[DC 2] ENTRUST SECURITIES PLC

Transcription

1 [DC 2] ENTRUST SECURITIES PLC FINANCIAL STATEMENTS 31 MARCH 2014

2 [DC 2] FINANCIAL STATEMENTS - 31 MARCH 2014 CONTENT PAGE Independent auditor's report 1 Statement of financial position 2 Statement of comprehensive income 3 Statement of changes in equity 4 Statement of cash flows 5 Notes to the financial statements 6-33

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5 Statement of comprehensive income [DC 2] Page 3 (all amounts in Sri Lanka Rupees) Notes Year ended 31 March Interest income from government securities 16 1,158,723, ,090,085 Interest expense 17 (976,342,224) (665,231,675) Net interest income 182,381, ,858,410 Net gain from trading securities 170,845, ,408,492 Brokerage fee (12,503,027) (18,329,453) Income from trading activities 340,723, ,937,449 Other income ,394 7,475,331 Sales and promotion costs (5,276,758) (7,865,674) Administration costs (120,111,317) (97,861,086) Operating profit ,239, ,686,020 Other finance income , ,708 Other finance costs 21 (15,945) (533,179) Profit before fair value of trading securities 216,730, ,980,549 Fair value gain on trading securities 57,773,000 18,990,000 Profit before tax 274,503, ,970,549 Income tax expenses Profit for the year 274,503, ,970,549 Other comprehensive loss Actuarial loss on post-employment benefit obligation 15 (146,432) (627,533) Other comprehensive loss for the year (146,432) (627,533) Total comprehensive income for the year 274,357, ,343,016 Earnings per share - basic The Notes on pages 6 to 33 form an integral part of these financial statements. Independent auditors' report - page 1.

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7 [DC 2] Page 5 Statement of cash flows (all amounts in Sri Lanka Rupees) Year ended 31 March Cash generated from / (used in) operations 26 3,252,109 (10,913,651) Gratuity paid 15 (165,000) (3,354,500) Net cash generated from / (used in) operating activities 3,087,109 (14,268,151) Cash flows from investing activities Purchase of property, plant and equipment 10 (9,600,634) (1,423,481) Sales proceeds from disposal of property, plant and equipment 4,056,227 14,198,117 Movement in gratuity fund 8 (342,323) 2,118,503 Net cash (used in) / generated from investing activities (5,886,730) 14,893,139 (Decrease) / increase in cash and cash equivalents (2,799,621) 624,988 Movement in cash and cash equivalents At beginning of year 3,657,360 3,032,372 Decrease / increase (2,799,621) 624,988 Cash and cash equivalents at end of the year 5 857,739 3,657,360 The Notes on pages 6 to 33 form an integral part of these financial statements. Independent auditors' report - page 1.

8 Notes to the financial statements [DC 2] Page 6 (In the notes all amounts are shown in Sri Lanka Rupees unless otherwise stated) 1 General information Entrust Securities PLC ('the Company") was incorporated and commenced business operations on 29 February The primary dealer license was issued to the Company on the 1 April The Company's principal activity is buying and selling of government securities for customers and leveraging on own portfolio in the money market. The company is a Public Limited Company incorporated and domiciled in Sri Lanka. The address of its registered office is at Level 23, East Tower, World Trade Center, Echelon Square, Colombo 1. The Company carries out business as a primary dealer in accordance with Registered Stock and Securities Ordinance and Local Treasury Bill Ordinance, and subject to the regulatory controls of the Central Bank of Sri Lanka. The company was listed on the Dirisavi Board of the Colombo Stock Exchange on 29 November The parent and ultimate parent Company of the Entrust Securities PLC was Entrust Limited and Platinum Capital (Private) Limited respectively. As discussed in Note 31 to the financial statements, with effect from 27 May 2014 the parent and ultimate parent company of the Entrust Securities PLC has been changed to Entrust Holdings Limited and Entrust Capital Partners (Private) Limited. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated. 2.1 Basis of preparation The financial statements have been prepared in accordance with and comply with Sri Lanka Accounting Standards ("SLAS") under the historical cost convention except for following financial statement line items. - Financial instruments at fair value through profit or loss, which are measured at fair value; - Financial instruments at held to maturity, which are measured at amortized cost; - Post employment benefit obligation which is measured at the present value of the retirement benefit obligation net of gratuity plan assets; Changes in accounting policies and disclosures (a) (b) New and amended standards adopted by the Company There are no SLASs that are effective for the first time for the financial year beginning on or after 1 January 2013 that would be expected to have a material impact on the Company. New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2013 and not early adopted by the Company. SLFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial assets and Financial liabilities. SLFRS 9 was issued in November 2009 and October It replaces the parts of LKAS 39 that relate to the classification and measurement of financial instruments. SLFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition.

9 [DC 2] Page 7 2 Summary of significant accounting policies(contd) 2.1 Basis of preparation (contd) Changes in accounting policy and disclosures (contd) (b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2013 and not early adopted by the Company(contd) The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the LKAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Company is yet to assess SLFRS 9 s full impact. The implementation date for SLFRS 9 has been deferred. SLFRS 10, Consolidated financial statements builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The Company is yet to assess SLFRS 10 s full impact and intends to adopt SLFRS 10 not later than the accounting period beginning on or after 1 January SLFRS 12, Disclosures of interests in other entities includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The Company is yet to assess SLFRS 12 s full impact and intends to adopt SLFRS 12 no later than the accounting period beginning on or after 1 January SLFRS 13, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across SLFRSs. The Company is yet to assess SLFRS13 s full impact and intends to adopt SLFRS 13 no later than the accounting period beginning on or after 1 January Foreign currencies (a) Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The financial statements are presented in Sri Lankan Rupees, which is the Company's functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the statement of financial position date. Foreign exchange gains and losses (if any) arising from translation are included in the statement of comprehensive income.

10 [DC 2] Page 8 2 Summary of significant accounting policies(contd) 2.3 Financial assets Classification The Company allocates financial assets to the following categories; financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the classification of its financial instruments at initial recognition. (a) (b) Financial assets at fair value through profit or loss This category comprises of financial assets classified as held for trading. A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short - term profit - taking. Financial assets held for trading consist of treasury bonds and treasury bills issued by the Government of Sri Lanka. They are recognized in the statement of financial position as financial assets at fair value through profit or loss. Financial instruments included in this category are recognized initially at fair value; transaction costs are taken directly to the statement of comprehensive income. Gains and losses arising from changes in fair value are included directly in the statement of comprehensive income and are reported as fair value gain / (loss) on trading securities. This instruments are derecognised when the rights to receive cash flows have expired or the Company has transferred substantially all the risks and rewards of ownership and the transfer qualifies for derecognising. The chosen valuation technique makes maximum use of market inputs and incorporates all factors that market participants would consider in setting a price. It is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. The Company calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: those that the Company intends to sell immediately or in the short term, which are classified as held for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss; those that the Company upon initial recognition designates as available for sale; or those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration. When the Company purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date ("reverse repo" or "lending against securities"), the arrangement is accounted for as a loan or receivable, and the underlying asset is not recognized in the Company s financial statements. Loans and receivables consists of securities purchased under agreements to resell ( reverse repos ) to other banks or customers (counterparties), as appropriate. The carrying value of the securities purchased under agreement to sell is recorded at cost. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest rate method. In the case of an impairment, the impairment loss is reported as a deduction from the carrying value of the loan and recognised in the statement of income as loan impairment charges.

11 [DC 2] Page 9 2 Summary of significant accounting policies(contd) 2.3 Financial assets (contd) Classification (contd) (c) Held-to-maturity financial assets Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company s management has the positive intention and ability to hold to maturity, other than: those that the Company upon initial recognition designates as at fair value through profit or loss; those that the Company designates as available for sale; and those that meet the definition of loans and receivables. These are initially recognised at fair value including direct and incremental transaction costs and measured subsequently at amortised cost, using the effective interest method. Interest on held-to-maturity investments is included in the statement of comprehensive income and reported as interest income. In the case of an impairment, the impairment loss is been reported as a deduction from the carrying value of the investment and recognised in the statement of comprehensive income as Net gains / (losses) on investment securities. Held-to-maturity investments are treasury bonds and treasury bills issued by Government of Sri Lanka and no impairment loss has been recognised in the financial statements. If the Company was to sell other than insignificant amount of held to maturity financial assets, the whole category would be tainted and reclassified as available for sale Recognition and measurement The Company initially recognizes financial assets on the date at which they are originated. Regular way purchases of financial assets are recognized on the value date at which the Company commits to purchase the asset. All other financial assets are initially recognized on the value date at which the Company becomes a party to the contractual provisions of the instrument. A financial asset is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue Derecognition Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the Company tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent derecognition). Collateral (government securities) furnished by the Company under standard repurchase agreements and lending and borrowing against securities transactions are not de-recognised because the Company retains substantially all the risks and rewards on the basis of the predetermined repurchase price, and the criteria for de-recognition are therefore not met.

12 [DC 2] Page 10 2 Summary of significant accounting policies(contd) 2.3 Financial assets (contd) Impairment of financial assets At each reporting date the Company assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is (are) impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably. Objective evidence that financial assets are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, indications that a borrower or issuer will enter bankruptcy or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. The Company considers evidence of impairment for loans and receivables at both a specific asset and collective level. All individually significant loans and receivables are assessed for specific impairment. All individually significant loans and receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and receivables that are not individually significant are collectively assessed for impairment by grouping together loans and receivables with similar risk characteristics. Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset's original effective interest rate. Impairment losses are recognized in profit or loss and reflected in an allowance account against loans and receivables. Interest on impaired assets continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. The Company writes off certain loans and receivables and investment securities when they are determined to be uncollectible. 2.4 Reclassification of financial assets The Company may choose to reclassify a financial asset held for trading out of the held-for-trading category if the financial asset is no longer held for the purpose of selling it in the near-term. Financial assets are permitted to be reclassified out of the held for trading category to available-for-sale category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near-term. In addition, the Company may choose to reclassify financial assets that would meet the definition of loans and receivables out of the held-for-trading category if the Company has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification. Held-to maturity assets must be reclassified to available-for-sale category if the loan portfolio become tainted following the sale of other than an insignificant amount of held-to-maturity assets prior to its maturity. Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date are subsequently made.

13 [DC 2] Page 11 2 Summary of significant accounting policies(contd) 2.5 Financial liabilities A financial liability is measured initially at fair value and initially recognized on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company s holding in financial liabilities is at amortised cost and represent mainly repo borrowings. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. (a) Liabilities measured at amortised cost Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are measured at amortised cost. The amortized cost of a financial liability is the amount at which the financial liability is measured at initial recognition, minus principal repayments, plus the cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount. When the Company enters into an agreement to repurchase an asset (or a substantially similar asset) at a fixed price on a future date ( repo or borrowing against securities ), the counterparty liability is included as borrowing from banks or customer accounts, as appropriate and the underlying asset will not to be recognised in the company s financial statements. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreement using the effective interest method. 2.6 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. 2.7 Revenue recognition (a) Interest income and expense Interest income and expense for all interest-bearing financial instruments are recognised within interest income and interest expense in the statement of comprehensive income using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the company estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. (b) Capital gain Net gains on sale of trading securities are accounted for on the date of sale by deducting the carrying value of the securities from the sale proceeds.

14 [DC 2] Page 12 2 Summary of significant accounting policies(contd) 2.8 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash-generating units). The impairment test also can be performed on a single asset when the fair value less cost to sell or the value in use can be determined reliably. Nonfinancial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 2.9 Cash and cash equivalents Cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition for day to day operations, including cash in hand and deposits held with banks Property, plant and equipment All property, plant and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Property, plant and equipment are initially recognised when the asset is in the location and condition necessary for it to be capable of operating in the manner intended by the Company and only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred. Carrying amount of Property, plant and equipment are de-recognised when the assets cease to be in the condition necessary for it to be capable of operating in the manner intended by the Company or on disposal of such asset or no future economic benefits are expected from its use or disposal. Depreciation is calculated on the straight line method to amortise the cost of each asset to their residual values over their estimated useful life as follows: Computers and accessories Furniture and other equipment Motor vehicles 3 years 4 years 5 years The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other income in the statement of comprehensive income.

15 [DC 2] Page 13 2 Summary of significant accounting policies(contd) 2.11 Non current assets held for sale Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable within one year from the date of the classification. They are stated at the lower of carrying amount and fair value less costs to sell. Non-current assets held for sale are de-recognised when the consideration are received or right to receive the cash or consideration is established. The gains or losses are recognised within 'other income' in the statement of comprehensive income when the financial transaction takes place Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made Employee benefits (a) Defined contribution plans All employees of the Company are members of the Employees' Provident Fund and Employees' Trust Fund, to which their employer contributes 12% and 3% respectively of such employees' basic or consolidated wage or salary, cost of living and all other allowances. (b) Defined benefit obligation - gratuity Defined benefit plans define an amount of benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the statement of financial position in respect of defined benefit plans is the present value of the defined benefit obligation at the statement of financial position date together with adjustments for unrecognised past service cost. The defined benefit obligation is calculated annually by the Company using the projected unit credit method based on the formula prescribed in Sri Lanka Accounting Standard 19 - Employee Benefits (LKAS19). The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using the interest rates of government bond as no deep market for high quality corporate bonds in Sri Lanka. Gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income in the statement of comprehensive income of recognized income and expense in the period in which they arise. Past service costs are recognised immediately in the statement of comprehensive income, unless the changes to the plan are conditional on the employees remaining in service for a specific period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred Stated capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

16 [DC 2] Page 14 2 Summary of significant accounting policies(contd) 2.16 Dividend distribution Dividend distribution to the Company s shareholders is recognised as a reduction in retained earnings in the Company s financial statements in the period in which the dividends are approved by the company s shareholders, the Central Bank of Sri Lanka and are paid. If the dividends are approved by the Board of Directors and which is subject to approval by shareholders and the Central Bank of Sri Lanka, a disclosure will be made in the notes to financial statements Going concern The directors have made an assessment of the Company's ability to continue as a going concern in the foreseeable future, and they do not intend either to liquidate or to cease operations Comparatives Where necessary, comparative figures have been adjusted to confirm with changes in presentation in the current year. 3 Critical accounting estimates and judgments Estimates, assumptions and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below. 3.1 Defined benefit obligation - gratuity The present value of the gratuity obligations depends on a number of factors that are determined on the projected unit credit method using a number of assumptions. The assumptions used in determining the net cost (income) for gratuity include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the gratuity obligations. In determining the appropriate discount rate, the Company considers the interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related gratuity obligation. Other key assumptions for gratuity obligations are based in part on current market conditions. Additional information is disclosed in Note Held-to-maturity investments In accordance with LKAS 39 guidance, the Company classifies some financial assets with fixed or determinable payments and fixed maturity as held to maturity. This classification requires significant judgment. In making this judgment, the Company evaluates its intention and ability to hold such investments to maturity. If the company were to fail to keep these investments to maturity other than for the specific circumstances for example, selling an insignificant amount close to maturity the Company is required to reclassify the entire category as available for sale. Accordingly, the investments would be measured at fair value instead of amortised cost. If all held-to-maturity investments were to be so reclassified, the carrying value would increase, with a corresponding entry in the fair value reserve in shareholders equity.

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25 [DC 2] Page 23 7 Deposits, prepayments and other receivables 31 March 31 March Deposits in Lanka Financial Services Bureau 1,000,000 1,000,000 Advances and prepayments 5,182, ,482 Other receivables 9,810,286 1,098,280 Receivable from related parties [Note 29 b (i)] 8,954,287 14,804,805 24,947,322 17,568,567 8 Gratuity fund investment 31 March 31 March Fund asset at beginning of year 5,235,709 7,354,212 Interest received on the assets 507, ,997 Settlements during the year (165,000) (2,929,500) Fund asset at the end of year 5,578,032 5,235,709 Above balance represents the fund maintain in a separate re-selling agreement to meet employees' gratuity obligation. 9 Assets held for sale During the year the Company has shifted to new office location which results to cease some of its fixed assets used in previous premises. Management has decided to recover the carrying value of those assets through sale and accordingly re-classified above fixed assets not in use as Assets held for sale. The carrying value and realisable value of assets held for sale is as follows; Net book value Realisable value Furniture and fittings 1,380, ,942 Office equipment 837,161 1,752,515 Computer equipment 6,739 9,600 2,224,832 2,240,057

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27 [DC 2] Page Property, plant and equipment(contd) (a) During the year company transferred property, plant and equipment which net book value of Rs 162,639 ( Rs 6,931,766) to related parties and generated a disposal profit of Rs 59,083 ( Rs. 7,142,450). Property, plant and equipment includes motor vehicle acquired under finance lease, the net book value of which is made up as follows: 31 March 31 March Cost- capitalised finance leases 4,900,700 4,900,700 Accumulated depreciation (1,511,049) (1,429,371) Disposals (3,389,651) - Net book amount as at year end - 3,471, Stated capital Number of shares Value (Rs) Balance at the beginning and end of the year 33,000, ,000, Financial liabilities 31 March 31 March Other financial liabilities - Government securities sold under repurchase agreements 11,373,802,669 6,397,312,098 Payable under repurchase agreements includes related parties as disclosed in Note 29 b (iii) to the financial statements. 13 Borrowings Current Finance lease liability Non- current Finance lease liability Total borrowings 31 March 31 March - 815, ,747-2,610,988-2,610,988-3,426,735 Lease interest (p.a) - 14% Lease liability is effectively secured as the right to the leased revert to the lessor in the event of default.

28 [DC 2] Page Borrowings(contd) 31 March 31 March Finance lease liabilities - minimum lease payment: Not later than one year Later than one year and not later than five years Future finance charges on finance leases Present value of finance lease liabilities Future finance charges on finance leases Current Non-current - 1,243,215-3,108,038-4,351,253 - (924,518) - 3,426,735 - (427,478) - (497,040) - (924,518) 14 Accruals, provisions and other payables 31 March 31 March Accrued expenses [refer (a) below] 4,543,911 2,352,104 Other payables [refer (b) below] 40,952,713 17,993,926 Payable to related parties [Note 29 b (ii)] 6,143, ,006 51,640,099 21,094,036 (a) (b) Accrued expenses mainly consist of printing and publication expenses Rs 1,500,000 ( Rs 1,172,537), professional fees Rs 203,280 ( Nil), sales commission Rs164,389 ( Rs 201,237). Other payables mainly consist of bonus payable of Rs 35,323,436 ( Rs. 15,845,407), audit fees payable of Rs. 686,157 ( Rs 810,410) and miscellaneous payable of Rs 3,039,025 ( Rs 460,141) relating to unpresented cheques. 15 Post-employment benefit obligation- gratuity Post-employment benefit obligation comprises of provision for gratuity. The amounts recognised in the statement of financial position are determined as follows: 31 March 31 March Present value of unfunded obligation 5,921,674 4,709,182 Liability in the statement of financial position 5,921,674 4,709,182

29 [DC 2] Page Post-employment benefit obligation- gratuity(contd) The movement in the defined benefit obligation over the year is as follows: 31 March 31 March At beginning of year 4,709,182 6,392,305 Current service costs 697, ,891 Interest costs 533, ,953 Actuarial loss 146, ,533 Payments made during the year (165,000) (3,354,500) At end of year 5,921,674 4,709,182 The amounts recognised in the statement of comprehensive income are as follows: 31 March 31 March Statement of income: - Current service cost 697, ,891 - Interest cost 533, ,953 Total included in the staff costs [Note 20] 1,231,060 1,043,844 Other comprehensive loss: - Actuarial loss 146, ,533 The principal actuarial assumptions used were as follows: Discount rate per annum 12.13% 12.63% Annual salary increment rate 12.00% 10.00% Retiring age Sensitivity analysis of key actuarial assumptions used: Change in assumption Impact on defined benefit obligation Increase in Decrease in assumption assumption Discount rate per annum 1% Annual salary increment rate 1% Decrease by 3.87% Increase by 4.03% Increase by 4.06% Decrease by 3.90%

30 [DC 2] Page Interest income on government securities Year ended 31 March Interest income on investment and trading securities 318,308, ,981,143 Interest income on securities purchased under resale agreements 17 Interest expense 840,415, ,108,942 1,158,723, ,090,085 Year ended 31 March Interest expenses on government securities sold under repurchase agreements (976,342,224) (665,231,675) 18 Other income Year ended 31 March Profit on disposal of property, plant and equipment 546,051 7,258,537 Miscellaneous income 357, , ,394 7,475, Expenses by nature The following items have been charged in arriving at operating profit: Year ended 31 March Directors' emoluments 3,020,333 10,119,129 Advertising and promotions 3,030,330 4,866,483 Auditors' remuneration 350, ,114 Depreciation on property, plant and equipment [Note 10] 3,759,517 7,571,944 Fuel and vehicle hire 9,777,179 8,587,169 Legal and consultancy fees 5,499,573 6,305,654 Maintenance costs 2,807,252 2,765,953 Shared service charges 7,481,545 5,905,563 Rent and rates 5,318,928 2,684,606 Swift, bloomberg and bank charges 9,325,766 7,021,674 Utility costs 1,996,858 2,333,553 Staff costs [Note 20] 63,632,920 37,780,894 Other administration and selling expenses 9,387,874 9,501, ,388, ,726,760

31 [DC 2] Page Staff costs Year ended 31 March Salaries and bonuses 57,792,582 32,756,418 Staff welfare 1,447, ,377 Defined contribution plans 3,161,668 3,183,255 Defined benefit obligation [Note 15] 1,231,060 1,043,844 63,632,920 37,780,894 Monthly average number of persons employed by the Company during the year - full time No. of persons employed by the Company at the year end Other finance income- net Year ended 31 March Other finance income Interest income from gratuity fund investment 507, ,997 Staff loan interest - 16, , ,708 Other finance costs Lease interest (15,945) (533,179) Other finance income - net 491, , Income taxes and VAT on financial services (a) (b) No income tax is provided as the management is of the view that the company's interest income is not liable and not a part of its assessable income for income tax under section 32 as it is in the business of primary dealer. Further, the company does not pay VAT on financial services under section 25 (A) as the management is of the opinion that the Company is not in the business of providing financial services. Except as noted in Note 22 (b), the Company has not received any assessment of income tax and VAT on financial services from the Department of Inland Revenue. The Department of Inland Revenue has issued an assessment for the income tax for the year of assessment 2003/2004. The appeal made by the Company against the said notice of assessment had been determined by the Commissioner General of Inland Revenue reducing the assessable income. Accordingly, the income tax payable for the year of assessment 2003 / 2004 is LKR 29,099,850 (excluding penalty that is limited to a maximum of 50% of the amount of tax outstanding). Company is of the opinion that there's no further tax liability with the representations made by tax advisor according to the Inland Revenue Act No.10 of However, The Company made a petition of appeal to the Board of Review against the said determination of the Commissioner General of Inland Revenue and the Board of Review has made its determination confirming the determination of the Commissioner General of Inland Revenue. Therefore, the Company filed a case in the Court of Appeal seeking the determination on the questions of law arising on the stated case of the Board of Review. The case is still pending.

32 [DC 2] Page Withholding Tax The Company pays Withholding Tax at source on purchase of treasury Bills and treasury Bonds. The Company recognises interest income from those instruments net of Withholding Tax paid. 24 Earnings per share Earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. Year ended 31 March Net profit attributable to shareholders (Rs) 274,503, ,970,548 Weighted average number of ordinary shares in issue 33,000,014 33,000,014 Earnings per share (Rs) - basic Dividend per share (a) No dividend has been approved, declared and paid during the year ended 31 March (b) The directors have approved a first and final dividend of Rs 0.76 per share amounting to Rs 25 million for the year ended 31 March 2013 on 15 August 2013 subject to the approval of the Central Bank of Sri Lanka which yet to be received by the Company. 26 Cash generated from/(used in) operations Reconciliation of profit before tax to cash generated from operations: Year ended 31 March Profit before income tax 274,503, ,970,549 Adjustments for: Depreciation [Note 10] 3,759,517 7,571,944 Gain from revaluation of dealing securities (57,773,000) (18,990,000) Provision for gratuity [Note 15] 1,231,060 1,043,844 Changes in operating assets and liabilities: - Fair value through profit or loss (1,168,157,829) (1,051,941,453) - Loans and receivables (4,233,566,201) 449,985,844 - Held-to-maturity 187,569,790 (2,599,293) - Loans and payable 4,976,490, ,781,675 - Other assets (7,378,755) (12,057,700) - Other liabilities 27,119,328 16,579,476 Profit on disposal of property, plant and equipment (546,051) (7,258,537) Cash generated from / (used in) operations 3,252,109 (10,913,651)

33 [DC 2] Page Contingent liabilities There were no contingent liabilities except for any liability which may arise from matters stated in Note Commitments (a) Capital commitments There were no material capital commitments outstanding at the statement of financial position date. (b) Operating lease commitments The future aggregate minimum lease payments under cancellable operating leases are as follows; 31 March 31 March No later than 1 year 6,588,451 2,568,824 Later than 1 year and no later than 5 years 20,733,538 2,996,961 later than 5 years - - Total 27,321,989 5,565, Directors' interests in contracts with the Company Mrs R D Senerath who is a director and shareholder of the Company is also a director of the Entrust Limited, Multi Finance PLC, Entrust Investments Limited and Entrust Healthcare Limited. Mr I D B Dasanayake and Mr C U Ratwatte who are directors of the Company are also a directors of Entrust Limited, Multi Finance PLC, Entrust Investments Limited and Entrust Healthcare Limited. Dr Nalin Jayasooriya who is a director of the Company is also a director of McQuire Rens & Jones (Private) Limited. Mr C U Ratwatte who is a director of the Company is also a director of Brave Guard Security and Investigation Services. Mr Harsha De Silva who was a director of the Company had been resigned with effect from 4 September 2013, was also a director of Navara Capital (Private) Limited and Navara Forex and Money Brokers Limited, a customer and service provider of the Company respectively. Mr R M S Tilakawardana had been appointed as a director of the Company with effect from 29 November 2013 is also a director of Multi Finance PLC. Mr G A K Nanayakkara who is a director of the Company invested in Government securities sold by the Company under repurchased agreements. (a) The following transactions were carried out with related parties: (i) (ii) Capital gain 31 March Entrust Limited 8,010,356 21,731,830 Multi Finance PLC - 13,807 Reimbursement of expense Entrust Limited 7,848,851 6,279,094

34 [DC 2] Page Directors' interests in contracts with the Company(contd) (a) The following transactions were carried out with related parties (contd): 31 March (iii) (iv) (v) (vi) Recovery of expenses Entrust Limited 8,717,946 2,827,184 Multi Finance PLC 138, ,332 Entrust Healthcare Limited 22,839 58,225 Interest income Entrust Limited 557,218, ,147,225 Multi Finance PLC 118,464 1,927,521 Entrust Healthcare Limited Interest expense Entrust Limited 16,810,364 17,741,570 Multi Finance PLC 1,201,386 5,455,651 Entrust Healthcare Limited 161, ,643 Mr G A K Nanayakkara 390, ,614 Service charges Navara Forex and Money Brokers Limited - 746,528 McQuire Rens & Jones (Private) Limited 17, ,148 Brave Guard Security and Investigation Services 364, ,584 (vii) Disposal profit [Note 10] Entrust Limited 35,069 7,139,911 Multi Finance PLC 24,014 2,539 (b) Year end balances arising from the above transactions; 31 March 31 March (i) Receivables from related parties [Note 7] Entrust Limited 8,925,472 14,340,807 Multi Finance PLC 4, ,595 Entrust Healthcare Limited 24,242 1,403 8,954,287 14,804,805 (ii) Payable to related parties [Note 14] Entrust Limited 6,143, ,006

35 [DC 2] Page 33 ENTRUST SECURITIES PLC 29 Directors' interests in contracts with the Company(contd) (b) Year end balances arising from the above transactions (contd) ; 31 March 31 March (iii) Payables to related parties under repurchase agreements: [Note 12] Entrust Limited 107,964,766 46,548,745 Multi Finance PLC 274,651 20,432,433 Mr G A K Nanayakkara 4,088,503 8,988, ,327,920 75,969,194 (iv) Receivable from related parties under resale agreements [Note 6.2] Entrust Limited 6,023,642,237 4,154,225,315 (v) Compensation to Key Management Personnel Short term benefits Emoluments of directors 3,020,333 10,119,129 Emoluments of senior management 22,771,247 8,729,100 25,791,580 18,848, Related party transactions There were no related party transactions which require disclosures other than those disclosed in Note 29 to the financial statements. 31 Events after the reporting period Entrust group had been restructured subsequent to the year end. Accordingly Company s existing shareholding percentage of 86.82% had been transferred from Entrust Limited to Entrust Holdings Limited on 27 May The Company has obtained the approval of the Monetary Board of the Central Bank of Sri Lanka for the above ownership change which require no adjustment to the financial statements. Accordingly, with effect from 27 May 2014 new parent and ultimate parent of the Company is Entrust Holdings Limited and Entrust Capital Partners (Private) Limited respectively. No other events have occurred except for the above since the statement of financial position date which require adjustment to, or disclosure in, the financial statements.