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Chandra Wijenaike

Catering to a more diversified market has enabled Central Finance Co. Ltd, blue chip to increase its net profit for the year ended March 31, 2003 to Rs. 566.2 million, up 190 percent from the Rs. 195.2 million a year ago.

The gross turnover of the company has also increased to Rs. 7.5 billion during the period under review, up from the Rs 7 billion a year ago. The Earnings Per Share for the current year increased to Rs. 46.49 from the Rs. 16.07 the previous year.

Central Finance Co. Ltd Chairman Chandra Wijenaike has told shareholders in his annual report that the company's core business has recorded impressive gains despite severe competition from commercial banks and other financial institutions in a low interests scenario. The company's wide network of branches successfully catered to the rural economy and added to our ability to serve a greater, wider and more diversified clientele than ever before.

He also attributes the success of the company to the recovery of Rs. 275 million during the year under review, which was a debt due to the company from the Peoplised Bus Companies. The balance due has now been reduced to Rs. 294 million.

Despite the subsidiary and associate companies in the tea sector doing badly due to the unfavourable international conditions, the companies in the banking sector such as Nations Trust Bank, the power sector companies such as Zyrex Power and Mark Marine Services along with the PVC manufacturing company- Central Industries made meaningful contributions to the groups's profits, he has told shareholders.

Central Finance Managing Director Eranjith Wijenaike, in his Review of Operations has said:" The significant expansion and profitability of our financing services to small, midsize and larger customers across a wide variety of businesses underscores the success of our strategy: leveraging core skills to broaden the range of products and services we offer our clients. In addition, throughout the year, we strengthened and expanded our ability to serve clients nationwide.

The highlights of our performance include: record earnings of Rs. 505 Million, total managed assets of Rs. 12.5 Billion, over last year's Rs. 11 Billion, Net Income per share of Rs. 41.53, New business origination of Rs. 5.08 Billion, an increase of 66.8% over the last year; Gross deposit mobilisation of Rs. 12.2 Billion.

This year, the market price of CF share better reflected our performance. Combined with the lowering of interest rates to stimulate the economy, market valuations for the financial sector improved markedly during the last quarter of the year. As a result, the share price closed at Rs. 100.00 on March 31, 2003, a 100% increase over the price of Rs. 50.00 recorded on March 31, 2002 and more dramatically a 127% increase from the lowest price of Rs. 44.00 recorded on August 7, 2002, he said.

He said: "Analysis of our financial performance is covered in detail in this report, but exceptional results included gross income of Rs. 2.3 Billion for the year ended March 31, 2003 compared to Rs. 1.8 Billion the previous year. This incorporated a 59% increase in net interest income, up from Rs. 443 Million to Rs. 707 Million.

The significant growth in net interest earnings is the result of cost of funds declining more rapidly than the drop in loan yields. Notwithstanding that, interest income at Rs. 1.8 Billion, registered a satisfactory growth of 10.6% over the prior period.

Progress was also made in recovering the long outstanding dues from the Peoplised Bus Companies. A total of Rs. 295 Million has been recovered todate, of which Rs. 275 Million relates to payments received during the period under review. This sum is reflected under non-interest income of Rs. 351 Million.

In arriving at this year's results, we absorbed extraordinary costs to the extent of Rs. 139.6 Million, on account of equity investments. This change represents the net unrealised loss on identified securities in the "non-dealing" portfolio, which we felt had suffered permanent impairment in value. The impairment change is a non-cash change and does not impact liquidity.

The year also marked an important milestone in the evolution of the Company implementing the most stringent policy for loan-loss reserves applicable to the sector by adopting Direction 1 of the CBSL guidelines for provisioning for bad and doubtful debts.

This change in policy is consistent with our focus on improving the balance sheet strength of the Company.

The consolidated reserves set aside for possible credit losses amount to Rs. 935.5 Million as at the year's end and represents 10.2% of our managed assets.

Our loan loss coverage (which represents the extent of provisions made for possible losses on non-performing loans) increased to 78% from 68% in the previous year and compares well against an average provision cover of 40% for the banking sector. Key components in determining our loan loss reserves are: Specific Reserves for loans under Direction No. 1, and Reserves for losses based upon historical trends, default outlook and economic risk.

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