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IINNTTRROODDUUCCTTOORRYY DDOOCCUUMMEENNTT
FOR OBTAINING THE LISTING OF 3,006,000 ORDINARY VOTING SHARES
ON THE DIRI SAVI BOARD OF THE COLOMBO STOCK EXCHANGE.
MMEERRCCAANNTTIILLEE IINNVVEESSTTMMEENNTTSS LLIIMMIITTEEDD
Incorporated under the Companies Ordinance No.51 of 1938 and registered under the
Finance Companies Act No. 78 of 1988. The Company is re-registered under the
Companies Act No.07 of 2007
MANAGERS TO THE INTRODUCTION
Capital Alliance Limited,
Level 05, “Millennium House”,
46/58, Navam Mawatha,
Colombo 02.
Tel: 2317777
Fax: 2317788
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2 Mercantile Investments Limited – Introductory Document
DECLARATION
This Introductory Document has been prepared by Capital Alliance Limited from Informationsupplied by Mercantile Investments Limited (The Company) or which is publicly available.
The Directors of the Company, collectively and individually, having made all reasonable
inquiries, confirm that to the best of their knowledge and belief, the information contained
herein is true and correct in all material respects and that there are no other material facts,
the omission of which, would make any statement herein misleading. While Capital Alliance
Limited has taken reasonable care to ensure full and fair disclosure it does not assume any
responsibility for any investment decision made by investors based on information contained
herein. In making an investment decision, prospective investors must rely on their own
examination and assessments of the Company including the risks involved.
No person is authorized to give any information or to make any representations not
contained in this Introductory Document and if given or made, any such information or
representation must not be relied upon as having been authorized by the Company.
For further inquiries, please contact the Managers to the Introduction.
If you are in any doubt regarding the contents of this document you should consult
your stockbroker, bank manager, lawyer or any other professional advisor.
The delivery of this Introductory Document shall not under any circumstance
constitute a representation or create any implication or suggestion, that there has
been no material change in the affairs of the Company since the date of this
document.
The Colombo Stock Exchange (CSE) has taken reasonable care to ensure full and
fair disclosure of information in this Introductory Document. However, the CSE
assumes no responsibility for the accuracy of the statements made, opinions
expressed or reports included in this Introductory Document.
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ABBREVIATIONS USED IN THIS INTRODUCTORY DOCUMENT
CDS - Central Depository Systems (Pvt.) Limited
CSE - Colombo Stock Exchange
MIL or the “Company” - Mercantile Investments Limited
SEC - Securities & Exchange Commission of Sri Lanka
CBSL - Central Bank of Sri Lanka
Ordinary Share(s) - Ordinary Voting Share(s) of the Company
EGM - Extraordinary General Meeting
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TABLE OF CONTENTS
1 CORPORATE INFORMATION 5
2 INFORMATION RELEVANT TO THE INTRODUCTION 62.1 Introduction of Ordinary Voting Shares for Listing 62.2 Collection Points 6
3 FINANCIAL SECTOR 10Registered Finance Companies 10
4 PROFILE OF THE ENTITY 124.1 Overview of the Company and Nature of the Business 124.2 Degree of Dependence 134.3 Corporate Structure 134.4 Human Resources 134.5 Future Plans & Risks Associated with Future Plans 134.6 Assumptions on which future plans are based 144.7 Top Ten Shareholders of Mercantile Investments Limited 15
5 CAPITAL STRUCTURE 165.1 Stated Capital 165.2 Capitalization of Reserves 17
6 DETAILS OF THE BOARD OF DIRECTORS 18
7 SENIOR MANAGEMENT TEAM 23
8 CORPORATE GOVERNANCE PRACTICES 268.1 Directors 268.2 Remuneration Committee 268.3 Audit Committee 27
9 STATUTORY AND OTHER GENERAL INFORMATION 289.1 Litigation, Disputes And Contingent Liabilities 289.2 Inspection of Documents 28
10 FINANCIAL INFORMATION 2910.1 Ratios and Share Information 2910.2 Receivables 3010.3 Maturity Analysis of Deposits & Borrowings 31
11 DECLARATION BY THE DIRECTORS 32
AUDITED FINANCIAL STATEMENTS 33
UN-AUDITED INTERIM FINANCIAL STATEMENTS 120
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1 CORPORATE INFORMATION
Name of the Company Mercantile Investments Limited
Date and Place of
Incorporation
15th June 1964 , Colombo
Legal Form A Public Limited Liability Company domiciled in Sri Lanka,
incorporated under the Companies Ordinance No.51 of 1938
on 15th June 1964 and re-registered under the Companies
Act No. 7 of 2007.
The Company is a licensed Finance Company under the
Finance Companies Act No.78 of 1988 as amended by ActNo.23 of 1991.
Principal Line of Business The principle activities of the Company consist of finance
leasing, hire purchase financing, granting vehicle loans and
the mobilization of deposits.
Company Registration No. PB 76
Registered Office No. 236, Galle Road, Colombo 3.
Telephone 011-2343720-7
Fax 011-2434524
Company Secretary Mrs. Deepika Sonali Pethiyagoda
Company Auditors Messrs. Cecil Arsecularatne & Co.
Chartered Accountants,
3, Dr. Lester James Peiris Mawatha,
Colombo 05
Bankers Commercial Bank of Ceylon PLC
Sampath Bank PLC
Hatton National Bank PLC
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2 INFORMATION RELEVANT TO THE INTRODUCTION
2.1 INTRODUCTION OF ORDINARY VOTING SHARES FOR LISTING
This Introductory Document dated 06th May 2011 is published for the purpose of obtaining a
listing on the Colombo Stock Exchange for the Ordinary Voting Shares of Mercantile
Investments Limited.
The shares are to be listed on the Diri Savi Board of the Colombo Stock Exchange.
2.2 COLLECTION POINTS
Copies of the Introductory Document may be obtained from the Manager or any member
firm and trading member firm of the Colombo Stock Exchange
2.2.1 MANAGERS TO THE INTRODUCTION
Capital Alliance Limited
Level 5, ‘Millennium House’
46/58, Navam Mawatha,
Colombo 02.
Telephone : 011-2317777
Fax : 011-2317788
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MEMBERS AND TRADING MEMBERS OF THE CSE
2.2.2 MEMBERS AND TRADING MEMBERS OF THE CSE
Members of the CSE
Acuity Stockbrokers (Pvt) Limited
Level 6, Acuity House,
53, Dharmapala Mawatha,
Colombo 03.
Telephone: 2206206
Fax: 2206298/9
E-mail: [email protected]
Asha Phillip Securities Limited
Level 4, "Millennium House"
46/58, Navam Mawatha,
Colombo 02
Telephone: 2429100
Fax: 2429199
E-mail: [email protected]
Asia Securities (Pvt) Limited
Level 21, West Tower,
World Trade Center,Echelon Square, Colombo 1.
Telephone: 2423905,5320000
Fax: 2336018
E-mail: [email protected]
Assetline Securities (Pvt) Limited
282, Kaduwela Road,
Battaramulla.Telephone: 4700111, 2307366
Fax: 4700112
E-mail: [email protected]
Bartleet Mallory Stockbrokers (Pvt) Ltd.
Level "G", Bartleet House,
65, Braybrooke Place,
Colombo 2.
Telephone: 5220200
Fax: 2434985E-mail: [email protected]
Capital TRUST Securities (Pvt) Limited
42, Sir Mohamed Macan Marker Mawatha,
Colombo 3.
Telephone: 5335225
Fax: 5365725
E-mail: [email protected]
Ceylinco Stockbrokers (Pvt) Limited
Ceylinco House, Level 9,
69, Janadhipathi Mawatha,
Colombo 1.
Telephone: 4714300, 4714388, 4714389
Fax: 2387228
E-mail: [email protected]
CT Smith Stockbrokers (Pvt) Limited
4-14, Majestic City,
10, Station Road,
Colombo 4.
Telephone: 2552290-4
Fax: 2552289
E-mail: [email protected]
D N H Financial (Pvt) LimitedLevel 16, West Tower,
World Trade Centre,
Colombo 01.
Telephone: 5732222
Fax: 5736264
E-mail: [email protected]
J B Securities (Pvt) Limited150, St. Joseph Street,
Colombo 14.
Telephone: 2490900, 0772490900
Fax: 2430070, 2446085,2447875
E-mail: [email protected]
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MEMBERS AND TRADING MEMBERS OF THE CSE
John Keells Stockbrokers (Pvt) Limited
130, Glennie Street,
Colombo 2.
Telephone: 2306250,2342066-7,2446694-5
Fax: 2342068, 2326863
E-mail: [email protected]
Lanka Securities (Pvt) Limited
228/2, Galle Road
Colombo 4.
Telephone: 4706757,2554942
Fax: 4706767
E-mail: [email protected]
NDB Stockbrokers (Pvt) Limited
5th Floor, NDB Building,
40, Navam Mawatha,
Colombo 2.
Telephone: 2314170-8
Fax: 2314180
E-mail: [email protected]
SC Securities (Pvt) Limited
2nd Floor,
55, D.R. Wijewardena Mawatha,
Colombo 10.
Telephone: 4711000
Fax: 2394405
E-mail: [email protected]
Somerville Stockbrokers (Pvt) Limited
137, Vauxhall Street,
Colombo 2.
Telephone: 2329201-5, 2332827, 2338292-3
Fax: 2338921
E-mail: [email protected]
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MEMBERS AND TRADING MEMBERS OF THE CSE
Trading Members of the CSE
Arrenga Capital (Pvt) Limited
410/115, Bauddhaloka Mawatha,
Colombo 07
Tel: 2689107, 0777847720
Fax: 2689106
E-mail: [email protected]
Capital Alliance Securities (Pvt) Limited
Level 5, "Millennium House",
46/58 Navam Mawatha,
Colombo 02
Tel: 2317777
Fax: 2317788
E-mail: [email protected]
Claridge Stockbrokers (Pvt) Limited 10, Gnanartha Pradeepa Mawatha,
Colombo 08
Tel: 2697974
Fax: 2677576
E-mail: [email protected]
First Guardian Equities (Pvt) Limited
32nd Floor, East Tower,
World Trade Centre, Colombo 01
Tel: 5884400
Fax: 5884401
E-mail: [email protected]
Heraymila Securities Limited
Level 8, South Wing,
‘Millennium House’
46/58, Navam Mawatha,
Colombo 02
Tel: 2359100
Fax: 2305522
E-mail: [email protected]
IIFL Securities Ceylon (Pvt) Limited
27th Floor, East Tower,
World Trade Centre,
Colombo 01
Tel: 2333000
Fax: 2333383
E-mail: [email protected]
New World Securities (Pvt) Ltd
2nd Floor, 45/2, Braybrooke Street,Colombo 02
Tel: 011-2358700 / 20
Fax: 011-2358701
E-mail: [email protected]
Richard Pieris Securities (Pvt) Limited
69, Hyde Park Corner,Colombo 02
Tel: 7448900
Fax: 2675064
E-mail : [email protected]
SKM Lanka Holdings (Pvt) Limited
377/3, Galle Road,
Colombo 03
Tel: 2372413-4
Fax: 2372416
E-mail: [email protected]
SMB Securities (Pvt) Limited
47, Dharmapala Mawatha,
Colombo 03
Tel: 5539593
Fax: 2339292
E-mail: [email protected]
Taprobane Securities (Pvt) Limited
2nd Floor, 10, Gothami Road,
Colombo 08
Tel: 5328200
Fax: 5328277
E-mail: [email protected]
TKS Securities (Pvt) Limited
19-01, East Tower,
World Trade Centre,
Colombo 01
Tel: 7857799
Fax: 7857857
E-mail: [email protected]
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10 Mercantile Investments Limited – Introductory Document
3 FINANCIAL SECTOR
The financial sector in the country, including the Central Bank of Sri Lanka, mainly
comprises of the following major financial institutions – Licensed Commercial Banks,
Licensed Specialized Banks, Specialized Leasing Companies, Registered Finance
Companies, Insurance Companies and Pension and Provident Funds. In total, the asset
base of the country’s major financial institutions amounted to Rs. 5,616 billion as at end of
December 2009.
REGISTERED FINANCE COMPANIES
The core activities of Registered Finance Companies (RFCs) revolve around providing
financing to customers that do not have easy access to bank finance, through leasing and
hire purchase facilities. RFCs are regulated under the Finance Companies Act No.78 of 1988.
The total number of RFCs in operation as at end December 2009 was recorded at 35,
carrying out operations through a network of 289 branches spread island wide. Out of the
total asset base of Rs. 5,616 billion, the total asset base of RFCs for the year 2009 was
recorded at Rs. 185 billion, accounting for 3.3% of the total assets of the country’s major
financial institutions.
Market share of the two largest RFCs accounted for approximately 37% of the total assets of
the industry during 2009, a reduction of 9% from 46% during 2008. The largest nine RFCs
accounted for approximately 73% of the total assets, whilst eighteen medium size RFCs
accounted for only 24% of total assets.
The sector is steadily recovering, with the performance of most of the companies in the
sector having been adversely affected in 2009 due to the resultant high interest rates and
the heightened credit and liquidity risks which were caused by the collapse of certain
unregulated finance companies. The financial distress caused by the collapse of the
unregulated finance companies, resulted in a loss of investor confidence in all finance
companies and cast a negative outlook on the entire sector.
This resulted in most of the Companies scaling down business operations to mitigate their
risk factor. Hire Purchase and Lease facilities which accounted for approximately 63% of the
RFC industry’s assets saw a slowdown in growth, with many companies curtailing lending
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FINANCIAL SECTOR
and adopting a conservative approach. Thus the growth of total assets of RFCs was
recorded at 5% as opposed to a 23% growth in 2008.
However, amidst these challenges most of the RFCs have continued to generate positive
returns, with 27 of the 35 RFCs complying with the increased minimum capital requirement,
and maintaining the capital adequacy well above the statutory minimum indicating the
sector’s resilience and ability to withstand its challenges.
The sector recovered significantly as a result of the good governance and well adopted
business practices undertaken by RFCs. The stability of the sector was preserved primarily
through the timely intervention and stringent regulations and supervision undertaken by the
CBSL, which undertook several measures to restore the public confidence in the sector andprovided advisory services on the recovery process.
Further, to enhance and strengthen the regulatory framework of the financial sector, CBSL
have proposed certain changes to the framework, which include closely monitoring the
compliance with the Finance Companies (Corporate Governance) Direction and making the
Board of Directors more accountable for the companies’ performance and risk management
practices. In addition, RFCs have been required to list on the Colombo Stock Exchange by
the end of June 2011 to broad base the share ownership structure and to improve
transparency as well as the imposition of the Finance Companies (Reporting Requirement)
Direction No. 05 of 2009 to grant more powers to the CBSL to regulate RFCs.
Source: Central Bank of Sri Lanka – Annual Report 2009
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4 PROFILE OF THE ENTITY
4.1 OVERVIEW OF THE COMPANY AND NATURE OF THE BUSINESS
Mercantile Investments Limited is a licensed Finance Company under the Finance
Companies Act No. 78 of 1988 as amended by Act No. 23 of 1991 for the year ended 31 st
March 2010. It was incorporated in Sri Lanka on 15th June 1964 under Companies
Ordinance No. 51 of 1938 and re-registered under the Company Act No.07 of 2007.
Vision – “To be a leading financial institution committed to excellence in our sphere of
activities with a deep sense of social responsibility.”
Values – “To treasure the aspirations of the valued customers of Mercantile InvestmentsLimited and always endeavor to fulfill them, harnessing their talents, expertise and
resources.”
The core business of the Company consists of finance leasing, hire purchase financing,
granting vehicle loans and the mobilization of deposits.
Finance Leasing – Finance Leasing is the most popular of all the products of MIL which has
grown to the zenith during the last four decades of its existence. The product is tailor made
to suit the customers’ needs, strengths and aspirations providing relief within the 24 hours of
application. The recent government policies on slashing of import duties on vehicles gave
the needed boost to the leasing business that is predominantly a highly competitive market.
As at 28th February 2011 the finance leasing accounted for 31 % of the loan book portfolio of
the Company.
Hire Purchase – MIL provides a customer-attractive product providing unique advantages in
financing registered vehicles with some of the most attractive terms in the market, and has a
portfolio balance of Rs. 4.1 Billion as at 28 th February 2011. In addition to hire purchase
vehicle financing, the Company provides finance for the leasing of plant and machinery,
office equipment and information technology equipment. Further, MIL has also ventured into
financing the transportation industry with the introduction of both commercial and industrial
vehicle hiring inclusive of passenger and transport vehicles at very reasonable and attractive
terms.
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PROFILE OF THE ENTITY
Term Loans – MIL offers term loans for both individuals and corporate bodies, to meet
variable financial requirements. As at 28th February 2011 the loan portfolio accounted for 5
% of the total loan book portfolio of the Company.
Deposits – Deposits are the core-center of the establishment, and is the financial strong-
arm of the Company. As at the beginning of March 2011 the deposit base has surpassed the
Rs. 4 Billion mark that comprises mainly of fixed deposits. MIL provides the utmost security
to its depositors, whilst offering competitive returns in the field of financial activities.
4.2 DEGREE OF DEPENDENCE
The Company is not dependent on any customers either in terms of the deposit portfolio or
the lending portfolio. Further, it should also be noted that the Company is not dependent on
any of its suppliers.
4.3 CORPORATE STRUCTURE
Mercantile Investments Limited is not a subsidiary nor is it a holding Company.
4.4 HUMAN RESOURCES
The total staff strength of the Company is 317 as at 31 st December 2010, in comparison to
289 employees as at 31st March 2010.
Further, the Company does not have any Labour Unions and has not entered into any
collective agreement with employees.
4.5 FUTURE PLANS & RISKS ASSOCIATED WITH FUTURE PLANS
Diversifying the branch network to key provinces of the Country
The Company has an expansion strategy which is phased out over the next two to three
years. The Company intends to grow the overall lending portfolio annually by 20% and
mobilize deposits at a growth rate of 25%.
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PROFILE OF THE ENTITY
The risks associated with this strategy include the ability of the Company to generate the
expected return on investment in the initial years, as the return generated from the new
branches would be lower in comparison to more established locations.
Venturing out into new products and services
This strategy will be based on the prevalent demand for the new products and services. At
present, the Company has plans to carry out pawing services at selected locations.
Furthermore, the Company plans to grow its non-fund based income lines through new
product and service lines to boost the overall income of the MIL by an additional 5% within
the next two years.
The associated risks include strong competition for products already in the market as well as
high initial set up costs.
4.6 ASSUMPTIONS ON WHICH FUTURE PLANS ARE BASED
The future plans of the Company have been based on the following general assumptions:
The prevailing average credit growth of 20% in the financial services sector would
continue to prevail at the same levels.
The ongoing economic resurgence is expected to boost business, further creating
greater demand for credit.
The slashing of import duties will remain for at least the next one year, in order to
generate the required levels of demand necessary for the leasing business for future
growth.
Ongoing economic development would improve key sectors of the economy such as
Hotel, Banking and Finance and Communication Industries, which would enable
positive sentiments to prevail in the Colombo Stock Market. The Company expects to
generate an annual growth rate of 25% growth from stocks held in the above
mentioned sectors.
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PROFILE OF THE ENTITY
4.7 TOP TEN SHAREHOLDERS OF MERCANTILE INVESTMENTS LIMITED
ORDINARY SHAREHOLDERS AS AT NUMBER OF SHARE
23rd March 2011 SHARES PERCENTAGE
Nilaveli Beach Hotels (Pvt) Ltd. 626,250 20.83%
Mr. G. G. Ondaatjie 477,213 15.88%
Ms. A. M. Ondaatjie 477,213 15.88%
Mr. T. J. Ondaatjie 477,213 15.88%
Mercantile Fortunes (Pvt) Ltd. 410,820 13.66%
Mr. G. L. A. Ondaatjie 268,535 8.93%
Tangerine Tours (Pvt) Ltd. 200,469 6.67%
Mrs. P. R. Divitotalawela/ Mrs. R. D. Madugalle 12,525 0.42%
Mrs. P. R. Divitotalawela/ Mrs. A. D. Galagoda 12,525 0.42%
Mr. N. H. V. Perera 10,020 0.33%
Others 33,217 1.10%
TOTAL 3,006,000 100.00
It should be noted, that on 07 th January 2011, Mr. G L A Ondaatjie transferred 34,000 shares
to Tangerine Tours (Pvt) Ltd at a consideration of Rs. 1,000/- per share. Subsequently, on
18th March 2011, these shares were transferred from Tangerine Tours (Pvt) Ltd to Mr. G G
Ondaatjie, Ms. A M Ondaatjie and Mr. T J Ondaatjie in equal proportions of 11,333 shares
for the same consideration of Rs. 1,000/- per share.
Further, subsequent to the Capitalization of reserves, on 08 th March 2011, Mr. G L A
Ondaatjie transferred 415,780 shares each to Mr. Travice John Ondaatjie, Mr. Gerard
George Ondaatjie and Ms. Angeline Myrese Ondaatjie. There was no consideration paid for
the transfer of shares.
As at the date of the Introductory Document the public holding percentage of the Company is
11.20%
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5 CAPITAL STRUCTURE
The Company has not redeemed or re-purchased any shares within the two years preceding
the date of this Introductory Document, nor has there been a reduction in the stated capital
of the Company. Further the Company does not have any outstanding convertible debt
securities as at the date of this Introductory Document.
There are no statutory restrictions on the free transferability of Securities. Further there are
no restrictions applicable to non-residents shareholders holdings shares of the Company.
5.1 STATED CAPITAL
Ordinary Shareholding Structure as at 25th March 2011
Level of
Shareholding
No. of No. of % of
Shareholders Shares Shareholding
1 - 1,000 3 1,153 0.04
1,001 - 5,000 1 2,004 0.07
5,001 - 10,000 - - -
10,001 - 50,000 6 65,130 2.17
50,001 - 100,000 - - -
100,001 - 500,000 6 2,311,463 76.89
500,001 - 1,000,000 1 626,250 20.83
Over 1,000,000 - - -
Total 3,006,000 100.00
MIL capitalized a portion of the revenue reserves of the Company in order to enhance the
stated capital of the Company. The details of which are given below. Apart from the
Capitalization of reserves, no classes of shares have been issued in the last two years
preceding the date of this Introductory Document.
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Nameof
Shareholder
Shareholdingpriorto
Capitalization
of
Reserves
Entitlementof Shares
1:500
SharesAlloted
No.of Sharesheldsubsequent
to
Capitalization
%of Sharesheldsubsequent
to
theIssue
GLAOndaatjie 1,512,850 3025.70 3,025 1,515,875 50.43%
NilaveliBeachHotelsLimited 625,000 1250.00 1,250 626,250 20.83%
MercantileFortunes(Pvt)Limited 410,000 820.00 820 410,820 13.67%
GGOndaatjie 50,000 100.00 100 50,100 1.67%
AMOndaatjie 50,000 100.00 100 50,100 1.67%
TJOndaatjie 50,000 100.00 100 50,100 1.67%
AM&JSDominic 150 0.30 1 151 0.01%
CAOndaatjie 2,000 4.00 4 2,004 0.07%
PRDivitotawela/RDMadugalle 12,500 25.00 25 12,525 0.42%
PRDivitotawela/ADGalagoda 12,500 25.00 25 12,525 0.42%
NHVPerera 10,000 20.00 20 10,020 0.33%RMDAbeygunawardena 10,000 20.00 20 10,020 0.33%
SSenanayake 5,000 10.00 10 5,010 0.17%
SFernando 5,000 10.00 10 5,010 0.17%
JASSAdhihetty 10,000 20.00 20 10,020 0.33%
TangerineToursLimited 234,000 468.00 468 234,468 7.80%
AMRajapakse 500 1.00 1 501 0.02%
ADRajapakse 500 1.00 1 501 0.02%
3,000,000 6,000 6,000 3,006,000 100.00%
CAPITAL STRUCTURE
5.2 CAPITALIZATION OF RESERVES
Mercantile Investments Limited (MIL) issued 6,000 (Six Thousand) Ordinary Voting Shares
by way of a Capitalization of revenue reserves in the proportion of one (1) share for every
five hundred (500) shares held by the existing shareholders of the Company. The shares
were allotted to the shareholders of the Company as at 10 th February 2011. The objective of
the issue was to enhance the stated capital of the Company. The consideration for which the
shares were issued were Rs.1,000.
The Company and the Directors were of the opinion that the issue price of Rs. 1,000.00 per
share is fair and reasonable for the Company and to all the existing shareholders of the
Company.
The allotted shares rank equal to the existing shares issued by the Company and include full
voting rights and the right to participate in any dividend or distribution that may be declared
after the allotment of shares. The shares were offered to the Shareholders in terms of a
Prospectus which has been filed with the Registrar of Companies.
The details of allotment of shares pertaining to the Capitalization of reserves are as follows:
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M e r c a n t i l e
I n v e s t m e n t s L i m i t e d – I n t r o d u c t o
r y D o c u m e n t
6
D E T A I L S O F T H E B O A R D O F D I R E C T O R S
A s a t t h e d a t e o f t h e I n t r o
d u c t o r y D o c u m e n t , t h e B o a r d o f
D i r e c t o r s o f M e r c a n t i l e I n v e s t m e n t s L i m i t e d c o m p r i s e o f t h e f o l l o w i n g D i r e c t o r s . T h e
D i r e c t o r s b r i n g i n a r a n g e
o f t a l e n t s , s k i l l s a n d e x p e r t i s e n e e d e d t o g u i d e t h e C o m p a n y i n t h e
i n t e r e s t o f a l l s t a k e h o l d e r s .
N A M E & A D D R E S S O F
D I R E C T O R
Q U A L I F I C A T I O N S
E X P E R I E N C E
O T H E R
D I R E C T O R S H
I P S
M r . G e r a r d G e o r g e O n d a a t j i e
–
C h a i r m a n / M a n a g i n g D i r e c t o r
1 8 , Q u e e n s R o a d ,
C o l o m b o 3
B . S c . D e g r e e
i n
A c c o u n t a n c y
f r o m
A r i z o n a S t a t e U n i v e r s i t y , U S A
P o s s e s s e s o v e r 1 5 y e a r s o f
e x p e r i e n c e
i n
f i n a n c i a l
s e r v i c e s ,
t o u r i s m
a n
d
t r a d i n g i n d u s t r y
M a n a g i n g D i r e c t o r :
E x e . D e p u t y C h a i r m a n :
D i r e c t o r :
T h e N u w
a r a E l i y a H o t e l s C o . P L C
M e r c a n t i l e F o r t u n e s ( P v t ) L t d
G r a n d H o t e l ( P v t ) L t d
N i l a v e l i B
e a c h H o t e l s ( P v t ) L t d
T a n g e r i n
e B e a c h H o t e l P L C
R o y a l P a
l m s B e a c h H o t e l s P L C
S e c u r i t y
C e y l o n ( P v t ) L t d
T a n g e r i n
e T o u r s ( P v t ) L t d
G l o b a l F i l m s L t d
I n t e r n a t i o n a l F o r t u n e s ( P v t ) L t d
M e r c a n t i l e O r i e n t ( P v t ) L t d
M r .
S h e r m a l
H e m a k
a
J a y a s u r i y a – D i r e c t o r F i n a n c e
1 7 5 / 1 7 , N a w a l a R d ,
C o l o m b o 5
A s s o c i a t e m e m b e r o f T h e I n s t i t u t e
o f t h e C h a r t e r e d A c c o u n t a n t s o f
S r i L a n k a
F e l l o w M e m b e r o f T h e C h a r t e r e d
I n s t i t u t e o f M a n a g e m e n t
A c c o u n t a n t s ( U K )
C o u n t s f o r o v e r 1 8 y e a r s
o f e x p e r i e n c e i n t h e
f i n a n c i a l s e r v i c e s ,
i n s u r a n c e , m a n u f a c t u r i n g
a n d t r a d i n g s e c t o r s .
D i r e c t o r :
M e r c a n t i l e F o r t u n e s ( P v t ) L t d
S e c u r i t y
C e y l o n ( P v t ) L t d
T h e F i n a
n c e H o u s e s A s s o c i a t i o n
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1 9
M e r c a n t i l e I n v e s t m e n t s L i m i t e d – I n t r o d u c t o r y D o
c u m e n t
D E T A I L S O F T H E B O A
R D O F D I R E C T O R S
N A M E & A D D R E S S O F D I R E C T O R
Q U A L I F I C A T I O N S
E X P E R I E N C E
O T H E R
D I R E C T O R S H I P S
M r . S h e r m a l H e m a k a J a y a s u r i y a
( C o n t d …
)
F e l l o w m e m b e r o f t h e S o c i e t y o f
C e r t i f i e d M a n a g e m e n t A c c o u n t a n t s
o f S r i L a n k a
H o l d e r o f a M a s t e r ’ s D e g r e e i n
B u s i n e s s A d m i n i s t r a t i o n ( M B A )
f r o m t h e P o s t g r a d u a t e I n s t i t u t e o
f
M a n a g e m e n t o f t h e U n i v e r s i t y o f
S r i J a y e w a r d e n e p u r a , S r i L a n k a .
M s . A n g e l i n e M y r e s e O n d a a t j i e
– D i r e c t o r
2 0 / 1 , Q u e e n s R d , C o l o m b o 3
H o l d e r o f a M a s t e r ’ s D e g r e e
H o l d e r o f a B . S c . D e g r e e
C o u n t s f o r o v e r 1 7 y e a r s
e x p e r i e n c e i n t h e f i n a n c i a l
s e r v i c e s , t o u r i s m &
m a n u f a c t u r i n g s e c t o r s .
M a n a g i n g D i r e c t o r :
J t . M a n a g i n g D i r e c t o r :
D i r e c t o r :
T a n g e r i n e
T o u r s ( P v t ) L t d
T a n g e r i n e
B e a c h H o t e l s P L C
R o y a l P a l m s B e a c h H o t e l s P L C
S e c u r i t y C
e y l o n ( P v t ) L t d
N i l a v e l i B e a c h H o t e l s ( P v t ) L t d
G l o b a l F i l m s L t d
T h e N u w a r a E l i y a H o t e l s C o . P L C
M e r c a n t i l e F o r t u n e s ( P v t ) L t d
G r a n d H o
t e l ( P v t ) L t d
L i g h t h o u s
e H o t e l P L C
I n t e r n a t i o n a l F o r t u n e s ( P v t ) L t d
M e r c a n t i l e O r i e n t ( P v t ) L t d
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2 0
M e r c a n t i l e I n v e s t m e n t s L i m i t e d – I n t r o d u c t o r y D o
c u m e n t
D E T A I L S O F T H E B O A
R D O F D I R E C T O R S
N A M E & A D D R E S S O F D I R E C T O
R
Q U A L I F I C A T I O N S
E X P E R I E N C E
O T H E R
D I R E C T O
R S H I P S
M r . T r a v i c e J o h n O n d a a t j i e –
D i r e c t o r
1 8 , Q u e e n s R o a d , C o l o m b o 3
B . S c . D e g r e e
C o u n t s f o r o v e r 1 7 y e a r s
e x p e r i e n c e i n t h e f i n a n c i a l
s e r v i c e s , t o u r i s m &
m a n u f a c t u r i n g s e c t o r s .
M a n a g i n g D i r e c t o r :
D i r e c t o r :
N i l a v e l i B e a c h H o t e l s ( P v t ) L t d
T a n g e r i n e
B e a c h H o t e l s P L C
R o y a l P a l m s B e a c h H o t e l s P L C
S e c u r i t y C
e y l o n ( P v t ) L t d
T a n g e r i n e
T o u r s ( P v t ) L t d
G l o b a l F i l m s L t d
T h e N u w a r a E l i y a H o t e l s C o . P L C
M e r c a n t i l e F o r t u n e s ( P v t ) L t d
G r a n d H o
t e l ( P v t ) L t d
I n t e r n a t i o n a l F o r t u n e s ( P v t ) L t d
M e r c a n t i l e O r i e n t ( P v t ) L t d
M r s .
M i g n o n n e
B e r n a d e t t e
A s s a u w
- D i r e c t o r – D e p o s i t s
9 , W a t t e g e d a r a R o a d ,
M a h a r a g a m a
C o u n t s f o r o v e r 4 2 y e a r s
e x t e n s i v e e x p e r i e n c e i n
t h e f i n a n c i a l s e r v i c e s s e c t o
r
M r .
P a t h i r a n a g e
M a h
e s
A m a r a s e k e r a
-
D i r e c t o r - R e c o v e r i e s
2 5 A , K a n d a w a t t e L a n e , N u g e g o d
a
P o s s e s s e s a l m o s t 2 5 y e a r s
o f e x p e r i e n c e I n t h e
f i n a n c i a l s e r v i c e s e c t o r
D i r e c t o r :
S e c u r i t y C
e y l o n ( P v t ) L i m i t e d
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2 1
M e r c a n t i l e I n v e s t m e n t s L i m i t e d – I n t r o d u c t o r y D o
c u m e n t
D E T A I L S O F T H E B O A
R D O F D I R E C T O R S
N A M E & A D D R E S S O F D I R E C T O R
Q U A L I F I C A T I O N S
E X P E R I E N C E
O T H E R
D I R E C T O
R S H I P S
M r .
J u s t i n
S a v a r i m u t t u
D o m i n i c – D i r e c t o r
1 D , T o w e r B u i l d i n g S t a t i o n R d ,
C o l o m b o 4
C o u n t s f o r o v e r 4 3 y e a r s
e x p e r i e n c e i n t h e f i n a n c i a l
s e r v i c e s e c t o r .
S a r o j a H e m a k u m a r
J a y a w i c k r e m a W e e r a s o o r i y a
N o . 9 , 2 n d L a n e ,
M e d a W e l i k a d a R o a d , R a j a g i r i y a
B . S c . ( L o n d ) , M I C E ,
F I E ( S L ) , F S S E ( S L ) , C . E n g .
C o u n t s f o r o v e r 3 2 y e a r s
e x p e r i e n c e a s a C o n s u l t a n t
i n C i v i l / S t r u c t u r a l E n g i n e e r i n g
d e s i g n & P r o j e c t M a n a g e m e
n t s
i n U K ,
S r i L a n k a ,
I n d i a &
M a l d i v e s
D i r e c t o r :
I n t e r n a t i o n a l C i v i l E n g i n e e r i n g
C o n s u l t a n
t s ( P v t ) L i m i t e d
H e n a k a
A r a c h c h i l l a g e
S a j i t h
a
T i l a k a s i r i S e n a n a y a k e
4 9 4 / 1 , R a j a g i r i y a R o a d ,
R a j a g i r i y a
A s s o c i a t e M e m b e r o f t h e I n s t i t u t e o f
C h a r t e r e d A c c o u n t a n t s o f S r i L a n k
a
A s s o c i a t e M e m b e r o f C h a r t e r e d I n
s t i t u t e
o f M a n a g e m e n t A c c o u n t a n t s – U K
C o u n t s f o r o v e r 1 5 y e a r s
e x p e r i e n c e i n A u d i t ,
A c c o u n t & M a n a g e m e n t
a n d F i n a n c e P l a n n i n g f i e l d s .
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2 2
M e r c a n t i l e I n v e s t m e n t s L i m i t e d – I n t r o d u c t o r y D o
c u m e n t
D E T A I L S O F T H E B
O A R D O F D I R E C T O R S
T h e C h a i r m a n n o r a n y D i r e c t o r o f t h e C o m p a n y h a s b e e n o r i s i n v o l v e d i n a n y o f t h e f o l l o w i n
g e v e n t s :
a p e t i t i o n u n d e r a n y b a n k r u p t c y l a w s f i l e d a g a i n s t s
u c h p e r s o n o r a n y p a r t n e r s h i p i n w h i c h h e w a s a p a r t n e r o r a n y c o
r p o r a t i o n o f w h i c h
h e w a s a n e x e c u t i v e o f f i c e r ;
c o n v i c t i o n f o r f r a u d , m i s a p p r o p r i a t i o n o r b r e a c h o f t r u s t o r a n y o t h e r s i m i l a r o f f e n c e w
h i c h t h e C S E c o n s i d e r s a d i s q u a l i f i c a t i o n .
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23 Mercantile Investments Limited – Introductory Document
7 SENIOR MANAGEMENT TEAM
Mr. Gerard George Ondaatjie – Chairman and Managing Director
18, Queens Road,Colombo 3
Mr. Gerard Ondaatjie was appointed to the Board on 02nd December 1993 and was
appointed Executive Deputy Chairman on 27th September 2001. He has over 15 years
experience in the financial services, tourism and trading sectors. He holds a BSc Degree in
Accountancy from the Arizona State University, USA. He is presently the Managing Director
of The Nuwara Eliya Hotels Company PLC and Mercantile Fortunes (Pvt) Ltd. He is also the
Executive Deputy Chairman of Nilaveli Beach Hotels (Pvt) Ltd and a Director of seven other
companies which includes Royal Palms Beach Hotels PLC and Tangerine Beach Hotels
PLC.
The Chief Executive Officer (The Managing Director of the Company) is not and has not
been involved in the following events:
petition under bankruptcy laws filed against such person or any partnership in which
he was a partner or any corporation of which he was an executive officer.
convicted for fraud, misappropriation or breach of trust or any other similar offence
which the CSE considers a disqualification.
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2 4
M e r c a n t i l e
I n v e s t m e n t s L i m i t e d – I n t r o d u c t o
r y D o c u m e n t
S E N I O R M A N A G
E M E N T T E A M
N a m e
D e s i g n a t i o n
B u s i n e s s
e x p e r i e n c e
1 . D a n u s h k a F o n s e k a
A G M – C r e d i t & M a r k e t i n
g
H a s 1 3 y e a
r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r e s p e c i a l l y i n
t h e f i e l d o f c r e d i t a n d m a r k e t i n g .
2 . B u d d i k a K a s t u r i r a t n e
A G M – R e c o v e r i e s
H a s 1 7 y e a
r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r e s p e c i a l l y i n
t h e f i e l d o f c r e d i t a n d r e c o v e r i e s .
3 . D e v a A n t h o n y
A G M – F i n a n c e
H a s o v e r 1 6 y e a r s e x p e r i e n c e i n t h e f i e l d o f F i n a n c e a n d a c c o u n t i n g .
4 . R a v i E k a n a y a k e
G M – W o r k s h o p
H a s 2 8 y e a
r s e x p e r i e n c e i n t h e r e l a t e d f i e l d .
5 . J a y a n k a K a h a w e v i t h a n a
S e n i o r M a n a g e r – L e g a l
H a s e x p e r i e n c e o f 7 y e a r s i n t h e r e l a t e d f i e l d .
6 . H i r a n t h a P a n d i t h a s e k a r a
S e n i o r M a n a g e r – C o r p o
r a t e l e a s i n g
H a s 9 y e a r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r e s p e c i a l l y i n
t h e f i e l d o f c r e d i t a n d m a r k e t i n g .
7 . R a v i D e M e l
S e n i o r M a n a g e r – C r e d i t a d m i n i s t r a t i o n
H a s 1 0 y e a
r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r e s p e c i a l l y i n
t h e f i e l d o f c r e d i t a n d m a r k e t i n g .
8 . D a r s h a n a S e n a r a t h
S e n i o r M a n a g e r – L e a s i n g
H a s 1 2 y e a
r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r e s p e c i a l l y i n
t h e f i e l d o f c r e d i t a n d m a r k e t i n g .
9 . L a h i r u D a y a n a n d a
R e g i o n a l M a n a g e r – C r e d i t
H a s 1 0 y e a
r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r e s p e c i a l l y i n
t h e f i e l d o f c r e d i t a n d m a r k e t i n g .
1 0 . S h e h a n C o o r a y
M a n a g e r – R e c o v e r i e s
H a s o v e r 1 3 y e a r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r
e s p e c i a l l y i n t h e f i e l d o f c r e d i t a n d r e c o v e r i e s .
1 1 . P r a s a d W i c k r a m a s i n g h e
A c c o u n t a n t
H a s o v e r 2 3 y e a r s e x p e r i e n c e i n t h e i n t h e f i e l d o f F i n a n c e a n d
a c c o u n t i n g .
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2 5
M e r c a n t i l e I n v e s t m e n t s L i m i t e d – I n t r o d u c t o r y D o
c u m e n t
S E N I O R M A N A G
E M E N T T E A M
N a m e
D e s i g n a t i o n
B u s i n e s s
e x p e r i e n c e
1 2 . C h a n d a n a N a n y a k k a r a
A c c o u n t a n t
H a s o v e r 1 1 y e a r s e x p e r i e n c e i n t h e i n t h e f i e l d o f F i n a n c e a n d
a c c o u n t i n g .
1 3 . R a m i n d a M a g a n a a r a c h c h i
A c c o u n t a n t
H a s o v e r 5
y e a r s e x p e r i e n c e i n t h e f i e l d o f F i n a n c e a n d a c c o u n t i n g .
1 4 . K u m u d i n i J a y a s e k a r a
M a n a g e r - I n s u r a n c e
H a s o v e r 2 7 y e a r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r .
1 5 . C h a m i n d a P a r a n a y a p a
M a n a g e r - I n s u r a n c e
H a s o v e r 2 1 y e a r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r .
1 6 . K i n g s l y L o w e
M a n a g e r - N e g o m b o
H a s o v e r 3 0 y e a r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r .
1 7 . W i r a j A r a c h c h i
M a n a g e r - I T
H a s o v e r 2 0 y e a r s e x p e r i e n c e i n t h e r e l a t e d f i e l d .
1 8 . I n d i k a P r a s a d
M a n a g e r – I T s o f t w a r e
H a s o v e r 1 6 y e a r s e x p e r i e n c e i n t h e r e l a t e d f i e l d .
1 9 U m a M a h e s w a r a n
M a n a g e r - D e p o s i t s
H a s o v e r 1 2 y e a r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r .
2 0 . D i n e s h P e r e r a
M a n a g e r - L e a s i n g
H a s o v e r 1 2 y e a r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r .
2 1 . A v i n d r a W i j e s u n d a r a
M a n a g e r - B a l a n g o d a
H a s o v e r 1 3 y e a r s e x p e r i e n c e i n t h e F i n a n c i a l s e r v i c e s s e c t o r .
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26 Mercantile Investments Limited – Introductory Document
8 CORPORATE GOVERNANCE PRACTICES
8.1 DIRECTORS
The Independent, Non-Executive Directors of Mercantile Investments Limited
compromise of the following Directors:
Mr. J S Dominic
Mr. S H J Weerasuriya
Mr. H A S T Senanayake
It should however be noted that according to the criteria set out in the Rule No.
7.10.4 (e) of Colombo Stock Exchange Listing Rules; Mr. J S Dominic does not fall
under the classification of an “Independent” Director as he has represented the
Board of Mercantile Investments Limited for a period of more than nine (9) years
consecutively.
The Board of Directors of MIL, however, do determine that although Mr. J S Dominic
does not meet the criteria of an “Independent” Director as per rule no. 7.10.4 (e), as
stated above, he does in fact fulfill all other criteria for defining ‘Independence’ as set
out by the CSE listing rules. Further, having reviewed the actual role played by Mr.
Dominic on the Board of Directors, the Board does determine that he does in fact
function in the capacity of an “Independent” Director.
8.2 REMUNERATION COMMITTEE
The Remuneration Committee constitutes of the following Directors:
Mr. J S Dominic (Chairman) – Independent Non-Executive Director
Mr. S H J Weerasuriya – Independent Non-Executive Director
Mr. H A S T Senanayake – Independent Non-Executive Director
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CORPORATE GOVERNANCE PRACTICES
Statement of the Remuneration Policy
The Committee is responsible for setting up the remuneration policy and making
recommendations to the Board on the following matters:
A competitive and fair remuneration package payable to the Executive
Directors, and Senior Management of the Company, which is satisfactory to
both the interests of the shareholders and the employee in concern.
Performance based remuneration for Senior Management
Evaluating prevailing market remuneration levels when making remuneration
policy amendments
The aggregate remuneration paid to the Executive and Non-Executive Directors of
the Company is Rs. 22.8 million for the nine months ended 31st December, 2010.
8.3 AUDIT COMMITTEE
The Audit Committee constitutes of the following Directors:
Mr. J S Dominic (Chairman) – Independent Non-Executive Director Mr. S H J Weerasuriya – Independent Non-Executive Director
Mr. H A S T Senanayake – Independent Non-Executive Director
Mr. H A S T Senanayake is an Associate Member of the Institute of Chartered
Accountants of Sri Lanka and an Associate Member of the Chartered Institute of
Management Accountants - UK
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9 STATUTORY AND OTHER GENERAL INFORMATION
9.1 LITIGATION, DISPUTES AND CONTINGENT LIABILITIES
The Company has not been involved, nor is it currently involved in any legal
arbitration or mediation proceedings in the recent past, which may have had a
significant effect on the Company's financial position and profitability.
There have been no penalties imposed by Regulatory or State Authorities on the
Company.
The Company does not have any contingent liabilities that would have a material
adverse impact on the current and future profits of the Company.
9.2 INSPECTION OF DOCUMENTS
The Introductory Document and Articles of Association of Mercantile Investments
Limited will be hosted on the Company’s website at www.mi.com.lk and on the CSE
website at www.cse.lk for a period of not less than fourteen (14) days.
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10 FINANCIAL INFORMATION
10.1 RATIOS AND SHARE INFORMATION
Source: Mercantile Investments Limited
Year Ended Latest
Interim
31.12.2010
Comparative
Interim
31.12.2009
31.03.2010 31.03.2009
Net Interest Income / Total Average Assets (%) 9.57 8.04 5.53 7.00
Non-Interest Income / Total Average Assets (%) 3.02 0.94 6.06 2.16
Personnel & Other Non-Interest Expenses / Net
Interest Income & Non-Interest Income (%)
38.29 49.63 30.68 59.98
Gross NPL Ratio (%) 10.27 8.98 7.33 11.75
Liquid Assets / Customer Deposits & Short –
Term Funds
13.90 15.37 12.85 13.28
Capital Adequacy Ratio (%) 26.72 24.02 19.35 23.31
Debt/Equity Ratio 0.11 0.37 0.33 0.14
Book Value per Share (Rs.) 1,177.29 898.14 1,558.51 1149.32
Earnings per Share (Rs.) 105.50 77.79 218.55 93.60
Profit after Tax / Average Equity (%) 10.17 8.63 16.14 8.88
Return on Average Assets (%) 3.92 2.91 6.79 3.42
Effective Tax Rate (%) 44.60 29.67 15.48 6.68
Dividends / Profit after Tax (%) 4.36 4.18 4.57 4.91
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FINANCIAL INFORMATION
10.2 RECEIVABLES
10.2.1 POLICY FOR CLASSIFICATION OF NON-PERFORMING RECEIVABLES
As per the Direction issued by the Central Bank of Sri Lanka with regard to non-
performing Loans and advances, all the loans and advances which are more than six
months arrears/ageing as of the date are categorized as non-performing loans and
advances by the Company.
10.2.2 COMPOSITION OF RECEIVABLES:
Source: Mercantile Investments Limited
YE
31.03.2010
(%)
YE
31.03.2009
(%)
Latest
Interims
31.12.2010
(%)
Comparative
Interims
31.12.2009
(%)
Performing Loans & Advances
Less than 3 months 87.24 80.47 91.62 79.71
3-6 months 2.49 10.55 1.05 8.54
7-12 months - - - -
13 - 24 months - - - -
More than 24 months - - - -
Total (%) 89.73 91.02 92.67 88.25
Total Performing Loans (Rs.) 4,683,798 5,498,206 5,717,597 4,759,652
Non Performing Loans &
Advances
1-2 months - - - -
3-6 months - - - -
7-12 months 3.59 6.04 1.53 5.13
13-24 months 4.19 2.29 1.97 4.45
More than 24 months 2.49 0.66 3.83 2.17
Total (%) 10.27 8.98 7.33 11.75
Total Non-Performing Loans (Rs.) 536,164 542,427 452,400 633,425
Total (Rs.) 5,219,962 6,040,633 6,169,997 5,393,077
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FINANCIAL INFORMATION
10.3 MATURITY ANALYSIS OF DEPOSITS & BORROWINGS
Source: Mercantile Investments Limited
YE31.03.2010
(%)
YE31.03.2009
(%)
LatestInterims
31.12.2010
(%)
ComparativeInterims
31.12.2009
(%)
Maturity Period
Less than or equal to 3 months 35.30 41.35 44.72 33.29
More than 3 months less than or equal to 1 year 48.41 39.47 38.64 49.34
More than 1 year less than or equal to 3 years 12.62 14.01 15.49 11.78
More than 3 years less than or equal to 5 years 3.01 5.17 0.88 5.02
More than 5 years 0.66 - 0.27 0.57
Matured (waiting for customer instructions) - - - -TOTAL 100.00 100.00 100.00 100.00
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11 DECLARATION BY THE DIRECTORS
We, the undersigned, who are named in the Introductory Document as Directors of
Mercantile Investments Limited, hereby declare and confirm that we have read the
provisions of the Companies Act No. 07 of 2007 and the Colombo Stock Exchange
Listing Rules and any amendments to it relating to the issue of this Introductory
Document and that those provisions have been complied with.
This Introductory Document has been seen and approved by us and we collectively
and individually accept full responsibility for the accuracy of the information given and
confirm that provisions of the CSE Listing Rules and of the Companies Act No. 7 of
2007 and any amendments to it from time to time have been complied with after
making all reasonable enquiries and to the best of our knowledge and belief, there
are no other facts, the omission of which would make any statement herein
misleading or inaccurate.
Director Signature
Gerard George Ondaatjie Signed
Shermal Hemaka Jayasuriya Signed
Pathiranage Mahes Amarasekera Signed
Mignonne Bernadette Assauw Signed
Angeline Myrese Ondaatjie Signed
Travice John Ondaatjie Signed
Justin Savarimuttu Dominic Signed
Saroja Hemakumar Jayawickrama Weerasooriya Signed
Henaka Arachchilage Sajitha Tilakasiri Senanayake Signed
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AUDITED FINANCIAL STATEMENTS – 31ST MARCH 2010
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AUDITED FINANCIAL STATEMENTS – 31ST MARCH 2010
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AUDITED FINANCIAL STATEMENTS – 31ST MARCH 2010
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AUDITED FINANCIAL STATEMENTS – 31ST MARCH 2010
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AUDITED FINANCIAL STATEMENTS – 31ST MARCH 2010
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AUDITED FINANCIAL STATEMENTS – 31ST MARCH 2010
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AUDITED FINANCIAL STATEMENTS – 31ST MARCH 2010
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UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010
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1 2 3
M e r c a n t i l e I n v e s t m e n t s L i m i t e d – I n t r o d u c t o r y D o
c u m e n t
M e r c a n t i l e I n v e s t m e n t s L i m i t e
d
C H A N G E S I N
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F o r t h e N i n e M o n t h s e n d e d 3 1
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P r o p e r t y , P l a n t
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m Q u o t e d
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T o t a l
C a p i t a l
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&
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I n v e s t m e n t s
R e s e r v e
P r o f i t / ( L o s s )
E q u i t y
F u n d
R e v a l u a t i o n R e s e r v e
R e v a l u a t i o n R e s e r v e
F u n d
C a r r i e d F o r w a r d
R s ' 0 0 0
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8 9
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6 5 6 , 9
7 4
6 5 6 , 9 7 4
D i v i d e n d s f o r 2 0 1 0
( 3 0 , 0
0 0 )
( 3 0 , 0 0 0 )
R e v a l u a t i o n S u r p l u s / ( D e f e c i t ) o n I n v e
s t m e n t s
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5 2 6 , 0 2 6
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O t h
e r R e s e r v e s
U N - A U D I T E D I N T E R I M F
I N A N C I A L S T A T E M E N T S – 3 1 S T D E C E M B E R 2 0 1 0
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1 2 4
M e r c a n t i l e I n v e s t m e n t s L i m i t e d – I n t r o d u c t o r y D o
c u m e n t
M
e r c a n t i l e I n v e s t m e n t s L i m i t e d
B
u s i n e s s S e g m e n t s
F
o r t h e N i n e M o n t h s E n d e d
3
1 s t D e c e m b e r
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I n
t e r e s t
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6 8
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a p i t a l G a i n s
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D
i v i d e n d s
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1 2 , 3
6 9
T
o t a l R e v e n u e
2 6 6 , 9 6 8
3 2 3 , 2 3 9
6 1 5 , 5 0 6
8 2 1 , 9 3 9
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1 1 5 , 3 2 9
1 8 , 8 3 5
1 8 , 9
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1 4 , 7 0 5
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9 9 , 3 9 5
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P
r o f i t b e f o r e T a x & V a t
8 3 3 , 7
5 2
3 2 5 , 0
8 0
T
a x & V a t o n
F i n a n c i a l S e r v i c e s
( 1 7 6 , 7
7 8 )
( 4 4 , 2
9 2 )
P
r o f i t A f t e r T a x
6 5 6 , 9 7 4
2 8 0 , 7 8 8
O
t h e r I n f o r m a t i o n
A
s a t 3 1 s t D e c e m b e r
S e g m e n t A s s e t s
1 , 5
8 6 , 7
8 8
1 , 0
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3
, 8 3 2 , 9
9 9
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0
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S e g m e n t L i a b i l i t i e s
9 2 5 , 9
4 7
6 2 0 , 3
6 0
2 , 1
2 3 , 4
9 2
1 , 8
1 9 , 1
7 7
2
, 2 3 6 , 6
9 0
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4 , 6
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8 4
4 , 5
8 9 , 8
8 6
N
e t A s s e t s
6 6 0 , 8 4 1
4 6 6 , 9 5 3
1 , 5 1 5 , 5 2 2
1 , 3 6 9 , 3 2 0
1 ,
5 9 6 , 3 0 9
7 7 6 , 8 8 4
3 , 7 0 7
3 , 5 2 0
9 0 8 , 5 0 4
8 3 8 , 1 9 4
4 , 6 8 4 , 8 8 3
3 , 4 5 4 , 8 7 1
T o t a l
F i n a n c
e L e a s e
H i r e P u r c h a s e
I n
v e s t m e n t s / P r o p e r t y
I n s u r a n c e
O p e r a t i n g L e a s e s
U n a l l o c a
t e d
U N - A U D I T E D I N T E R I M F
I N A N C I A L S T A T E M E N T S – 3 1 S T D E C E M B E R 2 0 1 0
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Movement of Loan Loss Provision
31.12.2010 31.12.2009
Loan Loss Provision as of 1st April 62,398 42,631
Provision Made during the Period 14,110 34,842
Provision written back during the Period (7,550) (13,934)
Loan Loss Provision as of 31st December 68,958 63,539
Aggregate amount of loans & advances for which interest is not accrued
31.12.2010 31.12.2009
Non Performing Other Loans & Advances 99,838 107,207
UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010
Explanatory Notes
The accounting policies and methods of computation followed in preparing
the financial statements for the nine months ended 31st December 2010 are
the same as those disclosed in the Audited Financial statements for the year
ended 31st March 2010.
There have been no material events occurring after the interim balance sheet
date that require adjustments to or disclosure in the Financial Statements
There has not been a significant change in the nature of the Contingent
Liabilities which were disclosed in the Annual Report for the year ended 31 st
March 2010.
Loans and Advances on respective interim balance sheet date include
balances as follows:
31.12.2010 31.12.2009
Rs.,000 Rs.,000
Personal Loans 178,453 115,699Loans against FixedDeposits 63,765 77,682
Other Loans 86,927 98,514Bad Debts Provision (68,958) (63,539)
Interest In Suspense (6,030) (2,659)
254,157 225,698
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UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010
Accounting Policies
1. Corporate Information
1.1 General
Mercantile Investment Ltd is a public limited liability company incorporated on June
15 1965 and domiciled in Sri Lanka. It is a Licensed Finance Company regulated
under the Finance Companies Act No 78 of 1988 as Amended by Act No 23 of 1991.
The registered office of the Company is located at No. 236, Galle Road, Colombo 03.
1.2 Principal Activities
The company provides a range financial services including accepting deposits,
granting of loans, lease financing, hire purchase financing, fleet management and
share trading.
There were no significant changes in the nature of the principle activities of the
company during the financial year under review.
1.3 Parent Enterprise & Ultimate Parent Enterprise
The company doesn’t have an identifiable parent of its own.
2. Significant Accounting Policies
2.1 Statement of Compliance
The Financial Statements of the company as at 31st March 2009 are prepared in
accordance with the Sri Lanka Accounting Standards laid down by the Institute of
Chartered Accountant Of Sri Lanka and in compliance with the requirements of the
Companies Act No 7 of 2007 and the Finance Companies Act No 78 of 1988 as
Amended by Act No 23 of 1991.
Basis of Preparation
The Financial Statements of the company are prepared under the historical cost
convention, except Dealing Securities & Land & Buildings that are stated at valuation
as explained in Notes 14, 20 to the Financial Statements .Assets and Liabilities are
grouped by nature and listed in an order that reflects their relative liquidity. Where
appropriate the Significant Accounting Policies are disclosed in the succeeding
notes.
The Financial Statements are prepared in Sri Lanka Rupees which is the Company’s
functional currency unless otherwise stated.
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UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010
Going Concern
Company Directors have made an assessment of the Company’s ability to continue
as a going concern and they do not intend either to liquidate or cease trading.
Comparative Information
The Accounting Policies adopted by the Company are consistent with those of the
previous financial year as permitted by Sri Lanka Accounting Standards No 3
(Revised 2005) on Presentation of Financial Statements.
Comparative information is reclassified whenever necessary to comply with the
current presentation.
Significant Accounting Judgments, Estimates and Assumptions
In the process of applying the Company’s Accounting Policies, the management is
required to make judgments, apart from those involving estimation, which may have
a significant effect on the amounts recognized in the Financial Statements. The key
estimates concerning the future and other key sources of assumptions uncertainty at
the balance sheet date that have a significant risk of causing material adjustments to
the carrying amounts of assets and liabilities within the next financial year are
discussed below.
Impairment Losses on Loans and Advances
In addition to the provision made for possible loan losses based on the parameters
and directives for specific provisions on Loans and Advances by the Central Bank of
Sri Lanka, the Company reviews its Loans and Advances portfolio at each reporting
date or more frequently ,if events or changes in circumstances necessitates to
assess whether a further provision for impairment against exposure which although
not specifically identified as requiring specific provisions have a greater risk of default
than when originally granted.
Review of Impairment Losses on Non –Financial Assets
The Company assesses whether there are any indicators of impairment for all non
financial assets at each reporting date or more frequently if events or changes in
circumstances require doing so. This requires the estimation of the value in use of
the cash generating units. Estimating value in use requires management to make an
estimate of the expected future cash flows from the cash generating unit and also to
select a suitable discount rate in order to calculate the present value of the relevant
cash flows.
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This valuation requires the company to make estimates about expected future cash
flows and discount rates and hence they are subject to uncertainty.
Taxation
Income Tax
We provide for the income tax liability on the basis of the profit for the year as
adjusted for taxation purposes in accordance with the provisions of the Inland
Revenue Act No. 10 of 2006 and the amendments thereto.
We measure current income tax assets and liabilities for the current and prior periods
at the amount expected to be recovered from or paid to the commissioner general of
Inland Revenue. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted by the balance sheet date.
Deferred Taxation
We provide deferred income tax, using the liability method, on all temporary
differences at the balance sheet date between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.
We recognize deferred income tax liabilities for all taxable temporary differences:
except
Where the deferred income tax liability arises from the initial recognition of
an asset or liability in a transaction that is not a business combination and,at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
In respect of taxable temporary differences associated with investments insubsidiaries, associates and interests in joint ventures, except where thetiming of the reversal of the temporary differences can be controlled and it isprobable that the temporary differences will not reverse in the foreseeablefuture.
We recognize Deferred income tax assets for all deductible temporary differences,
carry-forward of unused tax assets and unused tax losses, to the extent that it is
probable that taxable profit will be available against which the deductible temporary
differences, and the carry-forward of unused tax assets and unused tax losses canbe utilized: except
where the deferred income tax asset relating to the deductible temporarydifference arises from the initial recognition of an asset or liability in atransaction that is not a business combination and, at the time of thetransaction, affects neither the accounting profit nor taxable profit or loss;and
UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010
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In respect of deductible temporary differences associated with investmentsin subsidiaries, associates and interests in joint ventures, deferred taxassets are only recognized to the extent that it is probable that thetemporary differences will reverse in the foreseeable future and taxableprofit will be available against which the temporary differences can beutilized.
We review the carrying amount of deferred income tax assets at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred income tax asset to be
utilized.
We measure Deferred income tax assets and liabilities 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.
We recognize in equity the deferred income tax relating to items recognized directlyin equity, and not in the income statement
Post Balance Sheet Events
We consider all material events occurring after the balance sheet date and, where
necessary we make adjustments or disclosures to these financial statements.
Borrowing Cost
We recognize borrowing costs as an expense in the Income Statement, in the period
in which they are incurred in terms of the Sri Lanka Accounting Standard No. 20 onBorrowing Costs.
Foreign Currency Translation
The Financial Statements are presented in Sri Lanka Rupees, which is the
Company’s functional and
Presentation currency.
We do not engage in any foreign currency transactions at present that may require
additional adjustments or disclosures in the Financial Statements.
2.2 Valuation of Assets and their Basis Of measurements
Finance Leases
We classify assets leased to customers, which transfer substantially all the risk and
rewards associated with the ownership other than legal title are accounted as finance
UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010
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lease in accordance with the Sri Lanka Accounting Standard No 19 (Revised 2005)
on Leases
Amount receivable under finance leases net of initial rentals received, unearned
lease income, interest in suspense and provision for rentals doubtful of recovery are
classified as Lease Receivable in the Balance Sheet.
Operating Leases
We classify assets leased to customers under agreements in which we retain
substantially all the risks and rewards associated with ownership and legal title as
operating leases. We recognize such assets as property, plant & equipment in the
Balance Sheet.
Hire Purchase Agreements
We classify advances granted under agreements that transfer substantially all therisks and rewards associated with ownership other than legal title, as hire purchase
advances.
Amount receivable under hire purchases net of unearned interest, interest in
suspense and provision for rentals doubtful of recovery are classified as Hire
Purchases Receivable in the Balance Sheet.
Loans and Advances
We determine the carrying amounts of loans and advances to customers in the
Balance Sheet netting off provisions for possible loan losses and also the interest,which we have not accrued to revenue.
Provision for Bad & Doubtful Debts
We determine the adequacy of provisions for possible loan losses in accordance with
Finance Companies (Provision for Bad & Doubtful Debts) Direction No. 03 of 2006
issued by the Monetary Board of the Central Bank of Sri Lanka based on an aged
classification of advances as follows:
We perform regular ongoing reviews to identify any further provisions need to be
made.
Period Outstanding Minimum Provision Made Net of
Realizable Value of Security
6 – 12 months 50%
13 months and over 100%
UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010
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Investments in Treasury Bills and Bonds
We record investment in Treasury Bills and Treasury Bonds at the value of the
Bills/Bonds purchased and the discount/premium accrued thereon based on a
pattern reflecting a constant yield being earned on the investment.
Investments
Dealing Securities
In accordance with Sri Lanka Accounting Standard No 22 accounting for
investments, we classify marketable securities acquired and held with the intention of
resale over a short period of time as dealing securities. We record such securities at
the lower of cost and market value determined on an aggregate portfolio basis in
total, with any resulting gain or loss recognize in the income statement.
The cost of an investment is the cost of acquisition inclusive of brokerages, fees,duties and bank fees
Investment Securities
We record long term quoted investments at their revalued value based on the market
value of such investments on individual investment basis. We recognize any
appreciation as an appropriation and credit to the long term investment revaluation
reserve in accordance with Sri Lanka Accounting Standards. We charge any
decrease in carrying amount arising from the revaluation of a long- term investment
to the revaluation reserve to the extent that it offsets a previous increase, for thesame investment, that has been credited to the revaluation reserve. In all other
instances, any decrease in carrying amount we recognize as an expense. We also
recognize any increase on revaluation directly as an income to the extent it relates to
a previous decrease in carrying amount for the same investment that was recognized
as an expense.
We determine the market value of such investments based on the last traded price of
the security for the financial year.
Inventory
Inventory consists of spare parts, lubricants and others. We value inventories at the
lower of cost and estimated net realizable value, after making due allowance for
obsolete and slow moving items, using weighted average cost formula. We
determine the cost of stock at actual cost.
UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010
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Property, Plant, & Equipment
We state property, plant & equipment at cost, excluding the costs of day to day
servicing, less accumulated depreciation and accumulated impairment in value. Such
cost includes the cost of replacing part of the plant and equipment when that cost is
incurred, if the recognition criteria are met.
We measure land and buildings at fair value less depreciation on buildings andimpairment charged subsequent to the date of the revaluation.
We perform valuations on every 3-5 years to ensure that the fair value of a revalued
asset does not differ materially from its carrying amount.
We credit any revaluation surplus to the revaluation reserve included in the equity
section of the balance sheet, except to the extent that it reverses a revaluation
decrease of the same asset previously recognized in profit or loss, in which case the
increase is recognized in profit or loss. We recognize a revaluation deficit in profit or
loss, except that a deficit directly offsetting a previous surplus on the same asset isdirectly offset against the surplus in the asset revaluation reserve.
Subsequent Cost
These are costs that are recognized in the carrying amount of an item if it is probable
that the future economic benefits embodied within that part will flow to the company
and it can be measured.
Depreciation
We calculate the provision for depreciation using straight line method to write downcost of property, plant & equipment to their residual values over following useful lives.
We do not depreciate land.
We now determine the depreciation charge separately for each significant part of an
item of property, plant and equipment and begin to depreciate when it is available for
use, rather than adopting a method whereby property, plant and equipment are
depreciated fully in the year of disposal with no such charge being accounted for in
the year of purchase.
Buildings 40 to 75 yrs
Plant and Machinery 5 yrs
Computer Equipment 4 yrs
Office Equipment 10 yrs
Furniture and Fittings 10 yrs
Fixtures 10yrs
Motor Vehicles 6 2/3 yrs
Office Bicycles 10 yrsTools 4 yrs
UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010
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Derecognizing
We derecognize an item of property, plant and equipment upon disposal or when no
future economic benefits are expected from its use or disposal. Any gain or loss
arising on derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is included in the income
statement in the year the asset is derecognized.
Leasehold Property
Leasehold property is stated at recorded carrying value as per the Sri Lanka
Accounting Standard No 19 (Revised 2005) on Leases. Such carrying amounts are
amortized over the remaining lease term or useful life of the leased property
whichever is shorter. No further revaluation of this leasehold property will be carried
out.
Cash & Cash Equivalents
We consider highly liquid investment instruments with an original maturity of three
months or less to be cash & cash equivalents.
For the purpose of cash flow statement, cash and cash equivalents consist of cash in
hand and deposits in banks net of outstanding bank overdrafts. Investments with
short maturities as defined above are also treated as cash equivalents.
Other Assets
Other Assets are stated at the amounts they are estimated to realize net of provisions for bad and doubtful receivables.
2.3 Liabilities and Provisions
Provisions
When our 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 the company can reliably
estimate the amount of the obligation, we recognize it as a provision in accordancewith the Sri Lanka Accounting Standard No. 36 on Provisions, Contingent Liabilities
and Contingent Assets.
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Commitments and Contingencies
All discernible risks are taken into account in determining the liabilities of the
Company. All other capital commitments and contingencies, for which the Company
is liable, are disclosed in Notes 31 & 32 to the Financial Statements.
Retirement Benefit Obligations
Defined Benefit Plan-Gratuity
Gratuity is a defined benefit plan. We determine the adequacy of gratuity liability in
terms of Payment of Gratuity Act No. 12 of 1983. In order to meet this liability, we
carry forward a provision in the balance sheet, based on half month’s salary of the
last month of the financial year of all our employees for each completed year of
service, commencing from the first year of service. We recognize the resulting
difference between brought forward provision at the beginning of the year and thecarried forward provision at the end of the year as an income or expense.
We do not fund or obtain an actuarial valuation for this gratuity liability and classify
such liability under Other Liabilities in the balance sheet.
Defined Contribution Plans-Employees’ Provident Fund & Employees’ Trust
Fund
Employees are eligible for Employees’ Provident Fund Contributions and Employees’
Trust Fund Contributions in line with the respective statutes and regulations. Our
Company contributes 12% and 3 % of gross emoluments of our employees toEmployees’ Provident Fund and Employees’ Trust Fund respectively.
2.4 Income Statement
Revenue Recognition
We recognize revenue to the extent that it is probable that the economic benefits will
flow to the Company and such revenue can reliably measure the associated costs
incurred or to be incurred. We measure revenue at the fair value of the consideration
received or receivable net of trade discounts and sales taxes. We use the followingspecific criteria for the purpose of recognition of revenue.
Interest Income
We recognize interest income on an accrual basis. We do not accrue interest when
the recovery of principal or interest is in arrears for six months or more. Thereafter
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we account for interest on cash basis. We transfer the interest falling due on non-
performing advances to Interest in Suspense Account.
Finance Lease Income
We consider the excess of aggregate rentals receivable over the cost of the leased
asset as unearned interest income. We recognize the interest income from unearned
income on the lease on an accrual basis over the term of the lease in proportion to
the remaining balance of the lease. However, we cease the recognition of income
when the recovery of principal or interest is in arrears for six months or more.
Thereafter we account interest income on a cash basis. We transfer interest falling
due on non-performing leases to Interest in Suspense Account.
Operating Lease Income
We recognize rental income as revenue on an accrual basis. However, we do notaccrue rental as income when such rentals are in arrears for six months or more.
Thereafter we account for rental income on cash basis.
Interest Income from Other Sources
We recognize interest income from Government of Sri Lanka Treasury Bills on a time
proportion basis as discounts on purchase are amortized to income on a straight line
basis over periods of maturity. We also recognize income from all other interest
bearing investments as revenue on an accrual basis.
Dividend Income
We recognize dividend income when our right as shareholders’ to receive the
payment is established.
Gains or Losses on Share Trading
We determine net gains and losses resulting on share trading on an accrual basis.
Gains or losses on Disposal of Property, plant & Equipment
We account for net gains and losses resulting from the disposal of property, plant &
equipment on an accrual basis.
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Restoration Costs of Property, Plant & Equipment
Expenditure incurred on repairs or maintenance of property, plant and equipment in
order to restore or maintain the future economic benefits expected from originally
assessed standard of performance, is recognized as an expense in the Income
Statement, when incurred.
Commission Income
We recognize commission income on insurance on a cash basis.
Rental Income
We recognize rental income is on an accrual basis.
Other Income
We recognize other income on an accrual basis.
Expenses Recognition
All expenditure incurred in the running of our business and in maintaining the
property, plant & equipment in a state of efficiency has been charged to income in
arriving at the profit for the year. We recognize expenses in the income statement on
the basis of a direct association between the cost incurred and the earning of specific
items of income.
We use accrual basis to calculate the interest payable.
For the purpose of presentation of the Income Statement our directors are of the
opinion that nature of expenses method presents fairly the elements of the
Company’s performance, and hence such presentation method is adopted.
2.5 Cash Flow Statement
We prepare the Cash Flow Statement using the “Direct Method”, whereby gross cash
receipts and gross cash payments of operating activities, finance activities, and
investing activities have been recognized.
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2.6 Segment Reporting
We present segment information in respect of our Company’s business in
accordance with the Sri Lanka Accounting standard No 28 on reporting financial
information by segment. These segments comprise finance lease, hire purchasing,
insurance, investments/ property and operating lease.
2.7 Directors’ Responsibility Statement
The Board of Directors is responsible for the preparation and presentation of these
Financial Statements.
UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010