Mercantile Investments Limited - Introduction

8/6/2019 Mercantile Investments Limited - Introduction

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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



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.




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




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




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




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’


Colombo 02.

Telephone : 011-2317777

Fax : 011-2317788




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"


Colombo 02

Telephone: 2429100

Fax: 2429199


Asia Securities (Pvt) Limited

Level 21, West Tower,

World Trade Center,Echelon Square, Colombo 1.

Telephone: 2423905,5320000

Fax: 2336018


Assetline Securities (Pvt) Limited

282, Kaduwela Road,

Battaramulla.Telephone: 4700111, 2307366

Fax: 4700112


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


Ceylinco Stockbrokers (Pvt) Limited

Ceylinco House, Level 9,

69, Janadhipathi Mawatha,

Colombo 1.

Telephone: 4714300, 4714388, 4714389

Fax: 2387228


CT Smith Stockbrokers (Pvt) Limited

4-14, Majestic City,

10, Station Road,

Colombo 4.

Telephone: 2552290-4

Fax: 2552289


D N H Financial (Pvt) LimitedLevel 16, West Tower,

World Trade Centre,

Colombo 01.

Telephone: 5732222

Fax: 5736264


J B Securities (Pvt) Limited150, St. Joseph Street,

Colombo 14.

Telephone: 2490900, 0772490900

Fax: 2430070, 2446085,2447875






John Keells Stockbrokers (Pvt) Limited

130, Glennie Street,

Colombo 2.

Telephone: 2306250,2342066-7,2446694-5

Fax: 2342068, 2326863


Lanka Securities (Pvt) Limited

228/2, Galle Road

Colombo 4.

Telephone: 4706757,2554942

Fax: 4706767


NDB Stockbrokers (Pvt) Limited

5th Floor, NDB Building,

40, Navam Mawatha,

Colombo 2.

Telephone: 2314170-8

Fax: 2314180


SC Securities (Pvt) Limited

2nd Floor,

55, D.R. Wijewardena Mawatha,

Colombo 10.

Telephone: 4711000

Fax: 2394405


Somerville Stockbrokers (Pvt) Limited

137, Vauxhall Street,

Colombo 2.

Telephone: 2329201-5, 2332827, 2338292-3

Fax: 2338921






Trading Members of the CSE

Arrenga Capital (Pvt) Limited

410/115, Bauddhaloka Mawatha,

Colombo 07

Tel: 2689107, 0777847720

Fax: 2689106


Capital Alliance Securities (Pvt) Limited

Level 5, "Millennium House",

46/58 Navam Mawatha,

Colombo 02

Tel: 2317777

Fax: 2317788


Claridge Stockbrokers (Pvt) Limited 10, Gnanartha Pradeepa Mawatha,

Colombo 08

Tel: 2697974

Fax: 2677576


First Guardian Equities (Pvt) Limited

32nd Floor, East Tower,

World Trade Centre, Colombo 01

Tel: 5884400

Fax: 5884401


Heraymila Securities Limited

Level 8, South Wing,

‘Millennium House’


Colombo 02

Tel: 2359100

Fax: 2305522


IIFL Securities Ceylon (Pvt) Limited

27th Floor, East Tower,

World Trade Centre,

Colombo 01

Tel: 2333000

Fax: 2333383


New World Securities (Pvt) Ltd

2nd Floor, 45/2, Braybrooke Street,Colombo 02

Tel: 011-2358700 / 20

Fax: 011-2358701


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


SMB Securities (Pvt) Limited

47, Dharmapala Mawatha,

Colombo 03

Tel: 5539593

Fax: 2339292


Taprobane Securities (Pvt) Limited

2nd Floor, 10, Gothami Road,

Colombo 08

Tel: 5328200

Fax: 5328277


TKS Securities (Pvt) Limited

19-01, East Tower,

World Trade Centre,

Colombo 01

Tel: 7857799

Fax: 7857857





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




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




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.




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%.





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.





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%




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.




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:



1 8

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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 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



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


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


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 .


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


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


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





2 0


c u m e n t



N A M E & A D D R E S S O F D I R E C T O

R


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



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 .


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


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


G r a n d H o

t e l ( 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


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



2 1


c u m e n t



N A M E & A D D R E S S O F D I R E C T O R


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



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 .


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


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 .



2 2


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 .




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.



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


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


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



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



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



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 .



2 5


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


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


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


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


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





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




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




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.




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




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:


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




FINANCIAL INFORMATION

10.3 MATURITY ANALYSIS OF DEPOSITS & BORROWINGS


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




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




AUDITED FINANCIAL STATEMENTS – 31ST MARCH 2008



3 6


c u m e n t

A U D I T E D F I N A N C I A L S T A T E M E N T S – 3 1

S T M A R C H 2 0 0 8



6 3


c u m e n t

A U D I T E D F I N A N C I A L

S T A T E M E N T S – 3 1 S T M A R

C H 2 0 0 9




Audited Financial Statements – 31st March 2010




UN-AUDITED INTERIM FINANCIAL STATEMENTS – 31ST DECEMBER 2010



1 2 3


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

E Q U I T Y

F o r t h e N i n e M o n t h s e n d e d 3 1

D e c e m b e r 2 0 1 0

S t a t e d

S t a t u t o r y

P r o p e r t y , P l a n t

L o n g - t e r

m Q u o t e d

G e n e r a l

U n a p p

r o p r i a t e d

T o t a l

C a p i t a l

R e s e r v e

&

E q u i p m e n t

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

R s ' 0 0 0

R s ' 0 0 0

R s ' 0 0 0

R s ' 0 0 0

R s ' 0 0 0

R s ' 0 0 0

B a l a n c e a s a t 0 1 . 0 4 . 2 0 0 9

3 0 , 0 0 0

3 2 1 , 4 0 0

6 1 4 , 2 2 6

3 0 7 , 7 1 3

1 , 4 0 2 , 4 3 0

1 8 , 6 4 1

2 , 6 9 4 , 4 1 0

N e t P r o f i t f o r t h e P e r i o d

2 8 0 , 7

8 9

2 8 0 , 7 8 9

D i v i d e n d s f o r 2 0 0 9

( 1 3 , 8

0 0 )

( 1 3 , 8 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

4 9 3 , 4

7 2

4 9 3 , 4 7 2

B a l a n c e a s a t 3 1 . 1 2 . 2 0 0 9

3 0 , 0 0 0

3 2 1 , 4 0 0

6 1 4 , 2 2 6

8 0 1 , 1 8 5

1 , 4 0 2 , 4 3 0

2 8 5 , 6 3 0

3 , 4 5 4 , 8 7 1

B a l a n c e a s a t 0 1 . 0 4 . 2 0 1 0

3 0 , 0 0 0

3 4 1 , 4 0 0

6 1 9 , 6 2 8

8 3 7 , 0 8 0

1 , 7 0 2 , 4 3 1

1 , 3 4 4

3 , 5 3 1 , 8 8 3

N e t P r o f i t f o r t h e P e r i o d

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

5 2 6 , 0

2 6

5 2 6 , 0 2 6

B a l a n c e a s a t 3 1 . 1 2 . 2 0 1 0

3 0 , 0 0 0

3 4 1 , 4 0 0

6 1 9 , 6 2 8

1 , 3 6 3 , 1 0 6

1 , 7 0 2 , 4 3 1

6 2 8 , 3 1 8

4 , 6 8 4 , 8 8 3

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



1 2 4


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

2 0 1 0

2 0 0 9

2 0 1 0

2 0 0 9

2 0 1 0

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2 0 1 0

2 0 0 9

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2 0 0 9

2 0 1 0

2 0 0 9

2 0 1 0

2 0 0 9

I n

c o m e f r o m E x t e r n a l O p e r a t i o n

I n

t e r e s t

2 6 6 , 9

6 8

3 2 3 , 2

3 9

6 1 5 , 5

0 6

8 2 1 , 9

3 9

0

0

0

0

0

0

1 4 7 , 6

5 1

9 9 , 3

9 5

1 , 0

3 0 , 1

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1 , 2

4 4 , 5

7 3

C

o m m i s s i o n

1 8 , 8

3 5

1 8 , 9

2 1

0

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0

0

1 8 , 8

3 5

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R

e n t

2 , 4

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1 3 , 3

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1 7 , 1

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1 5 , 6

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C

a p i t a l G a i n s

5 0 4 , 5

6 4

1 0 0 , 6

2 8

0

0

0

0

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5 0 4 , 5

6 4

1 0 0 , 6

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D

i v i d e n d s

3 5 , 4

2 1

1 2 , 3

6 9

0

0

0

0

0

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3 5 , 4

2 1

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

5 4 2 , 3 8 6

1 1 5 , 3 2 9

1 8 , 8 3 5

1 8 , 9

2 1

1 4 , 7 0 5

1 3 , 3 5 2

1 4 7 , 6 5 1

9 9 , 3 9 5

1 , 6 0 6 , 0 5 1

1 , 3 9 2 , 1 7 5

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

8 7 , 3

1 3

3 , 6

3 9 , 0

1 4

3 , 1

8 8 , 4

9 7

3

, 8 3 2 , 9

9 9

1 , 8

0 8 , 9

9 5

0

0

8 , 9

0 0

8 , 1

9 5

2 , 1

8 1 , 4

6 6

1 , 9

5 1 , 7

5 6

1 1 , 2

4 9 , 1

6 7

8 , 0

4 4 , 7

5 7

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

1 , 0

3 2 , 1

1 1

0

0

5 , 1

9 3

4 , 6

7 5

1 , 2

7 2 , 9

6 2

1 , 1

1 3 , 5

6 2

6 , 5

6 4 , 2

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




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


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





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.





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.




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





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





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%





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.





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





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.





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





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.





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.




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.


Mercantile Investments Limited - Introduction

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