening
regulations and the provision of financial services becoming a capital
intensive industry, we maintain comfortable levels of capital to remain
safe and stable. We are not daunted by the prospect of making mistakes
and can clearly see opportunity in adversity.
We are very focused on a few goals and pursue them with every sinew
over time. We have been constantly honing the behavioural reflexes
essential to our success.
Our goals are well-defined and we plan well ahead. We know our
priorities and clearly perceive that some tasks are more important
than others…some more urgent than others…and some more relevant
than others.
We are trending ahead…to become the most respected and sought
after creator of wealth in Sri Lanka. In the process, we have made a
difference in the lives of our stakeholders.
PreambLe
about uS
L B Finance PLC (LBF) is a licensed finance company. It was incorporated in May 1971 as a private limited liability company
and subsequently converted to a public limited liability company in 1982. The Company was listed on the Colombo Stock
Exchange in 1998 and was re-registered in June 2008 under the new Companies Act No. 7 of 2007.
At the beginning, the majority shareholding was held by Lewis Brown & Company Limited. In 1994, Vanik Incorporation
Limited acquired the controlling interest of the Company. Mr. Dhammika Perera, a well-known iconic entrepreneur took over
the Company in 2003 and turned it around to be the vibrant and leading finance company that it is today.
LBF is a company in the Group of Vallibel One which is a diversified holding Company with strategic investments in financial
services, tile and sanitary ware manufacturing and leisure.
Backed by a strong financial tradition of over 40 years, LBF offers a portfolio of financial solutions trusted widely by corporates,
SMEs and individuals alike. As of 31st March 2014, the Company operated a network of 97 branches and 37 gold loan centres
totalling to 134 outlets.
After the acquisition of the Company by Mr. Dhammika Perera, the business underwent a transformation with a new strategic
direction and emphasis on profitability and long term value creation. Based on a solid growth strategy with focus on four
main pillars viz. people, reach, technology and quality of service, LBF has now established itself as the undisputed trailblaser
in the non-banking financial services industry. Company offers the customers an unmatched product spread coupled with an
unparalleled service quality.
The public’s immense confidence in the Company’s dynamic and far-sighted conduct of business has propelled it to its
dominant position in the market as business jumped to new highs on all fronts, from deposits to lending. Our activities
will remain firmly focused as we continue to impress the business world with a refreshingly innovative and robust brand of
financial stewardship.
Vision Mission
•
To contribute to the quality of life To mobilise public funds by innovating investment products that will enhance the value
experienced by our depositors, delivered to our depositors.
•
customers, employees and the To engage in prudent lending to entrepreneurs to assist them in the creation of wealth.
•
general public through partnerships To embark on investments in which results can be clearly assessed and seize new
that fuel the growth of our Company opportunities in the market.
•
and to create shareholder value both To offer a caring and personalised service that will form the foundation for developing
in the short and long term. lasting partnerships with our stakeholders, employees and the general public.
•
To use training and career development to create an empowered and committed group
Values of employees who will drive the Company to high levels of achievement.
•
Excellence
•
Ethics
•
Professionalism
•
Transparency
•
Innovation
L B Finance is a carbon conscious company
•
Quality as certified by Sri Lanka Carbon Fund
PreambLe
about tHIS rePort
Our SecOnd integrated annuaL rePOrt
This integrated report
This is our second integrated Annual Report. In this Report, we have taken the concept
communicates the story of
of integrated reporting forward. Reflecting the embedding of sustainability into business
our value creation over the
short, medium and long term and with a view to bridge the gap between financial reporting and sustainability
reporting further, we have seamlessly integrated the chapter on sustainability with the
rest of the Report. We believe that this integrated report communicates the story of our
value creation over the short, medium and long term more coherently and concisely
while demonstrating the relationships and interdependencies of the many aspects of our
business such as strategy, governance, performance and prospects. It will provide the
reader with a clear picture of our financial and operational performance during the year
and the great potential that lies for the Company in the years ahead.
VaLue creatiOn and caPitaLS
The ability of the Company to create value for itself is inextricably linked to the value the
Company creates for its stakeholders. This is the duality of our purpose, namely, deriving
value and delivering value that leads to internal and external capital formation. Deriving
value leads to formation of internal capital in the form of financial capital and institutional
capital. Delivering value, on the other hand, leads to formation of external capital in the
form of various stakeholders such as investors, customers, employees, business partners,
Government institutions, society and environment. We take great care in nurturing and
developing relationships with these stakeholders. It is in fact depiction of the value we
place on them that we call them 'capitals' as it is these stakeholders that in turn help us
derive value for the Company and make it sustainable.
In preparing this Report we have, where applicable, drawn on concepts, principles and
guidance given in the following:
Global Reporting Initiative (GRI) Sustainability Reporting Guidelines G4 (2013)
[www.globalreporting.org]
The International Integrated Reporting Framework (2013)
[www.theiirc.org]
Smart Integrated Reporting Methodology™
[www.smart.lk]
annual report 2013/14
L B Finance PLc
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PreambLe About Us 02 About this Report 03 Strategic Goals 05 Highlights of the Year 06
rePOrt BOundary
The information contained in this Report relates to the operations As opposed to the use of GRI G3.1 Guidelines in the 2012/13
of L B Finance PLC. The Company operates only in Sri Lanka Annual Report, this report is in accordance with the core criteria
and does not have any subsidiaries, associates, joint ventures, of the GRI G4 Sustainability Reporting Guidelines. This has been
overseas operations or other businesses for the purpose of externally assured by Messrs Ernst & Young. Apart from that,
reporting. there are no restatements of information provided in the 2012/13
Report and no significant changes from previous reporting
period in the scope and aspect boundaries.
cOMPLiance
This L B Finance Annual Report 2013/14 covers the 12-month
QuerieS
period 1st April 2013 to 31st March 2014 and is consistent with
our usual annual reporting cycle for financial and sustainability We welcome your comments or questions on this Report.
reporting.
You may contact:
The Company conducts its operations in compliance with all Treasury Department
applicable laws, regulations and standards as well as guidelines L B Finance PLC
for voluntary disclosures. Accordingly, Financial Statements Corporate Office
audited by Messrs Ernst & Young have been prepared in No. 20, Dharmapala Mawatha
accordance with Sri Lanka Accounting Standards comprising Colombo 3.
of Sri Lanka Financial Reporting Standards (SLFRS) and Lanka
[email protected]
Accounting Standards (LKAS) promulgated by The Institute
of Chartered Accountants of Sri Lanka and are in compliance Tel: [phone]
with the requirements of the Companies Act No. 7 of 2007. The Fax: [phone]
environmental, social and governance information contained
in this Report has been derived mainly from the factual records
maintained by the Company using standard measurements and
did not require assumptions or complex calculations.
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L B Finance PLc
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PreambLe
StrateGIC GoaLS
Our overarching ambition is to be a major player in the financial
services sector in Sri Lanka.
The Company has been on a growth trajectory in the past
four years to achieve the following five strategic goals. In the
current year 2014, we have been able to achieve two of them,
viz. deposits and network. Although the Company was able to
maintain below the industry average of 6.7%, non-performing
loans rose during the year to 5.16% and hence, will require
careful monitoring as well as strengthening of systems and
processes to arrest and reverse the trend in the coming years.
Even though our credit grew at a moderate pace the Company
was ranked No. 2 in terms of total assets in 2013/14 compared to
the third place the Company occupied last year and believe our
growth strategies will help us to become the market leader in the
years to come.
aSPect gOaL achieVeMent 2013/14
Deposits Maintain market leadership Largest deposit base among the players in the NBFI sector
Credit Gain market leadership Ranked No. 2 in terms of totals assets in the NBFI sector
Shareholder value Maintain ROE > 25% ROE 23%
Non-performing
loans Maintain NPL Ratio < 5% NPL Ratio 5.16%
Outlets Operate with the largest network in the NBFI sector Ranked No. 1 with 134 outlets
annual report 2013/14
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PreambLe
HIGHLIGHtS oF tHe Year
FINaNCIaL HIGHLIGHtS
2013/14 2012/13 change
Operating results
Income Rs. Mn. 13,628 11,368 19.88 %
Profit before taxation (PBT) Rs. Mn. 1,868 2,526 (26.05) %
Income tax expense Rs. Mn. 528 824 (35.91) %
Profit after taxation (PAT) Rs. Mn. 1,340 1,702 (21.27) %
Gross dividends Rs. Mn. 450 450 –
Financial Position
Total assets Rs. Mn. 60,814 54,222 12.16 %
Lending portfolio Rs. Mn. 49,192 44,724 9.99 %
Deposits Rs. Mn. 46,095 38,742 18.98 %
Borrowings Rs. Mn. 6,899 8,610 (19.87) %
Shareholders’ funds Rs. Mn. 6,206 5,328 16.48 %
Share information
Net assets value per share Rs. 89.62 76.94 16.48 %
Earnings per share (EPS) Rs. 19.35 24.58 (21.27) %
Market price per share Rs. 100.10 132.70 (24.57) %
Price earnings ratio (PER) Times 5.17 5.40 –
Dividend per share (DPS) Rs. 6.50 6.50 –
Dividend cover Times 2.98 3.78 –
Dividend yield % 6.49 4.90 159 bpts
Dividend payout ratio % 33.59 26.45 714 bpts
Market capitalisation Rs. Mn. 6,932 9,190 (24.57) %
compliance ratios requirement
Core capital ratio (Tier I) >5% % 12.34 14.02 (168) bpts
Total risk weighted capital ratio (Tier I & II) >10% % 17.50 15.40 210 bpts
Equity to deposits >10% % 13.46 13.75 (29) bpts
Liquid assets to deposits % 15.22 14.14 108 bpts
Other indicators
Return on assets (ROA) % 2.33 3.51 (118) bpts
Return on equity (ROE) % 23.23 36.62 (1,339) bpts
Interest cover Times 1.26 1.42 –
Net interest margin (NIM) % 10.32 10.18 14 bpts
Non-performing loans ratio (NPL) % 5.16 3.35 181 bpts
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PreambLe About Us 02 About this Report 03 Strategic Goals 05 Highlights of the Year 06
NoN-FINaNCIaL HIGHLIGHtS
INVESTORS l Company Rating:
a-/P2 Stable Long Term Short Term Outlook
by
July 09 BBB P3 Stable
RAM Ratings (Lanka) Limited
November 10 BBB+ P2 Stable
l Raised Rs. 2 Bn. Debentures, July 11 BBB+ P2 Positive
oversubscribed on the November 11 A- P2 Stable
opening day
Current Rating A- P2 Stable
CuSTOmERS 134
l Outlets
l 25 Tailor-made Financial Solutions
l Recognised as the ‘Best Retail
Finance Company in Sri Lanka
for 2013‘ by Global Banking and
Finance Review, UK
EmplOyEES 2,134
l Staff Strength
l No. of Training Programmes 106
SOCIETy aNd 40
l Over CSR Projects were
ENVIRONmENT Undertaken
l Cost incurred on CSR Projects
Rs. 7.9 Mn.
l Carbon Conscious Company
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meSSaGeS
Letter From tHe
CHaIrmaN
Our grOwth Strategy
cOntinued tO Be FOcuSed
On FOur Main PiLLarS Viz.
PeOPLe, reach, technOLOgy
and QuaLity OF SerVice
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L B Finance PLc
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