Nation Lanka Finance PLC

8/6/2019 Nation Lanka Finance PLC

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PRIVATE AND CONFIDENTIAL

Nation Lanka Finance PLC

Factual Memorandum

07 January 2011

CORPORATE FINANCE � PRICING ANALYSIS

ADVISORY



© 2010 KPMG Ford, Rhodes, Thornton & Co., the Sri Lanka member firm of KPMG International, a Swiss cooperat ive. All rights reserved. The KPMG logo and name are trademarks of KPMG

International.2

The Board of Directors,

Nation Lanka Finance PLC,

55 1/1, Iceland Building,

Galle Road,

Colombo 03,

Sri Lanka

07 January 2011

Attn: Mr. Chandra Gamage

Dear Sir,

Final report regarding the Pricing Analysis of Nation Lanka Finance PLC

We enclose our Final Report with regard to the Pricing Analysis of Nation Lanka FinancePLC (�NLF�), for the purpose of proposed rights issue of shares.

This report has been prepared on the basis of fieldwork carried out up to 05 January

2011. We have completed the work required to enable us to report fully in accordance

with the terms of reference set out in our Engagement Letter dated 06 December

2010. We have not undertaken to update our report for events and circumstances

arising after that date. In carrying out our work, we have relied upon informationprovided by the management of NLF. We have not audited or carried out due diligence

procedures on the information and therefore we make no representations as to its

accuracy and completeness.

Our report is for your information only and should not be quoted or referred to, in wholeor in part, without our prior written consent.

The terms of reference for this report, included as part of the Engagement Letter, havebeen agreed by you and we will not accept responsibility to any other party to whom thereport may be shown or who may acquire a copy.

The report should be read in conjunction with the Engagement Letter, which has been

attached as Annexure 1 to the report.

Yours faithfully

KPMG Ford, Rhodes, Thornton & Co.





International.3

Factual Memorandum

Glossary

1. Introduction

2. Executive Summary

3. Organisational Structure

4. Historical Financial Information and Analysis

- Income Statement

- Balance Sheet

5. Consolidated Management Accounts of NLF

6. Analysis of Subsidiaries

7. Projected Financial Information and Analysis

8. SWOT Analysis

Pricing Analysis

1. Methodology and Approach

2. Pricing Analysis and Interpretation

- Net Asset Value

� Net Asset Value � Adjusted

� Net Assets Analysis

Earnings Based Methodology

CoCo/CoTrans Analysis

DCF Methodology

3. Pricing Analysis of Subsidiaries

Appendices

1. Terms of Engagement

2. Sources of Information

ContentPRIVATE AND CONFIDENTIAL




International.4

Glossary of Terms

First Lanka Treasuries LimitedFLTL

ALLI Alliance Finance Company PLC

ARPI Arpico Finance Company PLC

Bn Billion

BS Balance Sheet

CAPEX Capital Expenses

CBSL Central Bank of Sri Lanka

CF Cash Flow

CICL Ceylinco Investment Corporation Limited

Client Nation Lanka Finance PLC

Company Nation Lanka Finance PLC

CRL Softlogic Finance PLC

CSB Ceylinco Stockbrokers (Private) Limited

CSE Colombo Stock Exchange

DCF Discounted Cash Flow

EBM Earnings Based Methodology

FCFE Free Cash Flow to Equity

FY Financial Year

Millennium Housing Developers LimitedMHDL

KPMG KPMG Ford, Rhodes, Thornton & Co.

LKR Sri Lankan Rupees

LoE Letter of Engagement

MBSL Merchant Bank of Sri Lanka PLC

Management Management of Nation Lanka Finance PLC

M/E Months Ended

Mgt. Acc. Management Accounts

MI Minority Interest

Mn Million

NAV Net Asset Value

NLF Nation Lanka Finance PLC

No. Number

PLC Public Limited Company

PPE Property, Plant and Equipment

P/S Price to Sales Ratio

PV Present Value

RBO Retirement Benefit Obligations





International.5

Introduction







International.7

Executive Summary









International.10

Organizational Structure, Directors and ShareholderInformation





International.11

Board of Directors

CEO

DirectorInvestment and

Treasury

AGM System Reviewand Internal Audit

DirectorFinance

DirectorCredit

DirectorReal Estate

AGMFinance

AGMBranch

AGMReal Estate

AGMHR and Admin

HeadICT

Senior ManagerK�gala

Senior ManagerMatara

Senior ManagerKandy

Manager

Kegalle

Manager

A�pura

Manager

Ratnapura

Assistant

ManagerPanadura

OIC

Galle

Assistant

ManagerNegambo

Manager

Jaffna

Manager

Dambulla

AssistantManager

(x3)

Manager

Leasing andCredit

Senior ManagerRecoveries

Senior ManagerLegal

AssistantManager

Legal

AssistantManager

Inv and Tre

3.Organizational Structure, Directors and Shareholder InformationOrganizational Structure

Support Staff

Source: Management





International.12


First Lanka TreasuriesLtd

100%

Asian Finance Ltd89.40%

Millennium HousingDevelopers Ltd

66.13%

Ceylinco StockBrokers (Pvt) Ltd

73.65%

Millennium HousingLtd

100%

Ceylinco HousingCorporation Ltd

100%

Millennium VillaHousing Development

Ltd51.18%

Ceylinco ConstructionCompany Ltd

100%

3.Organizational Structure, Directors and Shareholder InformationGroup Structure

Ceylinco TowersLimited100%

Ceylinco InvestmentCorporation Ltd

100%

Board of Directors

Mr. N.B.S.B.Balalle

Mr. W.G.B.M. Ranaweera

Mr. W.B.B.C.J. Fernando

Mr. C.K. Gamage

Mr. V.J. Alahendra

Mr.S.N. Jayasinghe

Mr. H.C De Sahabandu

Mr. W.T. WeerasooriyaSource: Management





International.13

Historical Financial Information and AnalysisPRIVATE AND CONFIDENTIAL













© 2010 KPMG Ford, Rhodes, Thornton & Co., the Sri Lanka member firm of KPMG International, a Swiss cooperat ive. All rights reserved. The KPMG logo and name are trademarks of KPMGInternational.

19

4.Historical Financial Information and AnalysisBalance Sheet

Key points

Total assets to liabilities ratio was below one in the FY2010 due to the excess liabilities recorded than the total assets

Source: Management

NLFPLC, FLTL, CICL and CTWL indicated negative NAVs as at the Pricing Analysis Date.

NLFPLC made a negative NAV of LKR 323.924Mn as at the Pricing Analysis Date. The

noteworthy point is that the losses of these two companies were LKR (159.186)Mn for

the year ended 30 November 2010.

Analysis of NAVs of Subsidiaries

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

2006

Audited

2007

Audited

2008

Audited

2009

Audited

2010

Audited

L K R T h o u s a n d s

0.20

0.40

0.60

0.80

1.00

1.20

1.40

T i m e s

Tot al as set s Tot al liabilities Tota l a ss et s to lia bilit ies

Total Assets to Total Liabilities Analysis

Source: Audited Financial Statements

Total assets to total liabilities analysis identifies the units of liabilities covered by a unit of

assets. The ratio declined consistently from 1.16 times in the FY2006 to 0.93 in the

FY2010. Decline in the total assets to liabilities ratio after the FY2008 can be attributable

to the decline in assets at a higher rate than the decline in liabilities.

In the FY2010, the ratio came down below 1 as total liabilities exceeded total assets,

causing the NAV of the Company to be negative in the same year.

(500,000)

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

NLFPLC CSB CDL CTL CICL CTWL


Total assets Total liabilities Net asset value




© 2010 KPMG Ford, Rhodes, Thornton & Co., the Sri Lanka member firm of KPMG International, a Swiss cooperat ive. All rights reserved. The KPMG logo and name are trademarks of KPMGInternational.

20

Analysis of Subsidiaries








© 2010 KPMG Ford, Rhodes, Thornton & Co., the Sri Lanka member firm of KPMG International, a Swiss cooperat ive. All rights reserved. The KPMG logo and name are trademarks of KPMGInternational. 23

6.Analysis of Subsidiaries

CSB

Income Statement

Y/E 31 March

Currency LKR '000

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited

Revenue 69,561 46,925 46,779 99,714

Direct operating expenses (7,232) (6,853) (6,149) (6,665)

Gross profit 62,329 40,072 40,630 93,050

Other income 9,473 8,587 8,646 1,663

Administ ra tive and genera l expenses (46,847) (44,750) (40,566) (42,460)

Distribution cost (11,054) (2,903) (5,635) (23,200)

Finance expenses (7,663) (11,243) (18,045) (2,103)

Profit before taxation 6,238 (10,238) (14,970) 26,951

Taxation (3,212) 156 (377) (7,118)

Profit for the year 3,026 (10,081) (15,347) 19,832

20%

0%

20%

40%

60%

80%

100%

120%

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited

%

Direct operating expenses Other income

Administrative and general expenses Distribution cost

Finance expenses Taxation

150%

100%

50 %

0%

50 %

100%

150%

200%

250%

300%

350%

FY2008

Audited

FY2009

Audited

FY2010

Audited

%

Revenue Direct operating expenses

Other incom e Adm inis trative and genera l expenses

Distribution cost Finance expenses

Analysis of Historical Profitability

Common Size Analysis- IS

YoY Growth - IS

20,000

40,000

60,000

80,000

100,000

120,000

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited


40%

20%

0%

20%

40%

60%

80%

100%

Revenue GP PBT PAT



Source: Audited Financial Statements Source: Audited Financial Statements








MHDL

Income Statement

Y/E 31 March

Currency LKR '000

FY2006

Audited

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited

Revenue 867,810 833,028 646,875 337,408 150,889

Cost of sales (571,209) (575,512) (384,126) (280,733) (100,245)

Gross profit 296,601 257,515 262,749 56,675 50,644

Other income 21,789 4,539 59,465 31,304 21,420

Sell ing and market ing expenses (31,765) (34,932) (21,745) (12,456) (4,217)

Administrative expenses (184,586) (157,568) (189,622) (170,780) (78,821)

Loss on disposal of subsidiary (28,026) (32,315)

Provision for permanent

diminution in value (3,605) (6,117)

Excess on acuisition

66,695

Finance cost (35,253) (55,698) (102,926) (46,283) (21,114)

Profit before taxation 66,787 76,946 (20,105) (147,658) (64,403)

Taxation (949) (1,280) (3,533) (1,979) (526)

Profit for the year 65,838 75,666 (23,638) (149,636) (64,929)

Attributable to:

Equity holders of the parent (16,944) (135,491) (66,191)

Minority interest (6,693) (14,145) 1,263

- - (23,638) (149,636) (64,929)

100,000

200 ,000

300 ,000

400 ,000

500 ,000

600 ,000

700 ,000

800 ,000

900 ,000

1 ,000 ,000

F Y 2 0 0 6

Aud i ted

F Y 2 0 0 7

Aud i ted

F Y 2 0 0 8

Aud i ted

F Y 2 0 0 9

Aud i ted

F Y 2 0 1 0

Aud i ted


50 %

40 %

30 %

20 %

10 %

0%

10 %

20 %

30 %

40 %

50 %

R e v e n u e G P P B T P A T

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

FY2006

Audited

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited

%

Cost of sales Selling and marketing expenses

Administrative expenses Finance cost













CICL

Income Statement

Y/E 31 March

Currency LKR '000

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited

Revenue 168,707 358,702 282,823 112,592

Direct expenses (126,907) (246,623) (191,294) (67,402)

Gross profit 41,800 112,079 91,528 45,191

Other inome 36,245 12,943 16,832 3,796

Administrative expenses (39,711) (66,818) (90,172) (24,584)

Narketing and other expenses (2,339) (10,227) (10,342) (1,079)

Finance expenses (28,287) (90,807) (106,464) (68,743)

Profit before taxation 7,709 (42,830) (98,617) (45,419)

Taxation (3,323) 337 (336)

Profit for the period 4,386 (42,493) (98,954) (45,419)

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited

L K R T

h o u s a n d s

50%

40%

30%

20%

10%

0%

10%

20%

30%

40%

50%

Revenue GP PBT PAT

0%

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

FY2007

Aud ited

FY2008

Aud ited

FY2009

Aud ited

FY2010

Aud ited

%

D irec t expenses O the r inom e

A dm in is tra tive ex penses N a rke ting and othe r expenses

F inance expenses

1 5 0 %

1 0 0 %

5 0%

0 %

5 0 %

1 0 0 %

1 5 0 %

2 0 0 %

2 5 0 %

3 0 0 %

3 5 0 %

4 0 0 %

F Y 2 0 0 8

A u d i t e d

F Y 2 0 0 9

A u d i t e d

F Y 2 0 1 0

A u d i t e d

%

R e v e n u e D ire c t e x p e n s e s

O th e r in o m e A d m in is t r a t iv e e x p e n s e s

N a rk e t in g a n d o th e r e x p e n s e s F in a n c e ex p e n s e s



YoY Growth - IS

















Projected Financial Information and Analysis





















SWOT Analysis







8. SWOT Analysis

More opportunities in North East area with new developments

Positive growth in SME sector

A Demand for credit products that is needed to the different market segments. ex:

seasonally structured loans, credit with agriculture and business advices to the

farmers and small industries

Reducing interest rates and treasury bill rates

New markets and developments in Agricultural sector

Projected economic growth 5.5% 7% and flowing the income with development

projects (Like high ways development.)

Accelerated energy power projects will make massive amount of industries in all overthe country

Current government high focus on rural area development

Development in tourism, fisheries and plantation land

Value appreciation, as most of them purchase lands as an investment when bank

rates go down

Developments in tea small holders, gem mining etc. New public development

projects by the government

Market trends for eco friendly manufacturing business

Demand for new agricultural equipments and machineries

Recovery of world economy will enable Sri Lankan economy to stabilize which in turnhelp a company like ours

Credit schemes from ADB ,IMF

Development in insurance brokering in market.

Development in vehicle valuation business, Importing and selling vehicles and vehicle

inputs

Development in financial consultancy in market

New market opportunities for operating leases and hire purchases

Negative public confidence due to Ceylinco issue

Interest rates changes

Government tax policies on financial sector

Environmental restrictions on real estate

Legal barriers and restrictions due to GKL issue

Stock market falling down

CBSL restrictions and announcements

IT development better customer services in the financial sector

Marketing strategies of competitors

Loss of key staff

Low market demand for motor vehicles and properties

Opportunities Threats

Source: Management






Pricing Analysis07 January 2011

CORPORATE FINANCE � PRICING ANALYSIS

ADVISORY




International. 45

Methodology and Approach





International.

46

1. Methodology and Approach � Alternative Presentation

The methodology applied in our Pricing Analysis is summarised below:

Key points

The primary methodologies used for deriving the price include the DCF and Market Multiple Methodologies

The other methodologies includes Net Assets and Earnings Methods.

DCF Public Market comparables

Historical financialstatements

Assumptions

Projected FinancialStatements

DCF Pricing

DCF summary

CoCo multiples andmetrics

Consider comparabilityto target

P/E and P/BV metricsanalysis

Summary Pricingoverview

Projected free cashflow









International.

49

Key points

The computed Cost of Equity is 19.30%

The required rate of return has been computed using a build up model where a risk premium is considered over the risk free rate

Expected Return

In theoretical terms the Cost of Equity should reflect the average rate of return required by the equity holders.

The built up cost of equity is analogous to the Capital Asset Pricing Model (�CAPM�) in that the risk free interest rate as represented by the latest available treasury

bond rate plus an equity risk premium attributed to the unsystematic risk specific to the Company is considered.

Ke = Rf + Equity Risk Premium

As such, we have considered in the Pricing Analysis a risk free rate of 9.30% which is the 10 year treasury bond rate as at 15 September 2010, being the closest available rate to the

Pricing Analysis Date according to CBSL and factored in an equity risk premium of 10% representing a premium for economic, political and business risk. Thus for the

purpose of this Pricing Analysis the required rate of return is 19.30%

Computation of Cost of Equity

Risk Free Rate

9.30%

=+

EquityRisk Premium

10.00%

Cost of Equity(Required Rate of Return)

19.30%

1.Methodology and Approach (Continued)PRIVATE AND CONFIDENTIAL




International.

50

Pricing Analysis and Interpretation



















International.

5858

Key points

The value of CSB, based on DCF was LKR 265.613Mn as at the Pricing Analysis Date

3.Pricing Analysis of SubsidiariesCSB

The value of the subsidiary has been derived by discounting the future FCFE at a discount

rate of 19.30%. The discount rate is summation of the risk free rate of 9.30% as at the

Pricing Analysis Date and the premium on risk free rate amounted 10%. The premium

over the risk free rate reflects the negative NAV and profitability and the forecast risk.FCFE is the cash belonging to the equity holders after settling expenses of investing

activities and subsequent to the net debt activities.

A constant growth rate of 0% had been applied to derive sustainable FCFE which may

materialize after the FY2015. The terminal value has been calculated by utilizing the

following formula.

TV = (FCFE2015 * (1+G)) / (Ke G)

Terminal year (FY2015) cash flow has been discounted using the discount factor of the

same year i.e. 0.4665.

The total value of the subsidiary consists of the PV of FCFE of the forecasted period and

PV of terminal year cash flow.

NAV Methodology

As at 30 November 2010

LKR '000

Mgt. Acc.

Total assets 329,260

Total liabilities 230,516

NAV 98,743

No. of shares in issue '000 2,563

NAV per share 38.52

DCF Methodology - CSB

2011 2012 2013 2014 2015

Net income 32,245 37,275 42,757 45,328 48,658

Plus

Depreciation 4,458 4,878 5,467 6,702 8,006

Less

Change in WC (677) 3,434 4,915 5,373 5,953

Net CAPEX (2,303) (6,200) (6,800) (9,000) (10,500)

Net borrowings (37,500) (20,000)

FCFE (3,777) 19,387 46,340 48,402 52,117

2011 FCFE for 4 months (1,259)

Discount factor 0.9429 0.7903 0.6625 0.5553 0.4655 PVs (1,187) 15,322 30,699 26,878 24,259

PV of future CF 95,971

CSB Valuation

FCFE in the FY2015 52,117

Constant growth rate 0%

Terminal year multiplier 6.99

TV 364,452

PV of TV 169,641


Total value of equity of CSB 265,613 No. of shares in issue '000 2,563

Value per share 103.62





International.

5959

Key points

The price per share of CSB was LKR 50.69 under EBM as at the Pricing Analysis Date

3.Pricing Analysis of SubsidiariesCSB

Normalized Earnings

Y/E 31 March

Currency LKR '000

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited

Mgt. Acc. 8 M/E

30 Nov 2010

Profit for the year 3,026 (10,081) (15,347) 19,832 48,579

Adjustments

Profit on disposal of PPE (2,164) (6,691) (7,005)

Sundry income (12) (6) (6) (105)

Normalized earnings 850 (16,778) (22,358) 19,727 48,579


Currency LKR '000 Period 1 Period 2 Period 3 Period 4

Annualized earnings (10,902) (20,498) 5,699 55,155

Weight age 1 2 3 4 10

(10,902) (40,996) 17,097 220,620 185,818

Weighted average earmings 18,582

Required rate of return 14.30%

Capitalized weighted

average earnings129,943

Number of shares 2,563

Value per ordinary

share50.69

Annualized Earnings

Currency LKR '000 Period 1 Period 2 Period 3 Period 4Current year 8 months earnings (11,185) (14,905) 13,152 48,579

Previous year 4 months earnings 283 (5,593) (7,453) 6,576

Annualized earnings (10,902) (20,498) 5,699 55,155





International.

6060

Key points

The value of MHDL under DCF methodology was LKR 402.543Mn as at the Pricing

Analysis Date

3.Pricing Analysis of SubsidiariesMHDL

NAV Methodology


LKR '000

Mgt. Acc.



352,596

MI (53,757)

NAV 298,840


NAV per share 30.22

DCF Methodology - MHDL2011 2012 2013 2014 2015

Total cash inflows 548,926 882,808 927,406 955,063 1,031,758

Outflows

Payments for Construction (349,777) (676,248) (733,231) (741,832) (801,738)

BOI Payments (8,868) (8,391) (8,059) (7,768) (7,888)

Selling & Marketing Expenses (9,000) (12,000) (14,400) (17,280) (20,736)

Finance Expenses (11,210) (6,645) (2,690)

Administrative Expenses (75,758) (81,756) (86,553) (93,981) (99,499)

Income Tax Expenses (5,642) (9,011) (8,095) (10,132) (10,695)

Opearting CF 88,671 88,757 74,377 84,070 91,202

Loan Repayments (25,642) (23,743) (25,695) (6,497)

Investment in New Project

(150,000)

FCFE 63,029 65,014 48,682 (72,427) 91,202

2011 FCFE for 4 months 21,010

Discount factor 0.9429 0.7903 0.6625 0.5553 0.4655

PVs 19,809 51,383 32,251 (40,219) 42,452


MHDL Valuation




TV 637,778

PV of TV 296,866


Total value of equity of MHDL 402,543







International.

6161

Key points

The value per share of MHDL was LKR (23.94) under EBM as at the Pricing Analysis Date

3.Pricing Analysis of SubsidiariesMHDL


Currency LKR '000 Period 1 Period 2 Period 3 Period 4 Period 5

Annualized earnings 22,261 4,675 (93,623) (70,630) 4,769

Weight age 1 2 3 4 5 15

22,261 9,350 (280,870) (282,520) 23,845 (507,933)

Weighted average earmings (33,862)



average earnings(236,799)


Value per ordinary

share(23.94)

Normalized Earnings

Y/E 31 March

Currency LKR '000

FY2006

Audited

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited

Mgt. Acc. 8 M/E

30 Nov 2010

Profit for the year 65,838 75,666 (23,638) (149,636) (64,929) 16,468

Adjustments

Profit on disposal of PPE (16,996) (1,376) 13,757 (2,227)

Sundry income (485) (2,333) (255)

Excess on acuisition (66,695)

Profit on disposal of subsidiary 28,026 (3,486) 32,315

Normalized earnings 48,842 8,971 2,527 (141,698) (35,096) 16,468

Annualized Earnings


Current year 8 months earnings 5,981 1,685 (94,466) (23,397) 16,468

Previous yea r 4 months ea rnings 16,281 2,990 842 (47,233) (11,699)

Annualized earnings 22,261 4,675 (93,623) (70,630) 4,769





International.

6262

Key points

The price of CICL was LKR 50.797Mn under DCF methodology as at the Pricing Analysis Date

3.Pricing Analysis of SubsidiariesCICL

NAV Methodology


LKR '000

Mgt. Acc.



NAV (191,517)

No. of shares in issue '000 600

NAV per share (319.16)

DCF Methodology - CICL

2011 2012 2013 2014 2015

Cash Inflows 112,368 65,418 32,862 17,503 10,712

Adjustments

Cash outflow from operating act ivit ies (14,897) (21,289) (6,324) (1,792) (120)

Cash outflow from investing act ivit ies (82,150) (4,300)

Cash out flow from financ ing activ it ies (3,623) (23,731) (27,546) (23,528)

FCFE 11,699 16,098 (1,008) (7,817) 10,592

2011 FCFE for 4 months 3,900

Discount factor 0.9429 0.7903 0.6625 0.5553 0.4655

PVs 3,677 12,723 (668) (4,341) 4,930


CICL Valuation




TV 74,066

PV of TV 34,476


Total value of equity of CICL 50,797







International.

6363

Key points

The value of CICL, based on EBM was LKR (557.05)Mn as at the Pricing Analysis Date

3.Pricing Analysis of SubsidiariesCICL


Currency LKR '000 Period 1 Period 2 Period 3 Period 4

Annualized earnings (30,880) (87,374) (67,893) (17,175)

Weight age 1 2 3 4 10

(30,880) (174,748) (203,678) (68,701) (478,007)




average earnings(334,270)

Number of shares 600

Value per ordinary

share(557.05)

Normalized Earnings

Y/E 31 March

Currency LKR '000

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited

Mgt. Acc. 8 M/E

30 Nov 2010

Profit for the year 4,386 (42,493) (98,954) (45,419) (1,285)

Adjustments

Profit on disposal of PPE (2,900) (2,308) (8,999) (992)

Sundry income (3,234) (645) (385) (190)

Lnad trading profit (1,069)

Normalized earnings (1,748) (45,446) (108,338) (47,670) (1,285)

Annualized Earnings

Currency LKR '000 Period 1 Period 2 Period 3 Period 4Current year 8 months ea rn ings (30,297) (72,225) (31,780) (1,285)

Previous year 4 months earnings (583) (15,149) (36,113) (15,890)

Annualized earnings (30,880) (87,374) (67,893) (17,175)





International.

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Key points

The price of NLFPLC, under DCF methodology was LKR 65.631Mn as at

the Pricing Analysis Date

3.Pricing Analysis of SubsidiariesNLFPLC

NAV Methodology


LKR '000

Mgt. Acc.

Total assets 2,096,866

Total liabilities 2,420,791

(323,924)

Less

Preference shares (61,814)

NAV (385,738)


NAV per share (9.65)

DCF Methodology - NLF

2011 2012 2013 2014 2015

Cash inflow from operating activities 1,065,579 2,514,686 2,478,632 2,878,786 3,598,649

Cash outf low f rom operati ng act iv it ie s (2,187,430) (2,847,178) (3,160,826) (3,572,462) (4,308,147)

Net cash flow from operat ing act ivit ies (1,121,851) (332,492) (682,194) (693,677) (709,499)

Cash inflow from investing activities 362,483 162,000

Net c ash flow from inves ting ac tivities 362,483 162,000 - - -

Cash inflow from financing activities 961,000 540,000 720,000 720,000 720,000

Ca sh outflow from fina nc ing ac tiv ities (183,043) (366,085) (38,443) (3,648)

Net cashflow from finacing activities 777,957 173,915 681,557 716,352 720,000

FCFE 18,589 3,423 (637) 22,676 10,501

FCFE for 4 months 12,393

Discount factor 0.9429 0.7903 0.6625 0.5553 0.4655

PVs 11,685 2,705 (422) 12,592 4,888


NLF Valuation




TV 73,437

PV of TV 34,183


Total value of equity of NLF 65,631 No. of shares in issue '000 39,972






International.

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Key points

The price of NLFPLC under EBM was LKR (2.114)Bn as at the Pricing Analysis Date

3.Pricing Analysis of SubsidiariesNLFPLC



Annualized earnings 49,984 35,268 (177,729) (547,560) (386,344)

Weight age 1 2 3 4 5 15

49,984 70,535 (533,188) (2,190,240) (1,931,718) (4,534,626)




average earnings(2,114,045)


Value per ordinary

share(52.89)

Normalized Earnings

Y/E 31 March

Currency LKR '000

FY2006

Audited

FY2007

Audited

FY2008

Audited

FY2009

Audited

FY2010

Audited

Mgt. Acc. 8 M/E

30 Nov 2010

Profit for the year 53,561 60,489 29,446 (265,811) (734,519) (159,186)

Adjustments

Profit on disposal of PPE (9,973) (4,972) (1,625) (13,320) (978)

Profit on disposal of investment property 54,365

Sundry income (133) (2,268) (1,544) (602) (342)

Normalized earnings 43,455 53,249 26,277 (279,733) (681,474) (159,186)

Annualized Earnings

Currency LKR '000 Period 1 Period 2 Period 3 Period 4 Period 5Current year 8 months earnings 35,499 17,518 (186,488) (454,316) (159,186)

Previous year 4 months earnings 14,485 17,750 8,759 (93,244) (227,158)

Annualized earnings 49,984 35,268 (177,729) (547,560) (386,344)





International.

6666

Key points

The value of FLTL, based on DCF was LKR 23.146Mn as at the Pricing Analysis

Date

3.Pricing Analysis of SubsidiariesFLTL

NAV Methodology


LKR '000

Mgt. Acc.

Total assets 36,687


NAV (111,405)


NAV per share (1,112.94)

FLTL Valuation




TV 31,654

PV of TV 14,734


Total value of equity of FLTL 23,146



DCF Methodology - FLTL

2011 2012 2013 2014 2015

Cash inflows 2,110 9,795 10,855 11,319 12,026

Less

Loan installment (1,875) (7,500) (7,500) (7,500) (7,500)

FCFE 235 2,295 3,355 3,819 4,526

2011 FCFE for 4 months 157

Discount factor 0.9429 0.7903 0.6625 0.5553 0.4655

PVs 148 1,814 2,222 2,121 2,107






International.

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Appendices





International.

68

Appendix 1Terms of Engagement





International.

69

Appendix 1Terms of Engagement (Continued)






International.

70







International.

71






72

Appendix 2Sources of Information

All the following documents and information have been considered factual for this Pricing Analysis Audited financial statements for the year ended 31 March 2006, 2007, 2008, 2009 and 2010

Management accounts for the 6 months ended 30 September 2010

Information provided by the Management of Nation Lanka Finance PLC

The Central Bank of Sri Lanka www.cbsl.lk

The Colombo Stock Exchange� www.cse.lk


Documents

Nation Lanka Finance PLC