NDB capital hol d i n ready gs LT D www.ndbch.com | a nn ual report 2014
NDB capital holdings lTD | annual report 2014 Corporate information
GRI- G4 / G4 - 3 G4 - 5 G4 - 7
NAME REGISTERED OFFICE NDB Securities (Pvt) Ltd. NDB Capital Holdings Limited (The 40, Navam Mawatha, Colombo 2 5th Floor, No. 40, Company was registered under the Navam Mawatha, Companies Act No.17 of 1982 and Colombo 2. subsequently Re-registered under the AUDITORS Tel: +94 11 2314170 Companies Act of No 7 of 2007 on 26th Messers Ernst & Young Fax: +94 11 2314180 December 2007) Chartered Accountants 201, De Saram Place, Colombo 10 NDB Investment Bank Ltd. No. 40, LEGAL STATUS Navam Mawatha, Public Limited Liability Company (De-listed BANKERS Colombo 2. from the official list of the Colombo Stock National Development Bank PLC Tel: +94 11 2300385 Exchange on 26th January 2015) Fax: +94 11 2300393
MEMBERS OF THE BOARD COMMITTEES NDB Wealth Management Ltd. INCORPORATION AS AT 31ST DECEMBER 2014 No. 42, 12th October 1983 Investment Committee Navam Mawatha, Mr. Malinga Arsukularatne - Chairman Colombo 2. Ms. Aruni Rajakarier Tel: +94 11 2303232 REGISTERED NO Mr. Rajendra Theagarajah Fax: +94 11 2303237 PQ 110PB Human Resources and Remuneration NDB Zephyr Partners Ltd. Committee IFS Court, STATED CAPITAL Ms. Aruni Rajakarier – Chairperson TwentryEight, Cybercity Rs. 1,328,880,070 Mr. Ashok Pathirage Ebene, Mr. Malinga Arsukularatne Maurutius Tel: +230 467 3000 BOARD OF DIRECTORS Audit, Risk and Compliance Committee Fax: +230 467 4000 Mr. Ashok Pathirage (Chairman) Ms. Aruni Rajakarier – Chairperson Mr. Rajendra Theagarajah Mr. Malinga Arsukularatne NDB Zephyr Partners Lanka (Pvt) Ltd. Mr. Sarath Wikramanayake Mr. Sarath Wikramanayake No. 40, Mr. Vajira Kulatilaka (CEO) Navam Mawatha, Ms. Aruni Rajakarier Colombo 2. Mr. Malinga Arsukularatne CONTACT DETAILS Tel: +94 11 2300385 Mr. Faizan Ozman NDB Capital Holdings Ltd. Fax: +94 11 2300393 (Appointed w.e.f. 13/1/2015) No. 40, Mr. Indrajit Wickramasinghe Navam Mawatha, (Resigned w.e.f. 19/9/2014) Colombo 2. Tel: +94 11 2300385 Fax: +94 11 2300393 COMPANY SECRETARY Ms. Mayomi Samarawickrama (Attorney-at-Law)
Design & Concept by: Optima Designs (Pvt) Ltd. Printed by: Printel (Pvt) Ltd. Contents
Report Profile 3 Financial Highlights 4 Key Achievements 6 Chairman’s Message 8 CEO’s Message 12 Investment Banking Business 17 Close Up 18 Management Discussion and Analysis - Outline 22 - Economic Review 23 - Business Review 32 - Subsidiary Review 39 - Financial Review 59 Sustainability in Focus 62 GRI Checklist - G4 121
Annual Report of the Directors on the State of Affairs of NDB Capital Holdings Limited 128 Directors’ Interest in Contracts with the Company 131 Directors’ Statement on Internal Controls over Financial Reporting 132 Report of Board, Audit, Risk and Compliance Committee 134 Independent Auditors’ Report 137 Income Statement 138 Statement of Financial Position 139 Statement of Changes in Equity 141 Cash Flows Statement 142 Notes to the Financial Statements 143 Ten Year Summary - Income statement 177 Ten Year Summary - Statement of Financial Position 178 Shareholder and Investor Information 179 List of Tables, Figures, Charts and Acronyms 181 Notes 185 Notice of Meeting 186 Form of Proxy 187 Corporate Information Inner Back Cover 2 | NDB Capital Holdings LTD | Annual Report 2014
Vision To be a leading full service investment bank in the region values ▪ We believe in integrity and honesty while performing beyond expectations
▪ Market Landscape is ever changing: Innovation is our forte
▪ A knowledge-based organisation: Our people are our assets
▪ We are very passionate about the work we do 3 | NDB Capital Holdings LTD | Annual Report 2014 Report Profile GRI - G4/ G4 - 17 G4 - 22 G4 - 23 G4 - 28 G4 - 33
Content The report content is developed based on the ‘materiality principle’ Our Annual Report for the financial year ended 31st December as guided by the sustainability reporting standard which will be 2014 seeks to give more structure, clarity and significance to our discussed at length under ‘Materiality Analysis’ section of this reporting - highlighting the link between our strategy, actions and Annual Report. Apart from the Standard Disclosures, we looked at performance with a sustainability perspective. The report attempts complying with specific disclosures with the management approach for the very first time to follow the guidelines set out by the Global and indicator protocols in terms of economic, environment and Reporting Initiative (GRI) under the latest recommended standard, social facets - most material to the NCAP group and significant to ‘GRI (G4)’. our key stakeholders. We have also looked at adopting the sector disclosures available for financial services. The report seeks to establish our commitment to create long- term value with key stakeholder inclusivity; encompassing the Giving precedence to the precautionary principle in operations, comprehensive product and service offer designed to meet varied NCAP together with its subsidiaries are placed under the needs of investor segments, the initiatives taken to build a solid enterprise-wide risk management process and internal controls team, measures adopted to uphold business ethics, governance of the parent company, NDB. Financial statements presented for and risk management and our focused efforts to link social both at the Company level and on a consolidated basis, have been responsibility and even environment management to have more prepared and audited in accordance with Sri Lanka Accounting meaning to our daily operations. Standards, guided by the International Financial Reporting Standards. The financial statements and related notes have been The report demonstrates NDB Capital Holdings Limited’s (NCAP) audited independently by Messrs Ernst & Young. The Company performance along with its subsidiaries, focusing on how the was in the process of de-listing in the year under review and operations pursued the strategic priorities in line with the ‘Strategic was de-listed on 26th January 2015. Despite de-listing, NCAP Plan 2012-2017’. As appropriate, we have sought to benchmark our intends to follow relevant provisions of the Code of Best Practice performance to the preceding year’s results and with the industry on Corporate Governance, published jointly by the Securities trends whilst setting out the future outlook and plans. The audited and Exchange Commission of Sri Lanka (SEC)and the Institute of financial statements, related notes and reports are presented with Chartered Accountants of Sri Lanka (ICASL) on a voluntary basis. comparative information and analysis of the preceding year. The Group also met the statutory requirements as relevant under the Companies Act No. 07 of 2007. Report Boundary and Scope External assurance on the sustainability aspects of the report has Refer Materiality Analysis, pages : 67 not been obtained. NCAP in its previous year’s annual report brought in the sustainability focus into the reporting process. Yet, this year, The GRI (G4) Content Index is placed on pages 121-126. The moving a step ahead, we attempt to report in accordance with summary of the report content is given on page 74. the latest guidelines of GRI framework. The report is based on ‘in accordance’ with the ‘Core’ option. Inquiries All inquiries on the Annual Report 2014 including performance, The report covers the operations of NCAP as the holding company future outlook and sustainability aspects are to be directed to: and its three fully owned subsidiaries - NDB Investment Bank Ltd (NDBIB), NDB Wealth Management Ltd (NDBWM) and NDB Isuru Somaratne, Assistant Vice President Securities (Pvt) Ltd (NDBS). As and when appropriate, references Address: No. 40, Navam Mawatha, Colombo 02. are drawn to our latest joint venture, NDB Zephry Partners Ltd Telephone: +94 11 2300385 (NDBZ), established in December 2014. Email: [email protected] 4 | NDB Capital Holdings LTD | Annual Report 2014 Financial highlights
Company Group 2013 2013 2014 % Change 2013 2013 2014 % Change Adjusted* Adjusted*
For the Year (Rs. Mn) Revenue 784 609 755 24% 1,469 1,294 1,417 9% Operating Profit 703 528 641 21% 1,032 857 959 12% Profit Before Tax 703 528 641 21% 1,032 857 959 12% Provision for Taxation (22) (22) 24 -209% (99) (99) 5 -105% Profit After Taxation 681 506 665 31% 932 757 964 27% Gross Dividend Paid 719 719 280 -61% 719 719 280 -61%
As at the end of the Year (Rs. Mn) Total Assets 5,745 5,570 6,176 11% 6,543 6,368 6,926 9% Total Equity 5,699 5,524 6,094 10% 5,852 5,677 6,532 15%
Information per Ordinary Share (Rs.) Earnings 19.11 14.20 20.21 42% 26.15 21.24 29.31 38% Dividends (Paid) 16.40 16.40 8.50 -48% 16.40 16.40 8.50 -48% Net Asset Value 159.89 154.98 185.19 19% 164.18 159.27 198.51 25%
Ratios ROE 12.8% 9.6% 11.3% 17% 16.1% 13.3% 15.6% 18% ROA 12.7% 9.6% 11.2% 17% 15.0% 12.4% 14.3% 15% Debt/Equity (Gearing) 0.000 0.000 0.000 0% 0.000 0.000 0.000 0%
Margins Operating Profit Margin 90% 87% 85% -2% 70% 66% 68% 2% Net Profit Margin 87% 83% 88% 6% 63% 59% 68% 16%
* 2013 figures have been adjusted to exclude Rs. 175 Mn one-off investment income earned from the cash generated through the divestiture of Aviva NDB Insurance PLC 5 | NDB Capital Holdings LTD | Annual Report 2014 ready
We are prepared to take financial services to the next level, with a zeal that cannot be matched as we remain committed to always delivering more to our stakeholders 6 | NDB Capital Holdings LTD | Annual Report 2014 Key achievements
NCAP NDBwm
Successfully completed the Hemas Power (renamed as Global Finance - Best Asset Management Company Resus Energy) acquisition with 32% initial stake for NCAP
NCAP’s listed equity investments yielded 35% in 2014 World Finance - Best Investment Management Company against an ASPI return of 23%
Launched the largest private equity fund in Sri Lanka Gross collections for the year 2014 - Rs. 43 Bn amounting to USD 42.5 Mn
NCAP Annual Report 2013 won the Bronze Medal at “CA Sri Lanka Annual Report Awards” under the Financial AUM reached Rs. 87 Bn as at 31st December 2014 Institutions category
The Group bagged 21 prestigious international awards Mutual Fund gross collections by the year 2014 - Rs.31 Bn
The only Asian investment bank to be recognized as the ‘Best Investment Bank’ in two countries simultaneously, Sri Lanka and Bangladesh, by Euromoney Magazine 2014 A list of achievements of the company during the year 2014 7 | NDB Capital Holdings LTD | Annual Report 2014
NDBIB NDBS
Raised approximately Rs. 37 Bn since the introduction of Number one performer based on research tax concessions for debentures listed on the CSE in 2013 recommendations for year 2014 (source: Bloomberg)
Raised approximately USD 50 Mn through a cross border 2,831 new accounts opened loan syndication in Bangladesh
Managed the issue of Lion Brewery (Ceylon) PLC debenture Real-time SMS alert service launched - the lowest interest for a non-banking sector debenture
Ventured into Islamic Banking products through the successful structuring and placing of a Wakala Islamic Tri Lingual research publications introduced Banking Facility
NDBIB bagged 9 prestigious international awards NDBS moved towards e-statements for account
“Best Investment Bank in Sri Lanka 2014” by Euromoney Magazine for the third consecutive year
“Best Investment Bank in Sri Lanka 2014” by World Finance Magazine for the second successive year 8 | NDB Capital Holdings LTD | Annual Report 2014 Chairman’s message
GRI - G4/ G4 - 1
In the year 2014, NDB Capital Holdings (NCAP) together with States of America followed by the United Kingdom displayed its subsidiaries remained committed and determined to follow stronger results, backed by pragmatic macro policies; many of through a well-deliberated strategy, entwined with integrity the Eurozone nations however, taut by the deflationary trends, and responsibility; thus laying a solid platform from which to fell short of the anticipated growth prospects. Japan remained soar and reach greater goals. Nurturing strong bonds and trust slow to meet the growth aspirations despite the Abenomics amongst our key stakeholders, we were able to keep up to our policies. The emerging nations held on to healthy growth levels, track record as a dominant investment banking group, with although less impressive relative to the performance in the robust returns and financial stability. It is my privilege on behalf previous years. The financial markets within these economies of the Board, to present the Annual Report 2014 together with were vulnerable to the changes in monetary policy mainly in the the audited financial statements, unfolding as reflected in this United States of America. Oil exporting countries were further year’s theme, how the NCAP Group is now ready, steady and set distressed given the trending dip in oil prices since the latter to go, well into the future. part of 2014, although the importing countries gained buffer.
Underlining Economic Forces Buoyed by the stronger signals from the world economy and We saw optimism continue within the world economy, supported by a more stable macroeconomic front in 2014, rebounding from the long-drawn-out recession, but Sri Lanka progressed, rallying towards stronger growth, ahead vacillating in its path with downside risks still weighing down of its regional peers. With inflation persistently at single-digit the potential results. This was further intensified by the levels, the monetary policy remained accommodative whilst geopolitical undercurrents especially in the Middle East and the maintaining relatively a steadier balance of payments scenario predicament in Ukraine. Within the developed nations, United and stable exchange rate against the major currencies. In this 9 | NDB Capital Holdings LTD | Annual Report 2014
Buoyed by the stronger signals from the world economy and supported by a more stable macroeconomic front in 2014, Sri Lanka progressed, rallying towards stronger growth, ahead of its regional peers. Within such exemplary business settings, we saw a steady progress with a robust financial performance in the year under review. 10 | NDB Capital Holdings LTD | Annual Report 2014 Chairman’s message (Contd.)
setting, the Central Bank of Sri Lanka expects the economy the country of USD 42.5 Mn (first closure), ‘Emerald Fund to grow at 7.3%, closing up with the targets set for an upper Sri Lanka’ managed by, NDB Zephyr Management Ltd, our joint middle-income country in the medium term. venture in collaboration with a New York based investment manager. This venture fittingly supported our role as an Capital Market - Growth and Sustainability inclusive investment and financial services provider. Shifting from a more sluggish stance, the capital market in the year witnessed greater activity with better returns, displaying Within such exemplary business settings, we saw a steady once again, its potential to be pivotal in realising the country’s progress with a robust financial performance in the year under development objectives. The Colombo Stock Exchange (CSE) review at a consolidated level. The assets under management together with the Securities and Exchange Commission of moved towards a milestone level – Rs. 97 Bn in the year under Sri Lanka (SEC) continued with their efforts to develop and review, growing at 38% vis-à-vis the prior year. The group to bring modernity to the market, further taking proactive posted revenue of Rs. 1,417Mn with profits reaching measures and exploring policy options towards boosting market Rs. 964Mn. Our financial position as at the year-end was sound liquidity, upgrading IT infrastructure, developing new products whilst the return on equity stood at 15.6%. We propose to and even considering the demutualisation of the Exchange. declare a dividend of Rs. 27.50 per share. With the changes that are currently being deliberated on the regulatory framework including the proposed amendments to De-Listing Rationale the SEC Act, will certainly lead to an equitable field with globally As a tactical move and in response to the new regulatory commended practices for the market to grow sustainably. requirement set by the SEC on the mandatory public float of 20% for listed entities on the main Board, we initiated the process in Progressive Strategy and Performance the reporting year, to be ‘unlisted’ by voluntarily de-listing from Over the course of 2014, we saw the NCAP Group playing a the CSE. Recently, re-launched and re-positioned with some of the decisive role within the capital market of Sri Lanka, current and key goals yet to be accomplished as outlined in the Business Plan effective in reinforcing the presence as a versatile investment 2013-2017, we felt that it was too premature for us to go in for banking entity. We increasingly worked towards bringing a higher public float in the best interest of the Company and our smarter and more comprehensive solutions, some pioneering parent, NDB which holds a majority stake of over 99%. However, and even customised, setting a one-stop platform with a on a stronger plateau, leveraging on our potential as an all- definitive selling proposition. Our professionalism and expertise encompassing investment banking and financial services provider with right investments in technology, strong networking skills in the medium term, we intend to seek our options once again, to and strategic collaborations combined with the strength of the broad-base our ownership in the public domain by re-listing the parent, NDB, giving us confidence credibility and steadiness, Company. have empowered NCAP in reaching out to its strategic goals.
Recognised in the year by some of the prestigious awards, we continued to be strong in our business acumen, structuring and managing large and intense deals on the CSE – initial public offers and mergers and acquisitions. We consolidated our securities trading activities with greater emphasis on strengthening the foreign investor portfolio while our wealth management arm stood poised at the forefront of the asset management and unit trust industry. Our latest venture into private equity, taking advantage of rapidly emerging small and 15.6% medium businesses, established the largest dedicated fund in Highly Commendable Return on equity 11 | NDB Capital Holdings LTD | Annual Report 2014
Commitment to Best Practices business fortified by knowledge and skills within the investment Our underlying strength has always been our commitment to banking arena, this initiative is an ideal way for us to give back uphold the best in corporate practices which stands more true to society. to the fiduciary role we play as an investment banking service provider. Our parent, NDB, has given us a solid framework In the reporting year, the Trust Fund took-off successfully, with team support, systems and processes to enhance our extending the first round of scholarships to ten deserving risk management in line with the guidelines of BASEL II and to and talented students from Universities of Moratuwa, Sri ensure good governance. During the reporting year, we worked Jayewardenepura and Colombo from the fields of engineering, together to further internalise the risk-dashboards initiated medicine, law and management studies. in the preceding year, giving us a heads-up on the risks that may arise in our decisions and in actions, and pave the way for Appreciation timely and effective mitigatory measures, thus leading us to be I place on record my gratitude to the Board for their vision and more judicious in balancing risks vs. returns. support extended to me in taking the NCAP Group on a vibrant corporate path. Although we were not going to be bound by continuous listing requirements in our de-listed status, we continued with our My warm appreciation is extended to our Chief Executive efforts to reinforce the quality of our governance structure and Officer along with the senior management and the respective practices in line with the well endorsed Corporate Governance teams across the Group for being passionate in working Code set by the SEC of Sri Lanka and ICASL. We further braced towards the strategic ambitions whilst being steadfast in on the independence of the Board and its decision making upholding our corporate ethos. process; bringing in independent directors to play a greater role in Board Committee proceedings and embracing greater I take this occasion to thank our clients, strategic partners, transparency in related party transactions through the Related statutory and regulatory bodies and all other stakeholders for Party Review Committee proceedings. their patronage and trust.
We continued to be responsible in our reporting initiatives. Our Annual Report 2013 themed ‘More’, was acclaimed for the reporting standards with a Bronze Award at the Annual Report A K Pathirage Awards organised by ICASL under the financial institutions Chairman category. We intend to build on this further, bringing our NDB Capital Holdings LTD reporting aligned to the G4 guidelines set out by the Global Reporting Initiative. 18th May 2015
Strategic Philanthropy Upholding a strategic approach to philanthropy, we sought in the year to be more meaningful and relevant in our social responsibility initiatives, with greater alignment to our corporate values and mission. Our dedicated initiative, ‘NDB Capital Scholarship Trust’, seeks to support undergraduates, our future leaders; the scope is not limited to financial assistance, but will extend career guidance, skill development, management and leadership development, internship exposure to corporate culture and networking opportunities. As a 12 | NDB Capital Holdings LTD | Annual Report 2014 cEO’s message
GRI - G4/ G4 - 1
NDB Capital Holdings (NCAP) marked a significant year, laying and talent which have come together to address the needs of the platform for a paradigm shift with a viable business-driven diverse segments, covering fee-based to fund-based product strategy to take on the innate opportunities and address the offerings coupled with retail and corporate banking through our challenges in a dynamic economic landscape. We continued parent, NDB. We concentrated in the year to capitalise on this to give precedence and build on our fundamentals in risk forte – successfully packaging and cross-promoting products management, good governance and corporate ethics; whilst within the Group. We remained focused in fostering and being pragmatic in our approach to social responsibility, linking leveraging on our parent, NDB – the brand and the linkages; the outcomes to our core business alongside the far-reaching whilst emphasising on relationship-based experience with benefits to society. In this backdrop, I set my review hereto, greater investments in technology and to empower our team. highlighting the Company’s and the consolidated performance of the NCAP Group for the financial year 2014, along with our Accompanying this business strategy, as elaborated under strategic plans that would lead our corporate path in the years the Chairman’s Message, we sought for better controls with ahead. hands-on risk management and compliance practices. Although we were in the process of de-listing from the Colombo Stock Business-Driven Strategy Exchange in the reporting year, we did not shy-away but We continued to position our Group as a full service investment remained committed to good governance. We also sought to banking organisation, well set to offer vertically-defined build on our dedicated initiative in social responsibility, ‘NDB solutions in a demanding marketplace. The Group companies Capital Scholarship Trust’ which bears much significance on have capabilities backed by best-in-class systems, processes what we do within a knowledge-driven industry. 13 | NDB Capital Holdings LTD | Annual Report 2014
This no doubt sets out the case for an organisation like NCAP which has the best-fit expertise as a full service investment banking service provider, strong brand positioning and synergies combined with a solid mainstay. We intend to build on this further in the ensuing years, more focused in our collaborative efforts to promote a total solution. To this end, we will seek to strengthen our structure with necessary investments to be able to offer a seamless service 14 | NDB Capital Holdings LTD | Annual Report 2014 cEO’s message (Contd.)
Financial Results initial public offer of Rs. 838 Mn out of the few opened for Amidst a challenging business landscape, NCAP Group subscription in the year on the Colombo Stock Exchange; and delivered a sound performance in the year under review. On structuring and managing the Rs. 1.7 Bn acquisition, of 75% a consolidated basis, the income registered an improvement stake in Resus Energy PLC, by a consortium, comprising ACL of 9% to Rs. 1,417 Mn as against Rs. 1,294 Mn in 2013 which Cables and Trydan Partners (Pvt) Ltd together with NCAP. The is adjusted for the income derived from the investment of highlight of the year, however, in line with the NCAP Group’s extraordinary capital gains from the divestiture of direct and efforts to be more financially inclusive was its venture into indirect stakes in AVIVA NDB Insurance PLC. Correspondingly, Islamic finance – effectively structuring and placing a Wakala the net profits were up by 27% to Rs. 964 Mn compared to the short term facility, in accordance with the Shari’ah principles for adjusted level of Rs. 757 Mn recorded in 2013. The return on a company in the power and energy sector. equity of the Group remained positive and improved to 15.6% as against the adjusted 13.3% in 2013. Progressively reaching out to cross-border opportunities, NDB Investment Bank successfully intermediated and managed a At a Company level, the income for the year stood at landmark loan syndication of USD 50 Mn for a power project Rs. 755 Mn with net profits at Rs. 665 Mn, corresponding to 24% in Bangladesh, striking synergies with NDB Capital Bangladesh, and 31% increase respectively as against the preceding year. a subsidiary company of NDB which comes under the management purview of NCAP. Proprietary Trading NCAP in the year under review maintained a well-diversified Wealth Management portfolio. The perceptive investment strategies, systematically As the leader in Sri Lanka’s asset and wealth management industry, researched and disciplined, supported proprietary trading activities NDB Wealth Management reinforced its positioning in the year to record steady returns. The equity portfolio, taking the cue from under review amongst the institutional and high-net-worth the year’s trends on the Colombo Stock Exchange, registered a clientele while reaching out to the burgeoning retail segment. 35% return, performing above the industry benchmark. The fixed Acclaimed as the “Best Investment Manager” by World Finance income portfolio consisting primarily of listed debentures posted and as “The Best Asset Management Company” in Sri Lanka for capital gains of Rs. 79 Mn during the year. 2014 by the Global Banking and Finance Review, NDB Wealth Management aggressively sought for greater convergence, Investment Banking leveraging group synergies between retail banking and capital Recognised by the prestigious Euromoney Magazine as the ‘Best markets. Investment Bank’ in Sri Lanka for the third successive year, NDB Investment Bank continued to demonstrate its expertise and sustained its positioning as a leading arranger and corporate advisor within the country’s capital market domain.
On the debt market front, the Investment Bank continued to be at the forefront, resiliently standing ground amid more subdued settings, spurred largely by excess liquidity in the market with access to low cost short term funds. The debenture transactions managed thus far since the budgetary concessions extended for listed debentures in 2013 reached Rs. 37 Bn, including the MN four transactions managed in the year. NDBIB also remained 964 outstanding profitability active within the equity market; managing one of the largest 15 | NDB Capital Holdings LTD | Annual Report 2014
In the reporting year, marking an outstanding performance, The fund is managed by our newly formed joint venture, NDB the assets under management, by far the largest within the Zephyr Partners, a collaboration with the New York based global industry, surpassed the preceding year by 36% to reach emerging markets investment manager, Zephyr Management Rs. 87 Bn whilst the mutual funds performed above benchmark, L.P. Structured in two tranches, the fund has already secured absorbing around 30% stake of the industry’s total assets. strategic investors including significant commitments from acclaimed multilateral agencies; namely, International Finance Securities Trading Corporation (IFC), a member of the World Bank Group, Our stockbroking subsidiary was well positioned as an ethical Deutsche Investitions-und Entwicklungsgesellschaft mbH and trusted player, strengthened by NDB brand and repute, (DEG) and Nederlandse Financierings-Maatschappij voor amidst an intensely competitive landscape to take on the Ontwikkelingslanden N.V. (FMO). emerging opportunities within the rebounding capital market. The restructured operation as initiated in the preceding Building Careers year with better systems and processes and effective risk True to our adage ‘we provide careers not employment’, we management, supported NDB Securities to secure a greater worked towards building a well-rounded, multi-disciplinary share of institutional and high net worth clients, focusing and skilled workforce across the NCAP Group operations. We particularly on building the foreign investor portfolio. In its remained selective in our recruitment process, seeking for outreach to the retail market, NDB Securities continued to bolt best talent in the industry especially targeting the Sri Lankan on NDB’s vast branch network and sought to build awareness university batch-top graduates. The training opportunities through investor awareness programmes across the country, extended were well structured, not only aiming to further the accessing and penetrating diverse customer segments. technical skills and management capabilities in their respective career fields, but, also strengthening their work ethics and In the reporting year, NDB Securities succeeded to enhance its professionalism. operational results and post strong turnover and returns, ahead of the market performance. In the year, we extended focused training on compliance related areas including money laundering, know-your-customer policies Private Equity and the employee code of ethics. We conducted an awareness Our venture into private equity gathered momentum in the programme on the Foreign Account Tax Compliance Act (FATCA) year to play a catalytic role within the country’s emerging under United States legislation for which we have subscribed in economy, filling in the funding gap that is not met by the capital the year under review as one of the first non-bank organisations markets or the collateral-based lending institutions. Under to do so. We followed through with our practical training this initiative, we established ‘Emerald Fund Sri Lanka’, the programmes; on-the-job training, job rotations and temporary country’s first ever dedicated and largest private equity fund cross placements within the group network. The performance which had its first closing at USD 42.5 Mn and is targeting to management system further supported our efforts to build a raise USD 50 Mn by its second closing. Emerald Fund seeks solid team, with constructive advice on career development, to support the growing capital requirements of the small and due recognition and merit based rewards. Our staff retention medium enterprises, encompassing nearly three quarters of the is noteworthy with a lower turnover ratio. In effect, within businesses in the country. The equity participation through the a more stable Sri Lanka, some of our staff members, even fund is proposed at 20-30% along with value-addition in terms former members have opted to return to the Company after of technical, financial, management and marketing support, completing their overseas post-graduate studies; demonstrating striving to extend an all-inclusive solution to bring out the full our progressive policies in human resource management. potential of this sector. 16 | NDB Capital Holdings LTD | Annual Report 2014 cEO’s message (Contd.)
Future Plans deepest appreciation is extended to them for their hard work In a progressing economy, complemented by an accommodative and enthusiasm and look forward to their continuous support in macro environment which is likely to prevail in the medium the year ahead. term, ironing out any socio-political uncertainties, the investment climate in Sri Lanka is expected to be buoyant My gratitude is extended to our Chairman and the Board of and even be more attractive in the years ahead. With greater Directors for their direction and leadership; with special thanks awareness and sophistication, if addressed correctly, will boost going out to our former Director, Mr. Indrajith Wickramasinghe investor confidence and level of activity within the capital for his service and contribution. market. Both institutional and retail segments alike will be open to change and eager to participate, embracing more viable We wish to thank the officials at the Ministry of Finance and the investment decisions that would diversify and better their Exchange Control Department at the Central Bank of Sri Lanka prospects. for their cooperation and assistance given in our efforts to establish the private equity initiative. This no doubt sets out the case for an organisation like NCAP which has the best-fit – expertise as a full service investment Our gratitude is with all our stakeholders; thank you, for your banking service provider, strong brand positioning and synergies continued commitment and trust in the NCAP mission. combined with a solid mainstay. We intend to build on this further in the ensuing years, more focused in our collaborative efforts to promote a total solution. To this end, we will seek to strengthen our structure with necessary investments to be able Vajira Kulatilaka to offer a seamless service including an integrated IT platform Chief Executive Officer that is able to bring the entire gamut of products and services NDB Capital Holdings across the NCAP Group and our parent, NDB. We will also look at strengthening our team with emphasis on performance and 18th May 2015 learning based culture and will seek to expedite the process to introduce an employee share options scheme, making way towards their long term wellbeing and in turn, securing their commitment and loyalty to the organisation.
We will further our ties with NDB Capital, Bangladesh and seek to brace the investment banking services and synergies within the emerging Bangladeshi market, targeting the funding gaps in key sectors. We will reinforce our strategic alliance with DBS Singapore whilst seeking for business openings in other potential South and East Asian countries and in the Middle East.
Thank You In the year 2014, with the support of all our stakeholders, we moved to a stronger plateau – redefining our operations and nurturing our corporate values to address emerging issues within our industry. In this quest, the senior management and their respective teams across the NCAP Group remained focused and resolutely maintained their professionalism. My 17 | NDB Capital Holdings LTD | Annual Report 2014 Investment Banking Business
GRI - G4/ G4 - 4 G4 - 6 G4 - 8 G4 - 9 G4 - 13 The Case for Investment Banking and NDB Zephyr Partners Ltd The four subsidiaries focus on Within the post-conflict settings, Sri Lanka is set to deliver on its the fee-based services in equity capital market, debt capital growth aspirations of reaching the upper-mid income threshold market, mergers and acquisitions, wealth management, private - growing above 8% in the medium term to be a USD 100 Bn equity management and stock brokering whilst the fund based economy with a per capita income reaching to USD 4,000 activities such as underwriting, private equity investments, by 2016. Macroeconomic environment is being shaped with listed equity and fixed income investments directly come under proactive socio-economic policies and necessary infrastructure the purview of the Company. in place, laying the foundation for a vibrant economy. Yet, the path to progress is not without challenges. The task at hand, The first three subsidiaries mentioned above are fully owned as well recognised, is to develop a dynamic private sector and NCAP in the reporting year 2014, established a joint with a strong capital base to spur entrepreneurism. This is an venture with a 60% stake - NDB Zephyr Partners Ltd to manage imperative, if the country is to fully realise its ambitious targets. the private equity fund launched in the year.
In this light, financial sector will have to take a focal role in raising Well recognised as a multifaceted investment banking the necessary capital and boosting private sector capacity for key organisation, NCAP Group is fully geared to unleash its potential investments. Yet, the orthodox banking system single-handedly and lead the capital market in the country. Fully supported by cannot support the growing needs for long term capital. The the power of the brand, concerted expertise and best practices capital markets both equity and debt, therefore, will be decisive led by a top-notch team and strategic links to well acclaimed in facilitating the shortfall in long-term capital, attracting both international financial institutions, NCAP is at the forefront of domestic savings as well as foreign capital and thus laying the the industry. Backed by both fee and fund based investment necessary scale for greater economic action. banking expertise, NCAP is able to source, structure and place the funding support for corporates and large infrastructure Taking on an intermediary role in mobilising funds within projects along with advisory services to take on complex the capital markets, investment banking offers an array of transactions on the capital market including mergers and non-conventional products - debt and equity securities, acquisitions, restructuring and start-ups. structured finance, advisory services, mergers and acquisitions, stockbroking, financial restructuring, valuations and market research. Investor segments - be it institutional, high-net-worth NCAP Group Our Businesses or the retail market can rely and call upon investment banking to extend appropriate funding and investment solutions and Fee Based Operations advisory services to meet their diverse risk-return profile needs. Distribution of Equity Distribution of Debt Instruments This bears much significance within the emerging business Corporate Advisory landscape. Mergers and acquisitions Wealth management Stock brokering NCAP at the Forefront Private equity management Formerly a listed entity prior to the de-listing of the ordinary th shares which came into effect on 26 January 2015, NDB Fund Based Operations Capital Holding Ltd (NCAP) is a subsidiary of the National Private Equity Investments Listed Equity Investments Development Bank (NDB). Incorporated in October 1983 and Structured Equity Investments restructured and re-launched in June 2012, NCAP is the parent Fixed Income Investments Underwriting company of a full-service investment banking cluster - NDB Propritery trading of debt and equity Investment Bank Ltd, NDB Securities (Pvt) Ltd (formerly known as NDB Stockbrokers (Pvt) Ltd), NDB Wealth Management Ltd 18 | NDB Capital Holdings LTD | Annual Report 2014 Close up
99.9%
100% 100% 100% 60% 77.8%
100%
NDB Zephyr Partners Lanka (Pvt) LTD
NDB Capital Holdings Ltd (NCAP) Company Profile: NCAP provides full service investment banking services, comprising both fund and fee based activities. The four subsidiaries focus on the fee-based services in investment banking, wealth management, stockbroking, and private equity management; whilst the fund based activities such as underwriting, private equity investments, listed equity and fixed income investments directly come under the purview of the Company.
Directorate: Mr. Ashok Pathirage (Chairman) Mr. Rajendra Theagarajah Mr. Vajira Kulatilaka (CEO) Mr. Sarath Wikramanayake Ms. Aruni Rajakarier Mr. Malinga Arsakularatne Mr. Faizan Ozman (Appointed w.e.f. 13/1/2015) Mr. Indrajit Wickramasinghe (Resigned w.e.f. 19/9/2014) 19 | NDB Capital Holdings LTD | Annual Report 2014
Consolidated Performance
Rs. Mn 1,600 1,400 1,200 1,000 800 600 Investments 52% 400 Wealth Management 25% 200 Group Segmental Investment Banking 12% 0 2013 2014 Revenue 2014 Stock Brokering 12%
Group Revenue (Rs. Mn) Group Profit (Rs. Mn)
NDB Investment Bank LTD (NDBIB) NDB Wealth Management Ltd (NDBWM) Company Profile: Company Profile: The flagship company of the NCAP Group, NDBIB specialises in NDBWM licensed by the SEC of Sri Lanka provides wealth debt and equity structuring and distribution, IPOs, corporate management solutions and mutual funds for institutions, high- restructuring, mergers and acquisitions and arranging project net-worth investors and the retail market. financing for both listed and non-listed entities.
Directorate: Directorate: Mr. Sarath Wikramanayake (Chairman) Mr. Sarath Wikramanayake (Chairman) Mr. Rajendra Theagarajah Mr. Rajendra Theagarajah Mr. Buwaneka Perera Mr. Vajira Kulatilaka Mr. Vajira Kulatilaka Mr. Darshan Perera (CEO)
NDBIB Performance NDBWM Performance
Rs. Mn Rs. Mn 400 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 2013 2014 2013 2014
Revenue (Rs. Mn) Profit (Rs. Mn) Revenue (Rs. Mn) Profit (Rs. Mn) 20 | NDB Capital Holdings LTD | Annual Report 2014 Close up (Contd.)
GRI - G4/ G4 - 15 G4 - 16
NDB Securities (PVT) Ltd (NDBS) NDB Zephyr Partners Ltd (NDBZ) Company Profile: Company Profile: NDBS a full member firm of the CSE, provides investment NDBZ is a joint venture with Zephyr Management L.P in the advisory services and trading of listed equity and debt USA. Incorporated on 24th December 2014 in Mauritius, NDBZ securities. manages private equity funds and extends advisory services on strategic planning, market access, access to technology, Directorate: finance restructuring and developing the management team Mr. Rajendra Theagarajah (Chairman) to investee companies in the small and medium enterprises Mr. Vajira Kulatilaka sector. Ms. Aruni Rajakarier Mr. Faizan Ozman (Appointed w.e.f. 2/2/2015) Directorate: Mr. Rajendra Theagarajah Mr. Thomas Corcoran Barry NDBS Performance Mr. Vajira Kulatilaka Mr. Faizan Ozman Rs. Mn Mr. Mukul Gulati 180 Ms. Dilshaad Rajabalee 160 140 Ms. Resmah Bibi Mandary 120 100 80 60 40 20 0 2013 2014
Revenue (Rs. Mn) Profit (Rs. Mn) 21 | NDB Capital Holdings LTD | Annual Report 2014 set
We are setting in place the necessary requirements and developing our expertise that will see us revolutionize the industry. 22 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Outline
Backed by a diversified product offering, proficient team, highly esteemed brand, strong parent and valuable strategic alliances including ties with multi-lateral agencies will enable NCAP and its network of subsidiaries to avail the opportunities present in the emerging economy
Even with inconsistencies and uneven growth patterns across sought to build our teams across the Group, extending the regions and countries, the world economy continued on a best in training and workplace opportunities. We remained recovery path in the year 2014. This coupled with positive committed to upholding good governance, compliance and trends in the macroeconomic environment, set out a favourable risk management whilst seeking to take on a more strategic platform within the domestic economy for greater economic approach to our social responsibility initiatives. activity towards steadier growth. Our performance in the year was commendable, with steady Marking a successful year, in this business backdrop, NCAP growth in all major key performance indicators. We maintained rallied its Group expertise and reinforced its positioning as a as at the year-end a sound financial position and positive cash solid investment banking group in the country. Our efforts were flows. firm and focused in delivering our five-year strategy, formulated for the period 2012-2017.
Seeking on to develop both the breadth and depth of the operations, we looked closely in the reporting year, at bringing in an-all-inclusive product solution with broader scope and value-addition. We leveraged on our parent’s strength, brand, synergies within the network and our strategic alliances. We 23 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Economic Review
Economic environment
Global economic outlook
Economic growth (%)
% 6%
5%
4%
3%
2%
1%
0% Global growth Advanced Emerging and economies developing growth economies growth 2013 2014 (E) 2015 (E) Source: IMF World Economic Outlook, October 2014
Global economic recovery continued to take place in 2014, In terms of emerging economies, highly divergent growth rates mainly driven by higher than expected economic growth in were visible in 2014 for the BRIC nations. Growth in China and the United States. However, positive sentiment generated India (both net oil importers) was 7.4% and 5.6% respectively by the revival of the world’s largest economy was dampened whilst Russia and Brazil (net oil exporters) were estimated to by economic and political crises elsewhere in the world. have witnessed far more moderate growth levels of 0.2% and The Euro zone witnessed stagnant growth across the board 0.3% respectively during the year. with traditional powerhouses Germany and France declaring lackluster growth figures during the year. In addition, Japan The International Monetary Fund predicts that global growth continued to remain in a ‘low growth – low inflation” would reach 3.8% by 2015, based on the assumption that environment, despite the continued effort of Prime Minister accommodative monetary and fiscal policies continue to remain Shinzo Abe to stimulate the economy. in place in key economies. This projection is also based on the premise of declining geo-political tensions, which may not be a valid assumption based on events witnessed in early 2015. 24 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Economic Review (Contd.)
Macro-economic outlook for Sri Lanka
Real GDP Headline Private sector Budget Balance of Growth Inflation credit growth Deficit Payments
2013: 2013: 2013: 2013: 2013: 7.2% 4.7% 8.0% 5.8% $985 mn
2014: 2014: 2014: 2014: 2014: 7.4% 3.3% 8.8% 5.2% $1.4 bn
2015(E): 2015(E): 2015(E): 2015(E): 2015(E): 8.0% 3.0% 18.0%: 4.6% $2.0 bn
Source: Road map of the Central Bank of Sri Lanka, 2015/Annual Report of Central Bank of Sri Lanka, 2014
Despite the fragile recovery of the global economy, the Strong growth driven by government spending Sri Lankan economy continued to grow at an impressive pace, During 2014, Sri Lanka’s Gross Domestic Product expanded by driven by large scale government spending on infrastructure ~ 7.4%, which was significantly higher than the global average related projects. Economic growth was also supported by an growth rate of 3.3%. In addition, growth achieved during the expansionary monetary policy as well as an improved Balance year was also higher than South Asian peers such as India, of Payments position. Fiscal consolidation continued as the Pakistan and Bangladesh. budget deficit was trimmed, whilst the ratio of public debt to GDP also dropped compared to 2013.
Real GDP growth (‘14)
% 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0 World Advanced Emerging Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Economies market and developing economies Source: Road map of the Central Bank of Sri Lanka, 2015/Annual Report of Central Bank of Sri Lanka, 2014 25 | NDB Capital Holdings LTD | Annual Report 2014
The services sector continued to remain the leading contributor to GDP in 2014, with a share of 58% of GDP, whilst the Industrial and Agricultural sectors contributed to 32% and 10% of GDP respectively. In terms of growth during the year, the Industrial sector posted the highest growth of 11.4% in 2014, mainly Salaries and wages 15.8% due to high growth in construction related activities. The Interest payments 18.0% services sector also expanded by 6.5% during the year, but the Other recurrent expenditure 17.4% Agricultural sector witnessed only moderate growth of 0.3% mainly due to adverse weather conditions. Government Public investment 18.8% expenditure -2009 Debt repayments 30.0% The nation continues to reap a ‘peace dividend’ as a result of the conclusion of the three decade long civil war, with post war economic growth remaining significantly higher than growth achieved during the conflict. This high level of economic growth resulted in per capita income almost doubling to USD 3,625 in 2014 from USD 2,057 in 2009.
Real GDP growth (1977 - 2014) Salaries and wages 18.2% Interest payments 18.8% % Other recurrent expenditure 18.3% 9.00 Public investment 19.5% 8.00 Government 7.00 expenditure -2014 Debt repayments 26.1% 6.00 5.00 Source: Road map of the Central Bank of Sri Lanka, 2015/Annual 4.00 Report of Central Bank of Sri Lanka, 2014 3.00 2.00 1.00 Capital expenditure and net lending accounted for the largest 0 share of government expenditure (excluding debt repayments) 1977-1989 1990-1995 1996-2006 2007-2010 2011-2014 in 2014. Such investments were financed mainly through Source: Road map of the Central Bank of Sri Lanka, 2015/Annual domestic and foreign borrowings but also through foreign aid Report of Central Bank of Sri Lanka, 2014 and grants.
However, it should be noted that economic growth was mainly Fiscal consolidation driven by high levels of government expenditure, as the state Despite high expenditure on large scale infrastructure projects, continued to invest in large scale infrastructure projects related the fiscal deficit (as a percentage of GDP) continued to decline, to highways, railways, ports, aviation, urban beautification mainly due to high economic growth which outpaced the and other investments. The increased involvement of the growth in the fiscal deficit in the post war period. government in domestic investments is indicated by Capital expenditure and net lending accounting for ~19.5% of government expenditure in 2014, vis-à-vis ~18.8% in 2009. 26 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Economic Review (Contd.)
Budget deficit (% of GDP) REVENUE AND EXPENDITURE (% OF GDP)
2010 2011 2012 2013 2014 (E) % 0 30 -2 25 -4
-6 20
-8 15
-10 10 % 2008 2009 2010 2011 2012 2013 2014 (E)
Source: Road map of the Central Bank of Sri Lanka, 2015/Annual Revenue (% of GDP) Expenditure (% of GDP) Report of Central Bank of Sri Lanka, 2014 Source: Road map of the Central Bank of Sri Lanka, 2015/Annual Report of Central Bank of Sri Lanka, 2014 In terms of individual components of fiscal policy, government revenue increased to 14.5% of GDP in 2014 (from 13.3% The lower fiscal deficit coupled with higher economic growth in 2013). However, this continues to be below the revenue has resulted in a decline in public debt as a percentage of collection of 15.6% of GDP achieved in 2008 (immediately GDP, from 86.2% in 2009 to 75.5% in 2014. The Central Bank prior to the conclusion of the civil war). On the other hand, envisages that this figure will continue to decline, ultimately government expenditure has increased to 20.0% of GDP, mainly reaching 60.0% by 2020. as a result of lower recurrent expenditure.
Government debt to GDP
% 120
100
80
60
40
20
0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Road map of the Central Bank of Sri Lanka, 2015/Annual Report of Central Bank of Sri Lanka, 2014
Foreign debt continues to remain an important source of forecasts a reduction of this figure to 25% by 2020, in order to funding for the government, with ~42% of outstanding debt in ensure lower reliance on foreign funding. 2014 being obtained from foreign sources. The Central Bank 27 | NDB Capital Holdings LTD | Annual Report 2014
Composition of public debt This relaxed stance on monetary policy resulted in broad money growth of 13.3% and private sector credit growth of 8.8% in % 2014. 100 Yield curve - Treasury Bills And bonds 80
60 % 12 40
20 10
0 8 2004 2009 2014
Domestic Debt (%) Foreign Debt (%) 6
4 91 182 364 3 5 8 10 15 Source: Road map of the Central Bank of Sri Lanka, 2015/Annual days days days years years years years years Report of Central Bank of Sri Lanka, 2014 31.12.2013 31.12.2014 Loosened monetary policy Source: Central Bank of Sri Lanka, MVS money brokers The Central Bank continued to maintain low policy rates in 2014 in order to spur economic growth. The 364 day Treasury bill yield As illustrated above, the yield curve for Treasury bills and was 6.0% at end 2014, compared to a yield of 8.3% at end 2013. bonds witnessed a downward shift in 2014. On average, yields In addition, the Average Weighted Lending Rate declined to 11.9% across maturities for treasuries declined by approximately 200 (versus 15.2% as at end 2013), whilst the Average Weighted basis points during the year, which in turn led to lower average Deposit Rate declined to 6.2% (versus 9.4% as at end 2013). weighted lending rates and average weighted deposit rates.
Interest Rates Private Sector credit growth
% % 20 30
16 20 12 10 8 0 4
0 -10 Average Average 2000 2005 2009 2014 Weighted Weighted Lending Rate Deposit Rate Source: Road map of the Central Bank of Sri Lanka, 2015/Annual End 2013 End 2014 Report of Central Bank of Sri Lanka, 2014 Source: Road map of the Central Bank of Sri Lanka, 2015/Annual Report of Central Bank of Sri Lanka, 2014 28 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Economic Review (Contd.)
Moderate inflation 2014 was the 6th consecutive year in which average annual Despite low policy rates and high economic growth, inflation inflation was recorded at single digit levels and the Central Bank remained low at a rate of 3.3% in 2014. This was well below the expects to maintain this in the medium term, with an inflation Central Bank’s targeted level of inflation of 4 - 6% for the year and was rate of 2 - 4% being targeted for 2015. mainly achieved as a result of a sharp decline in energy prices as well as lower prices of all major commodities in the international market. Average annual inflation (%)
Brent Crude price (USD/bbl) % 15
150 10 130
110 5
90 0 70 2000 2005 2009 2014
50
Jul-14 Source: Road map of the Central Bank of Sri Lanka, 2015/Annual Jan-14 Jun-14 Apr-14 Sep-14 Oct-14 Feb-14 Aug-14 Nov-14 Dec-14 Mar-14 May-14 Report of Central Bank of Sri Lanka, 2014 Source: Bloomberg Balance of Payments Global oil prices declined by ~43% during 2014, with a The current account deficit contracted to 2.7% of GDP in 2014, significant price fall visible during the second half of the year. In compared to 3.9% of GDP in 2013. This was despite the trade line with declining Crude oil prices, price of other commodities deficit increasing by 8.9% to USD 8.3 Bn in 2014 (from USD 7.6 Bn such as Steel declined as well. Between January and December in 2013). The main factors that resulted in a lower current account 2014, Steel prices declined by ~11% during the year, from USD deficit (despite a higher trade deficit) were increased earnings from 726/MT to USD 644/MT, as illustrated below - tourism, higher inward remittances and increased inflows from Information and Communication Technology (ICT) and transportation Global Composite carbon steel price (USD/MT) services.
However, despite the contraction from 2013, the current account 800 deficit continued to be above the record low deficit of 0.5% of GDP achieved in 2009. 750
700
650
600 Jul-14 Jan-14 Jun-14 Apr-14 Sep-14 Oct-14 Feb-14 Aug-14 Nov-14 Dec-14 Mar-14 May-14 Source: http://www.worldsteelprices.com/ 29 | NDB Capital Holdings LTD | Annual Report 2014
Current account deficit (% of GDP) Moreover, the composition of the current account has changed drastically between 2009 and 2014. The contribution of tourism 2000 2005 2009 2014 related earnings to the current account has increased significantly 0 during this period, at the expense of earnings from Merchandise exports. In addition, contribution from ICT services and worker remittances has also increased as illustrated below. -5
-10
% Source: Road map of the Central Bank of Sri Lanka, 2015/Annual Report of Central Bank of Sri Lanka, 2014
Merchandise exports 58% Merchandise exports 48% Earnings from tourism 3% Earnings from tourism 10% Transportation services 7% Transportation services 8% ICT services 2% ICT services 3% Current Account Other services 3% Current Account Other services 2% inflows - 2009 Worker remittances 27% inflows - 2014 Worker remittances 29%
Source: Road map of the Central Bank of Sri Lanka, 2015
The Capital and Financial account also improved in 2014 due Exchange rate to significant inflows during the year including Foreign Direct The Rupee remained stable against the USD in 2014, mainly as a Investment of ~ USD 1.7 Bn, net inflows to the Colombo Stock result of the strengthened Balance of Payments (BOP) position. Exchange (CSE) of ~USD 184 Mn and borrowings (public and This strengthened BOP position allowed the Central Bank to private) of ~USD 4.85 Bn. This resulted in a Balance of Payments increase gross reserves to a historic high of USD 9 Bn in June surplus of USD 1.4 Bn being recorded in 2014, vis-à-vis a surplus 2014. However, reserves declined in the second half of 2014 of USD985 Mn in 2013. to a level of USD 8.2 Bn by the end of the year, which equated to 5.1 months of imports. This was deemed adequate by the Central Bank to maintain stability of the Rupee. 30 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Economic Review (Contd.)
Exchange rate (Rs.:USD)
150
140
130
120
110
100 2/24/2010 4/24/2010 6/24/2010 8/24/2010 2/24/2011 4/24/2011 6/24/2011 8/24/2011 2/24/2012 4/24/2012 6/24/2012 8/24/2012 2/24/2013 4/24/2013 6/24/2013 8/24/2013 2/24/2014 4/24/2014 6/24/2014 8/24/2014 10/24/2010 12/24/2010 10/24/2011 12/24/2011 10/24/2012 12/24/2012 10/24/2013 12/24/2013 10/24/2014 12/24/2014 Source: Bloomberg
Equity market During the year, Rs. 3.3 Bn was raised through 5 Initial Public Market sentiment improved in 2014 with the All Share Price Offerings (IPOs) whilst Rs. 11.2 Bn was generated via 13 rights issues. Index (ASPI) crossing a two year high of 7,500 with an average daily turnover of Rs. 1.3 Bn (versus an average turnover of As at 31st December 2014, the trailing Price to Earnings ratio Rs. 785 Mn in 2013). Growth in corporate performance of the Colombo Stock Exchange was 13.4x whilst Price to Book supported by the continued decline in the interest rates value was 1.9x, both significantly below multiples achieved resulted in the market gaining momentum during the second during the Bull Run in 2010. Evidence suggests that multiples half of the year. Retail activity saw an improvement in of regional peers are also significantly higher, which indicates comparison to 2013, while foreign buying grew to an all- that the CSE continues to be an undervalued market with strong time high of Rs. 105 Bn (versus Rs. 84 Bn in 2013). As a result growth potential. In addition, the current environment of low of bullish sentiment, the ASPI grew by 17.5% and market interest rates is expected to augur well for continued growth in capitalization crossed Rs. 3 trillion during the year. the equity market.
Index returns (2014) Trailing P/E ratios (31/12/2014)
8,000 25
20 7,000
15
6,000 10
5,000 5 14 JCI SET KSE CSE 2/2/14 6/2/14 8/2/14 9/2/14 1/2/14 7/2/14 3/2/14 4/2/14 PASHR 5/2/ MXWO 10/2/14 11/2/14 11/2/14 BSE 500 (Manila) (Jakarta) (Karachi) VNINDEX (Mumbai) (Bangkok) (Colombo)
ASPI ( Colombo) MSCI World (MXWO) MXEF (MSCI (MSCI World) (Ho Chi Minh) MSCI Emerging Mkts (MXEF) Source: Bloomberg markets) Emerging Source: Bloomberg 31 | NDB Capital Holdings LTD | Annual Report 2014
Debt market Furthermore, the more liquid government securities market A significant regulatory change took place in the corporate debt provided attractive returns across different maturities as market in 2014, as foreign investors were allowed to invest in illustrated below :- non-listed debentures (in addition to listed debentures) through the Securities Investment Account. NDBIB-CRISIL Index returns (2014)
However, funds raised through corporate debentures declined to Rs. 54.2 Bn in 2014, compared to Rs. 68.3 Bn in 2013. But, 9,500 the increased liquidity in the corporate debenture market witnessed in 2014 gave significant diversifying opportunities to 9,000 the active investors in Sri Lanka’s capital market. 8,500
Funds raised through Debentures (Rs. Bn) 8,000
Rs. Bn 7,500 35 14 1/Jul/14 1/Jun/14 1/Jan/14 1/Sep/14 1/Feb/14 1/Apr/14 1/Oct/14 1/Aug/14 1/Dec/14 1/Nov/14
30 1/Mar/14 1/May/ 25 20 91 Day T-Bill 364 Day T-Bill 15 3Y T-Bond 5Y T-Bond 10 Source: www.ndbch.com/ 5 0 Licensed Licensed Licensed Non Finan- The loose monetary policy stance undertaken by CBSL resulted Commercial Special- Finance Cor- cial Institu- in healthy returns to fixed income portfolio managers. Banks ized Banks porations tions
2013 2014 Longer dated government securities benefited from significant Source: Colombo Stock Exchange (CSE) capital gains on account of the ~200bps reduction in policy rates as witnessed by the ~14.5% and ~18.1% annual return recorded by the benchmark NDBIB CRISIL 3-year and 5-year Treasury Bond indices respectively. Shorter dated government securities recorded returns of ~6.8% and ~8.4% for 2014 as witnessed by the benchmark NDBIB CRISIL 91-day and 364-day Treasury Bill indices. 32 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Business Review
NCAP Strategy, Targets and Achievements
Risks Opportunities ▪ Uncertainties within the political scenario ▪ The rebounding global economy and Sri Lankan economy ▪ Uncertainties in fiscal and monetary policies moving towards stable growth in the medium term ▪ Increasing regulatory demands ▪ Positive investor sentiments and increase in FDIs into ▪ Increasing competition in the industry diverse sectors of the economy ▪ Increasing complexity in the way businesses operate ▪ Macroeconomic policies skewed towards developing the ▪ Changes in socio-cultural attitudes and lifestyle that may capital markets sway the integrity and professionalism of the industry ▪ Strength of the brand, parent support, group synergies and ▪ Changes within the operations and integrity issues of tie-ups with strategic partners clients, strategic partners and suppliers ▪ Talent and professionalism of the team and the ability to attract the top graduates and professionals to the team
Strategic Priorities ▪ Encourage product bundling and cross-selling for a total financial solution ▪ Engage in large scale, complex, highly visible deals in equity and debt markets Product Offer ▪ Design and introduce new structured finance products ▪ Showcase the Group’s expertise to market products and services ▪ Participate in large scale public sector projects and deals ▪ Recruit the best and new talent from local and foreign universities ▪ Advocate on-the-job training, rotations and cross placements to round off employee skills ▪ Extend technical training to develop specialised functional skills Human Resources ▪ Extend training to develop soft skills - presentation and negotiation skills ▪ Encourage staff to obtain post graduate and professional qualifications ▪ Initiate an employee share option scheme and a performance based profit sharing scheme ▪ Succession planning - leadership development for clearly identified employees ▪ Strengthen ties with parent, NDB and leverage on the NDB brand ▪ Place more emphasis on cross-selling within the NDB Group Group Synergies ▪ Maximise opportunities through the NDB’s outreach across the country ▪ Integrate and centralise procurement and finance functions for cost effectiveness ▪ Seek and establish greater collaborations within the Group ▪ Collaborate with NDB Capital Bangladesh in mutually beneficial projects 33 | NDB Capital Holdings LTD | Annual Report 2014
Strategic Priorities ▪ Pursue on the opportunities with strategic partner, DBS Bank, Singapore ▪ Seek new strategic partnerships with regional and global financial institutions and other multilateral agencies Strategic Alliances ▪ Network with local financial institutions for mutually beneficial projects - syndications, IPOs ▪ Build a network of institutions/individuals as distributors ▪ Develop ties with potential investors for private equity placements, IPOs, acquisitions and foreign direct investments ▪ Create sustainable value, reaching out to stakeholder aspirations ▪ Develop risk management dashboards as an effective mitigatory mechanism ▪ Strengthen the compliance function and internalise within the daily operations and teams across the group Sustainability Focus ▪ Closely follow-up and ensure that investors, strategic partners and suppliers to conform to best practices in business ▪ Continue to uphold good governance and ethics as prescribed for listed entities ▪ Greater investment and commitment to strategic philanthropic initiatives
Targets vs. actual 2014
Target: Rs. 94 Bn Assets Under Management Actual: Rs. 97 Bn
Target: Rs. 828 Mn Profit After Tax Actual: Rs. 964 Mn
Target: 13.5% Return on Equity % Actual: 15.6% 34 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Business Review (Contd.)
NCAP Operational Performance
NCAP Product and Service Offerings
Private Equity Equity investments in small and medium companies with high growth potential along with value addition in terms of markets, technology, finance, planning and management.
Proprietary Trading Proprietary trading desk for equity and fixed income to capitalise on short-term volatilities and arbitrage opportunities in the market.
Underwriting Licensed underwriter for listed debt and equity securities by the SEC of Sri Lanka
Other Investments Maintain exposure to listed equities, structured equities, fixed income securities, money market and income funds 35 | NDB Capital Holdings LTD | Annual Report 2014
NCAP Operational Highlights -2014
Private Equity ▪ Established a joint venture, partnering with a well-recognised emerging market fund manager from USA. ▪ Established the largest dedicated private equity fund in Sri Lanka ▪ Committed USD 12 Mn to the fund with the balance USD 30.5 Mn being committed by multilateral development financial institutions and others totaling to USD 42.5 Mn at the first close.
Equity Trading ▪ Trading portfolio posted an annual return of 35%, surpassing the industry performance.
Structured Equity Investment ▪ Invested a sum of Rs. 730 Mn as NCAP contribution in the acquisition of 75% stake of Resus Energy PLC, partnering with ACL Cables PLC and Trydan Partners (Pvt) Ltd
De-listing ▪ Initiated the process to de-list the Company from the CSE in order to not be in violation of the mandatory requirement of holding 20% by the public.
Key Performance Indicators - NCAP Group 2014 2013 Growth Revenue (Rs. Mn) 1,417 1,294 9% Profit After Tax (Rs. Mn) 964 757 27% Net Profit Margin 68% 59% 16% Return on Equity 15.6% 13.3% 18%
Note: 2013 figures have been adjusted to exclude Rs. 175 Mn one-off investment income earned from the cash generated through the divestiture of Aviva NDB Insurance PLC 36 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Business Review (Contd.)
GRI - G4/ G4 - 13 Overview minority shares at a fair price of Rs. 600 per share. Necessary In the year under review, NCAP remained steadfast and hands- documentation was processed in the year and Extraordinary on in delivering its strategic priorities. The NCAP Group moved General Meeting was called upon to endorse the Board ahead firmly placing its financial prowess in executing some of decision. the leading transactions in debt and equity markets, advisory services, wealth management, mutual funds and stockbroking. The de-listing came into effect on 26th January 2015. Plans, Mustering the synergies, NCAP advocated cross-selling and however, are underway to re-list the Company on the CSE product bundling within the Group which coupled with a within the next three years. Valuation of shares at this point relationship based client servicing approach, supported to meet is expected to be more reflective of the true potential of the the discerning needs of diverse investor segments. NCAP Group, especially given that our five year strategic plan, running up to 2017, would have been fully implemented and Moving towards the milestone level, the total assets under outcomes therein achieved as aspired. This move will benefit management during the year registered a steady growth of 38% both NCAP and NDB. to Rs. 97 Bn. Out of the total assets, nearly 90% was accounted for by the wealth management activities. Returns on debt and Private Equity equity trading, capital gains and other investments remained Refer Private Equity, Pages : 57-58 sound and posted noteworthy increases. Private equity is ideally suited to address funding gaps On the cost side, NCAP remained disciplined and concentrated especially within the SME sector and thus, play a critical role in on maintaining a lean cost structure. Centralisation of the meeting development aspirations in emerging economies. Both procurement process with the parent NDB was sought after, India and China are definitive cases in point which saw private enabling effective negotiations on the terms and conditions equity complement their impressive growth path witnessed in including on pricing. The other centralised functions with the recent years. This stood as our rationale and inspired us to respect to IT, governance and risk management further take on private equity investment management as our latest supported our efforts to manage overhead costs. Currently, venture which we believe has true potential to support our NDB Group is also working on centralising the finance function country’s development ambitions. along with procurement covering both products and services. As will be discussed at length in the ensuing section, in the Within this operational scenario, NCAP delivered strong results, reporting year, we cemented our commitment to take forward leading up to increases in revenue and profitability for both the our private equity venture which was initiated in the preceding Company and at the consolidated level (2013 figures have been year. adjusted to exclude Rs. 175 Mn one-off investment income earned from the cash generated through the divestiture of Accordingly, a new joint venture was established in Mauritius Aviva NDB Insurance PLC). in partnership with a U.S. based private equity fund manager whilst the landmark fund dedicated for private equity was De-listing launched in Sri Lanka. The first closing of the Fund amounted to Coinciding with the mandatory public float of 20% as stipulated USD 42.5 Mn. NCAP’s investment commitment was by the SEC of Sri Lanka coming into play in the year under USD 12 Mn, with the majority of the balance contributed by key review, NCAP initiated the process to de-list its ordinary shares international development finance institutions. Our investment from the CSE. The majority shareholder, our parent NDB, will be called over in the next five years. with 99.6% ownership at the time offered to purchase the 37 | NDB Capital Holdings LTD | Annual Report 2014
Proprietary Trading Awards and Recognitions Prompted by the bullish trends that prevailed on the CSE, Refer Subsidiary Review Pages : 45 & 52 our proprietary trading activities gathered momentum in the reporting year. We leveraged on our strengths in research Showcasing our expertise and the progressive steps taken to information and best-in-class support systems to be timely firm our leadership positioning within the investment banking and strategic in trading activities and maintained a balanced terrain in the country, NCAP Group was honoured in the year to portfolio to minimise the risk exposure. We exercised due be internationally acclaimed with some of the most esteemed caution in asset allocation and thus, sought to mitigate risks to awards. We received a total of 21 global awards. an acceptable level within the group. NDBIB CRISIL Sri Lankan Indices (CRISIL Research) Our equity portfolio encompassing banks, finance and We continued to publish NDBIB-CRISIL indices on treasury insurance, food and beverage, chemical and pharmaceuticals, securities, daily, on print media and on our official website. The construction and engineering, diversified holdings, healthcare, four indices monitored the trends of 91 and 364 day treasury hotels and travels, land and property, manufacturing, motor, bills and three and five year treasury bonds which in effect power and energy and telecommunications sectors performed sought to facilitate stakeholders to make informed investment well with stable returns of around 35%, well exceeding the decisions. These indices are published in collaboration with market performance. CRISIL Limited, India, a global analytical company.
We also reported attractive capital gains in the fixed income portfolio amounting to Rs. 79 Mn.
Structured Equity Investments Refer Subsidiary Review. Page : 42
In the reporting year, NCAP sought to strengthen its structured equity investment portfolio. The focus was on the energy sector - a key driver with strong potential to spur economic value. In December 2014, in keeping with this and complementing our aspirations towards greater involvement in green energy investments, NCAP made a significant equity investment of Rs. 730 Mn in the acquisition deal of a hydro-power energy company - Resus Energy PLC, formerly known as Hemas Power PLC. Partnering with ACL Cables PLC and Trydan Partners (Pvt) Ltd, a special purpose vehicle backed by the management team of Resus Energy PLC acquired a stake of 75% of the company ownership. This investment is expected to yield attractive returns in the medium term especially given the planned capital restructuring of Resus Energy PLC and implementation of new power projects that are in the pipeline. The acquisition was structured by our investment banking arm, NDBIB. 38 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Business Review (Contd.)
Future Outlook of subsidiaries to avail the opportunities present in the emerging economy. Our aim is to build a stronger fund base and extend a full product range supported by our expertise which is unprecedented Global Outlook in the market. Our ideals in governance, ethics, risk management Notwithstanding the nuance of ambiguity in the recovery, the global and social responsibility will firm our presence leading up to long economy is expected to be more robust in the year 2015. Within term sustainability. the advanced nations, America is expected to be buoyant, leading the global growth whilst the Euro nations and Japan, though ‘out Key Plans for 2015 and targets are set out below: of the woods’ would still be troubled by low inflation and inertia in economic activity. Growth prospects within emerging and developing Key Action 2015 economies are projected to be resilient to endure stability in its growth momentum, yet at a weaker pace. Develop strategic alliances in South East Asia, India, Middle East, Europe and USA The lower oil prices are expected to lift global growth, even though Commence debt trading both government uncertainty remains on its continuance and bringing in external and corporate weaknesses in oil exporting nations. Volatility in global financial markets will continue to be a cause of concern, particularly for Actively look for acquisition opportunities the emerging and developing nations. The geopolitical situation in the financial services sector particularly incited by the crisis in Ukraine and the rise of the Islamic State in parts of Iraq and Syria and the persisting tension within the Encourage cross-selling across the cluster and NDB Group Middle East will no doubt impact the market performance, although lukewarm in its manifestation. Implementation of a performance based incentive scheme including an ESOP Consolidated Sri Lanka’s Economic Outlook Targets 2015 Complemented by the up-side trends in the global economy, albeit, Introduce new and innovative products ▪ Assets under across the cluster management: > still inconsistent, Sri Lanka is well poised to pace-up towards its Rs. 127 Bn development goals within the post conflict settings. Although, in ▪ Return on the short-term, socio-political uncertainties remain a reality, the Implementation of a succession plan Equity > 15% country has in place a necessary policy backdrop and the aspirations ▪ Profits After Tax : Develop a comprehensive risk management Rs. 1,026 Mn to enhance consumer and investor confidence in the medium term. and monitoring framework with closer The monetary policy, very likely to continue on an accommodative working ties with NDB Risk Department stance in the immediate year ahead will spur greater movement in private sector credit whilst supporting the capital market to take up a Invest in private equity transactions more pivotal role which will boost economic activities. This together with broadly encouraging macro indicators will support the path for Complete the harmonisation of compliance the economy to grow as anticipated to an upper-mid income status. systems/structures for the group
Further develop and add value to the NCAP Plans NCAP scholarship programme Within a more stable medium term, NCAP’s role as full service investment banking group will be more prominent and significant. Continuous training and development of Backed by a diversified product offering, proficient team, highly the team including succession planning esteemed brand, parent and strong strategic alliances including ties with multi-lateral agencies will enable NCAP and its network 39 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review
NDB Investment Bank (NDBIB)
NDBIB Product and Service Offering
Initial Public Offerings (IPO) Advise, structure and manage IPOs with placements and distribution.
Secondary Equity Raising Provide advisory services and solutions for secondary public offerings, rights issues, private placements and issuance of long term capital instruments.
Mergers and Acquisitions Provide advisory services to initiate/facilitate Mergers and Acquisitions as well as arranging acquisition financing.
Securitisation Facilitating businesses to grow by raising capital through the strength of their future cash flows.
Commercial Papers Address working capital financial requirements with maturities up to twelve months.
Debentures Manage end-to-end processes of debenture issues along with advisory services on credit rating.
Loan Syndications Structure and advise on project viability and arrange financing via syndicate of local and foreign funding institutions.
CORPORATE ADVISORY Restructuring of entities to optimise the value. 40 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review (Contd.)
NDBIB Operational Highlights - 2014
Debentures Structured and managed four listed debenture issues to the value of Rs. 7.5 Bn.
Term Loan Arranged a syndicated term loan of USD 50 Mn for a dual fuel plant project in partnership with NDB Capital Bangladesh.
IPOs Successfully placed and managed the year’s second largest IPO on the CSE - Alumex PLC raising Rs. 838 Mn.
Islamic Finance Ventured into Islamic finance, structuring a ‘Wakala’ facility for a company in the Power and Energy Sector.
Corporate Advisory and Mergers and Acquisitions Facilitated the acquisition of a Power and Energy company through a consortium of investors. Advised on a capital restructuring plan to enhance the value of the investment.
Key Performance Indicators 2014 2013 Growth Funds Raised (Rs. Bn) 24.5 42.2 (42%) Profit After Tax (Rs. Mn) 60.3 179.1 (66%) Operating Profit Margin 35.9% 62.3% - Net Profit Margin 35.4% 48.9% - ROE 11.6% 42.7% - 41 | NDB Capital Holdings LTD | Annual Report 2014
Overview Funds Raised (Rs. Bn) NDB Investment Bank Ltd (NDBIB), a former joint venture established in 1996 between NDB and Citibank N.A, is a fully Rs. Bn owned subsidiary of NCAP and is the front-runner of the Group. 45 Engaged on a fee-based investment banking model, offering an 40 array of debt and equity products along with corporate advisory 35 30 and mergers and acquisitions, NDBIB has established a solid 25 presence as the market leader for almost over a decade within 20 the investment banking domain in the country. Recognised 15 10 and acclaimed by some of the esteemed international 5 awarding bodies, NDBIB has successfully structured and 0 placed innovative, complex and perceptive deals including 2010 2011 2012 2013 2014 initial public offerings (IPOs), Rights and Preference Share Issues, Debentures, Securitisations and Derivatives for leading businesses.
Business Performance Upholding its dominance and further reinforcing its presence as a discerning investment bank, NDBIB continued to deliver complex and intense deals in the year which included IPOs, Debentures and Securatisations 63% Debentures, Securitisations and Advisory Services particularly Other Debt Instruments 19% for Acquisitions, tailored to meet the diverse investor Revenue Equity Placements requirements within a dynamic landscape. Contribution 2014 and Other Advisory 18%
Notwithstanding a more subdued business environment, Debentures particularly following the lacklustre conditions within the debt Moving away from the upside trend that prevailed in the recent market relative to the drive witnessed in the recent past, NDBIB times after the budgetary tax concessions for listed debentures was able to maintain a robust performance in the year, although at the hands of the investors, the listed debt market remained modest compared to 2013 performance. The total funds relatively subdued in the year under review. The excess liquidity generated, recorded a decline of 41.9% to Rs. 24.5 Bn whilst the combined with access to low cost short-term funds and the fee based activity revenue of Rs. 102.5 Mn corresponded to a uncertainties on low interest rate regime did not portend well 68.6% decline. Revenue from debenture transactions of on the debenture market performance. Rs. 44.8 Mn accounted for the largest share of the total, down from 64.9% share recorded in the preceding year. Other fee Despite the debt market dynamics, NDBIB maintained a steady based activities - securitisations, loans and debt instruments, presence with its engagement within the corporate debenture equity deals, advisory services on acquisitions, feasibility market in the reporting year; with funds generated thus far studies and syndications absorbed the balance 56.3% of the going up to Rs. 37 Bn since budgetary concessions came into total, recording Rs. 57.7 Mn. effect. NDBIB structured and managed debenture issues for four leading corporates - three as first time issues for Hemas Holdings PLC, Richard Peiris and Company PLC, Siyapatha Finance Ltd and another for Lion Brewery (Ceylon) Ltd as a repeat client. All four issues which were oversubscribed within hours after opening for subscription generated funds 42 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review (Contd.)
of Rs.7,500 Mn, accounting for nearly 30.6% of the total funds advisors and managers, succeeded to clinch one of the few and raised by NDBIB and reflecting nearly a 12.4% share of the total most successful IPOs offered for subscription during the year; market. IPO of Alumex PLC for the value of Rs. 838 Mn. This IPO which was the second largest in the market was oversubscribed on Loan Structuring the opening day and continues as at date to trade above its IPO In its pioneering spirit, NDBIB in the reporting year collaborated pricing. with NDB Capital Bangladesh, a subsidiary of the NDB Group, to structure, advise and manage a cross-border loan syndication Mergers and Acquisitions for a leading company in the power and energy sector in Drawing on the synergies with its sister company, NDBS, Sri Lanka. The syndicated loan of approximately USD 50 Mn, NDBIB structured and managed the acquisition of 75% stake bringing together financial institutions from both Sri Lanka and held by Hemas Holdings PLC of Resus Energy PLC, formerly Bangladesh was utilised to setup a dual fuel plant in Bangladesh known as Hemas Power PLC. NDBIB acted as the advisor to with a capacity of 52 megawatts. This is the second power plant the management of Resus Energy PLC and supported with the undertaken by the sponsor and the financing for the first too, valuation and arranged a consortium of investors including was arranged by NDBIB. equity contribution from ACL Cables PLC, Trydan Partners (Pvt) Ltd and NCAP, raising funds of nearly Rs. 1.7 Bn. Debt financing NDBIB also facilitated and raised USD 2.2 Mn and Rs. 1.1 Bn as was also arranged for some of the equity partners. NDBIB was long term loans for leading corporates in Sri Lanka. also mandated to manage the mandatory offer following the acquisition as per the SEC guidelines. Securitisations Reinforcing its expertise in structured finance products, Financial Sector Consolidation NDBIB continued in the year to flex its dominance within the Supporting the Central Bank’s financial sector consolidation securitisation market. Four successful securitisation deals were plans, NDBIB played a significant role in structuring and arranged for leading companies within the plantation and advising on mergers and acquisitions on the CSE, mandatory leasing and finance sectors, generating Rs. 1.65 Bn worth of offers and rights issues within the sector. In the year, NDBIB funds. This accounted for 6.7% of the total funds raised for the advised and managed the mandatory offer following the year as compared to 10.1% in the preceding year. acquisition of 70% stake of George Steuart Finance PLC by Deshodaya Development Finance Company Ltd. The mandate Islamic Banking was also secured to act as the financial advisor to the proposed Well aligned to the NCAP Group’s tenet of upholding financial amalgamation of the two companies and the subsequent listing inclusivity, NDBIB ventured into Islamic banking - successfully of the merged entity on the CSE. structuring and placing a ‘Wakala’ facility for a company within the power and energy sector. This facility which is an equivalent NDBIB furthermore supported in its advisory capacity and to a conventional commercial paper, was endorsed by the managed the rights issue of Sanasa Development Bank PLC, Shari’ah Supervisory Board as compliant to the stipulated generating over Rs. 1 Bn. Shari’ah principles in Islamic finance. Marketing IPOs In the reporting year, NDBIB went in for print media Even within rebounding capital market conditions that prevailed promotions, disseminating information on its total service offer in the year, the demand for fresh equity through IPOs on the under the brand strength and repute of NDB. CSE remained subdued and did not gather momentum as anticipated. NDBIB in its role as one of the foremost financial 43 | NDB Capital Holdings LTD | Annual Report 2014
Recognitions and Awards The awards received in the year under review from some of the globally acclaimed financial and investment magazines stand as a testimony to the way in which NDBIB is committed to uphold the best practices in investment banking, reaching for innovation and operational excellence.
NDBIB was recognised as the “Best Investment Bank in Sri Lanka” by the esteemed Euromoney Magazine for the third successive year at the ‘Awards for Excellence 2014’ and by the UK based International Finance Magazine for the second successive year at the ‘IFM Awards’ along with the UK based World Finance Magazine.
NDBIB this year as well went on to clinch four awards from Global Banking and Finance Review viz. ‘Best Investment Bank’, ‘Best Investment Banking Services’, ‘Most Innovative Investment Bank’ and ‘Best Asset Backed Securitisation’.
Global Brands Magazine Awards honoured NDBIB for its brand strength as the “Trusted Investment Banking Brand Sri Lanka 2014” whilst the team at NDBIB was recognised as the “Best Debt Capital Markets Team” in the country by Capital Finance International.
Euromoney Award for the 3rd Time in 2014 44 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review (Contd.)
NDBIB milestones
Managed the highest number of debenture issues in a single year on the CSE
10 debenture issues raising Rs. 29.3 Bn
Managed three of the four largest IPOs on the CSE to date
Dialog Axiata PLC: Rs. 8.5 Bn (largest to date) People’s Leasing & Finance PLC: Rs. 7 Bn Lanka IOC PLC: Rs. 4 Bn
Managed top three IPOs on the CSE in terms of oversubscription levels
Union Bank PLC: Rs. 129 Bn Dialog Axiata PLC: Rs. 55.9 Bn Singer Finance (Lanka) PLC: Rs. 54.3 Bn
Largest corporate debenture issue on the CSE
National Development Bank PLC: Rs. 10 Bn
Largest preference share issue
Dialog Axiata PLC: Rs. 5 Bn
Largest quantum of funds subscribed in a listed corporate debenture
National Development Bank PLC: Rs. 21.3 Bn
Largest utility based securitisation
Ceylon Electricity Board: Rs. 1.43 Bn
Largest credit and debit card securitisation
Cargills Ceylon PLC: Rs. 2 Bn
Largest tea receivable securitisation
Kotagala Plantation PLC: Rs. 500 Mn 45 | NDB Capital Holdings LTD | Annual Report 2014
Recognitions and Awards
‘Best Investment Bank in ‘Best Investment Bank in rd Sri Lanka’ Recognised for the 3 Sri Lanka 2014’ Recognised for consecutive year at Awards for the 2nd consecutive year by Excellence 2014 by Euromoney World Finance Magazine Magazine
‘Best Investment Bank in Sri Lanka 2014’ Recognised ‘Best Investment Banking for the 2nd consecutive year at Services in Sri Lanka 2014’ IFM Awards by International Recognised by Global Banking Finance Magazine and Finance Review
‘Most Innovative Investment ‘Best Debt Capital Markets Team Bank in Sri Lanka 2014’ Sri Lanka 2014’ Recognised by Recognised by Global Banking Capital Finance International and Finance Review
‘Best Investment Bank in ‘Best Asset-Backed Sri Lanka 2014’ Recognised by Securitisation in Sri Lanka in Global Banking and Finance 2014’ by Global Banking and Review Finance Review
‘Trusted Investment Banking Brand Sri Lanka 2014’, Recognised by Global Brands Magazine Awards 46 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review (Contd.)
Future Outlook Within the backdrop of a burgeoning economy, the financial market of the country is expected to drive towards higher ground, with investor confidence leading to greater levels of activity. NDBIB as the versatile investment banking arm of the NCAP Group is fully geared to respond to the opportunities of an emerging economy together with the changes that are rapidly taking place within the regulatory framework. NDBIB intends to muster its full potential to extend a proactive service, supporting the needs of investors - advising on and managing raising funds on both equity and debt markets through IPOs, corporate debentures and loan instruments whilst seeking to pursue further opportunities in structuring and managing mergers and acquisitions.
Towards this, NDBIB will be focused in its efforts to draw greater synergies with its sister network and work closely with NDB Capital Bangladesh and with NCAP’s strategic partner, DBS Bank, Singapore, seeking for mutually viable openings and to firm the distribution channel. Cross-border opportunities will also be sought in the Middle East and India.
In the near-term, NDBIB has mandates at hand for innovative solutions and has a promising pipeline for both debt and equity deals. 47 | NDB Capital Holdings LTD | Annual Report 2014
NDB Wealth Management (NDBWm)
NDBWM Mutual Funds - Risk Rated Product and Service Offerings Funds
Discretionary Portfolio Management Growth Fund Provides advisory and consultancy services, structure Open ended unit trusts with investments exclusively and manage portfolio of investments including execution in listed shares for investors with high risk-return of trades, and portfolio administration including profiles and longer investment horizons. maintaining client records, preperation of reports.
Private Wealth Management Growth and Income Fund Extend a relationship based service to structure and Investments in both equity and fixed income manage diversified investment portfolios combined securities in response to market conditions targeting with privilege banking services through the ultimate investors with high to medium risk profiles. parent, NDB for high-net-worth individuals.
Income Fund Mutual Funds Investments exclusively on fixed income securities Advise and create individualised plans to meet diverse - corporate debt instruments for investors with savings and investment needs with selection of six risk medium to low risk profiles. Flexibility is given to rated funds especially targeting the retail sector. deposit and withdraw at the investors’ discretion.
Gilt Edged Fund Sri Lanka’s AAA rated fund, investments are exclusively in government securities for investors requiring very low default risk.
Money Plus Fund Investments in short-term corporate securities for investors with a low risk profile and value low volatility of capital and high level of liquidity. Flexibility is given to withdraw money at the investors’ discretion.
Money Fund Investments in short-term government securities for investors with a very low risk profile and value low volatility of capital and high level of liquidity. Flexibility is given to withdraw money at the investors’ discretion. 48 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review (Contd.)
NDBWM Operational Highlights 2014
Maintained market leadership within the wealth management industry.
Funds under management of Rs.86.8 Bn, making NDBWM the largest private sector fund manager.
Discretionary portfolio grew by 9% to Rs. 54 Bn.
Mutual Funds grew by 117% to Rs.32 Bn.
The market share of mutual funds reached 26%.
Mutual fund total gross collections of Rs.31 Bn.
Key Performance Indicators 2014 2013 Growth (%) Assets Under Management (Rs. Bn) 86.8 65.0 34% Assets Under Management - Unit Trusts (Rs. Bn) 32.1 14.8 117% Profit After Tax (Rs. Mn) 172 86.6 98% Return on Equity (%) 39% 27% 44% 49 | NDB Capital Holdings LTD | Annual Report 2014
GRI - G4/ G4 - 16 Overview At the helm, as Sri Lanka’s largest private sector wealth management company, NDBWM has established a solid presence within the capital and money markets spanning over two decades. Licensed and regulated by the SEC of Sri Lanka, NDBWM offers diverse solutions in wealth planning and asset management - engaging institutions, high-net-worth individuals and steadily progressing into the retail market. Internationally acclaimed for its role in the country’s wealth/ asset management industry, NDBWM is adept and backed by standards for excellence in service, best in class systems and talented team to address the needs of a clientele of over 3,000 with funds under management closing upon Rs. 90 Bn. Furter, NDBWM is a member of the Unit Trust Association of Sri Lanka.
Investment Committee The investment committee of NDBWM comprises of five members with Mr. Vajira Kulatilaka spearheading as the Chairman. The purpose of the Investment Committee is to understand the broad objectives of different funds managed by NDBWM as per the investment policy statements and to contribute expertise and feedback to support the decision- making process and investment actions taken by the fund managers. The committee meets on a quarterly basis and may advice and recommend on asset allocation strategies based on market events and the surrounding expectations of the economic and geopolitical environment. Furthermore, the investment committee will review the performance (risk and return) of the funds managed by the Company. 50 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review (Contd.)
The Fund Management Process
Research
RESEARCH Investment Committee
FUND MANAGEMENT Approved Investments
Portfolio Manager
CONTROL
Investment Control Broker
TRADING Trading Custodian Bank
Investment Administration ADMINISTRATION
Representative Debt/ Equity Portfolio
Business Performance preceding year to Rs. 86.8 Bn. Unit trust comprising six risk Consolidating its positioning in the year as the market leader in rated funds, posted a sound performance with an increase of the wealth management industry, NDBWM made headway in assets by 117% to reach Rs. 32 Bn. bringing a well-rounded product offer to the Sri Lankan Market. Responding with astuteness to the prevailing trends within The profits in the year registered an increase of 99% to the capital and money markets, the assets under management Rs. 172 Mn with return on equity at an outstanding 39% sustained its growth momentum witnessed over half a compared to 27% in the previous year. decade, growing in the year by an impressive 34% vis-à-vis the 51 | NDB Capital Holdings LTD | Annual Report 2014
Unit Trusts and Assets investors. Mutual funds progressed steadily, continuing to Under Management - 2010-2014 reinforce NDBWM’s positioning as a key contributor to the growth of the industry. With three new accounts opened per Rs. Mn day, on average, mutual funds of NDBWM registered Rs. 31 101,000 Bn in gross fund collections in 2014, taking the total unit trust
81,000 funds under management to Rs. 32 Bn, reflecting a growth of over 100% as against the preceding year. Funds under 61,000 management corresponded to a market share of over 26% of an 41,000 industry estimated to be Rs. 127 Bn.
21,000 Marketing 1,000 NDBWM in the year sought to strengthen its marketing arm, 2010 2011 2012 2013 2014 building on the team with focused training initiatives - customer Unit Trust Assets Under Management service, product and appraisals whilst relying on cost-effective below-the-line marketing tools to promote comprehensive Discretionary portfolio wealth management plans; particularly, on the unit trust The discretionary portfolio management engaging large options, tapping into the potential of the retail sector. In the institutions covering those of insurance companies, private year, NDBWM participated in 10 roadshows jointly organised sector provident funds, endowment funds, corporates and by the group companies including seven in Colombo and conglomerates, posted strong results in the year under review. three in the periphery together with other initiatives such as Accounting for over 63% of total assets under management, this presentations to selected target groups and email campaigns portfolio in the reporting year increased to Rs. 54 Bn, growing supported to create awareness on the product offer and build a by 9% over the preceding year. stronger customer base.
Private Wealth Management Systems and Processes NDBWM sought in the year to further brace the private wealth Reinforcing client servicing capabilities, NDBWM extended best- management portfolio, supporting high-net-worth individuals in-class systems to support and manage its client on-boarding with client-focused solutions, tailored to meet their discerning and Customer Relationship Management (CRM) systems. The needs, particularly, tapping their risk appetite for higher client support was further augmented by introducing an SMS returns. The collaborations with sister companies and the alert systems to provide information on client transactions, a ultimate parent, NDB, truly backed NDBWM to be firm in its first in the wealth management industry in Sri Lanka. In the relationship based management, underpinning the remarkable ensuing year, NDBWM intends to introduce an independent progress made on this portfolio. online client servicing and reporting portal to enhance client service and convenience. Mutual Funds Moving further to access the rapidly growing retail sector, mutual funds in the year saw greater level of activity, with flexible and diverse wealth plans to meet life events of 52 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review (Contd.)
Recognitions and Awards Future Outlook Recognised in the year for upholding standards and reaching for With Sri Lanka well set to reach out to its aspired growth the heights within the wealth and asset management industry, objectives with higher per capita income in the medium term, NDBWM received two prestigious international awards; ‘Best wealth management options will be sought after by institutions Investment Manager’ from World Finance Magazine and ‘The and discerning individuals. The demand for mutual funds is Best Asset Management Company’ from the Global Banking and expected to be stronger, if awareness is addressed rightly on Finance Review. the product and the gains that can be reaped in the long-term and as an alternative to conventional deposit products. The policy directives and regulatory mandates are in place to see greater movement in the industry. ‘Best Asset Management Company in Sri Lanka in 2014 by the Global With a strong brand, expertise and converging of synergies Banking and Finance Review’ within the NDB Group’s retail and investment banking services, NDBWM is well positioned to lead the wealth management industry in Sri Lanka.
‘Best Investment Management Company in 2014 in Sri Lanka by World Finance Investment Management Awards’ 53 | NDB Capital Holdings LTD | Annual Report 2014
NDB Securities (NDBS)
NDBS Product and Services Offerings
Listed Equity Facilitates and provides advisory services for equity trading on the CSE. State-of-the-art online trading platform in place for speedy and convenient trading activities.
Listed Debt Facilitates and provides advisory services for trading in listed debentures on the CSE.
Margin Trading Extends a platform to engage in margin trading, with credit facilities being arranged through the ultimate parent company, NDB.
Equity Research Quality equity research covering macroeconomic trends, industry and company level research. Market updates released on a daily and weekly basis in all three languages as required. 54 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review (Contd.)
GRI - G4/ G4 - 16
NDBS Operational Highlights - 2014
NDBS has an active institutional and high-net-worth client base (both local and foreign) and is making steady progress in bracing the retail portfolio with focused strategies.
Secured a market share of 4% within the equity market.
Increased focus on trading corporate debt.
Initiated an SMS portal, facilitating instant updates on account transactions. This enabled convenience and speed towards better client servicing.
The official website was revamped and redesigned, with updated features to bring greater sophistication to online trading activities.
Key Performance Indicators 2014 2013 Growth Customer Base 51,822 48,991 5.8% Number of Accounts Opened 2,831 2,201 29% Turnover (Rs. Mn) 167 108 55% Profit After Tax (Rs. Mn) 26 7 271% Return on Equity 8.4% 2.4% 258%
Overview and efficient platform for transactions of listed equity and debt Established in 1992, NDB Securities (Pvt) Ltd (NDBS) the securities securities along with other value-added services including online trading arm of NCAP Group, is one of the pioneering stock broking facilities, margin trading and conducting in-depth research. NDBS companies in the country. Standing apart from the competition, is licensed and regulated by the SEC of Sri Lanka and a member of NDBS is well positioned and recognised as a principle player on the Colombo Stock Brokers Association. the CSE, facilitating investment and trading services to institutions and individuals (both local and foreign). NDBS offers a convenient 55 | NDB Capital Holdings LTD | Annual Report 2014
Business Performance NBDS to tap into the potential of unexplored markets within the During the year 2014, renewed activity was seen on the CSE, periphery. NDBS in the reporting year looked at consolidating with the indices performing strongly and turnover increasing its branches to streamline the operations and bring in cost significantly. The prevailing monetary policy sustaining an efficiencies. A due diligence is in process to ascertain branch accommodative stance, led up to the country’s all time lowest performance and profitability. interest rates boosting the stock market performance. NDBS focused on differentiating its operations in a concentrated Strengthening the retail operations and driving market market by seeking to leverage on its strengths; namely brand inclusivity, NDBS engaged the public (inclusive of school and group synergies, a versatile product customised to cater to children) on market awareness programmes that sought to different risk-return profiles of investors and more importantly disseminate information on equity and debt market investment the corporate ethos that emulates ethical practices in capital opportunities as an alternative to conventional banking tools. markets. In this spirit, four road shows were organised jointly with the group in key locations. In the reporting year, given the uptrend on the CSE, NDBS posted robust results securing a market share of 4% within the Research equity market. Focusing on institutional clients (particularly The research arm remained a focal point to NDBS’s operations, foreign investors) who were markedly upbeat on the CSE supporting investment decisions and advisory services. With a during the year, NDBS sought to brace its product offer to be stronger team, this year research activities remained focused responsive to their perceptive demands. The high-net-worth and resourceful, covering broad areas in macroeconomic trends clientele was buttressed with personalised services and an within the country, overall industry and company specific all inclusive product. NDBS teamed up its equity trading with updates. The research team provided valuations of stocks using retail banking products and wealth management products in both fundamental and technical analysis. collaboration with our ultimate parent NDB and sister company NDBWM respectively. The retail portfolio saw an improvement The research publications are released in all three national with greater interest and enhanced level of activity compared languages, daily as well as on a periodic basis, setting a to the modest performance seen in the previous year. The benchmark to the industry. This enables clients and the presence within the fixed income market was also sustained public to make informed and effective decisions on their whilst engaging in fee based services in valuation of listed investments. Once again, NDBS was acclaimed by Bloomberg companies and advisory services for mergers and acquisitions. Business for the third consecutive year for quality research and NDBS teamed up with its sister companies NDBWM and recommendations. NDBIB as a distribution channel as well as cross-selling unit trust products and collaborating with their investment and Systems and Processes acquisition deals respectively. Enhancing client servicing, NDBS in the year sought to update the IT system and related processes. Initiated last year, the The client base in 2014 increased by 2,831 new accounts. This official website was revamped and redesigned. Furthermore, represented a 5.8% increase in the client base over the previous harmonising it with corporate brand values brought in a new year, leading to higher turnover and better returns. ‘look and feel’ to the website. The online trading platform with new interactive and user friendly features (automated Outreach and Marketing document filling and easy access to research material) enabled Fortifying its retail base, the distribution channel comprises user convenience and speedy navigation and transactions. The of branches in nine strategic locations. NDB’s branch network SMS portal with instant updates on account movement was which is both cost-effective and extensive, paved the way for the first amongst stock broking firms which added on to the competitive edge of NDBS. 56 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review (Contd.)
Future Outlook As a result of the economy driving on a steady path towards its growth targets complemented by a relatively positive macroeconomic landscape, the capital markets of the country are well set to reach sustainable heights. Investors (both institutions and individuals alike) will seek better returns, moving away from the conventional banking product offering to equity based investments. NDBS with its unique brand proposition, its corporate repute as a longstanding, trusted stockbroker, ongoing group synergies, know-how and effective risk controls can continue to carry out a catalytic role in the country’s capital market.
In the short to medium term, NDBS will be focused in its efforts to gain further market share, seeking to penetrate unexplored market segments within the periphery. The distribution network in this regard will be strengthened and developed - both in terms of dedicated branches and representation within the NDB branch network. As called for in the current context of volatility within the capital market, NDBS plans to brace its framework for risk management with decisive action to minimise the concentration risk within the portfolio and set firm controls for effective debtor management. 57 | NDB Capital Holdings LTD | Annual Report 2014
NDB Zephyr partners Emerald Sri Lanka Fund 1 Taking off the latest venture, Sri Lanka’s largest private equity fund, ‘Emerald Sri Lanka Fund’ was successfully launched in the year, seeking to address the capital gaps that persist within the Recognising the true potential of the small and medium evolving SME sector. enterprises (SME), NCAP sought to facilitate the growth capital needs which, by and large, fall outside the radar of the This Fund proposes to raise USD 50 to USD 60 Mn with the organised banking and capital market arena. The move towards participation of a consortium of investors - NCAP together private equity targeting the SME sector, took shape in the with well-acclaimed multilateral agencies - International reporting year - refined, structured and with a firm commitment Finance Corporation (IFC), the private sector investment arm by the investors and strategic partners. of the World Bank Group, DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH (the German Investment Emerald Sri Lanka Fund 1 and Development Corporation) and FMO - Netherlands Investors Capital Contribution Development Finance Company. Structured in two tranches - USD Mn % the first of which has already closed in December 2014 whilst the second is planned to close in June 2015, the Fund has NCAP 12.0 28.24 secured commitments of USD 42.5 Mn in the first closing. IFC 8.5 20.00 DEG, Germany 10.0 23.53 Investments through this Fund will target well-established and viable SME sector companies that demonstrate the propensity FMO, Netherlands 10.0 23.53 to avail growth opportunities and embrace scale. The Other Investors 2.0 4.71 investment per company as equity and equity-linked securities Fund Size at First Closing 42.5 100.0 is expected to be in the range of USD 2 Mn to USD 6 Mn, aiming at significant minority stakes in excess of Eligibility Criteria for Investments 20%. The Fund is currently building up a pipeline and is in the Assessment Areas Criteria process of evaluation and due diligence of potential companies in diverse sectors, encompassing fast moving consumer goods, Structure ▪ Privately held entities education, healthcare, logistics, construction, exports and incorporated in Sri Lanka financial services. ▪ Ability for the Emerald Fund to get a significant minority stake NDB Zephyr Partners Limited. Operations ▪ Asset light business models NDB Zephyr Partners, a joint venture with a 60:40 ownership with reasonable history of structure between NCAP and Zephyr Management LP, the New operations York-based investment management company, was established ▪ Practicing good governance in the year under review as the managing company of the Financials ▪ Profitable or towards the path private equity fund. of profitability Bringing in their key strengths together - the expertise and Management ▪ Entrepreneur led professional strategic presence of NCAP within the investment banking and coachable management domain in the country and the specialist knowledge and vast Sustainability ▪ Compliance with Fund’s experience of Zephyr Management in implementing and Attributes Environment and Social managing the private equity model in the emerging markets Management System of Latin America, Africa and Asia, have set the platform for the 58 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / subsidiary Review (Contd.)
venture in private equity to move towards its envisioned goals. The joint venture in collaboration with strategic investors is well poised to add-value, guide and nurture the operations of its portfolio companies, advocating best practices in business. The requisite expertise is available backed by a talented team, synergies within the group network and support systems to extend technical know- how for the portfolio companies, combined with assistance in strategic planning, financial and risk management, good governance, supply and marketing linkages, thus helping the emerging SME sector investee companies to reach operational excellence and move on to the next level.
Fund Shareholder Agreement Signing with the Investors.
Management Company Agreement Signing with Zephyr. 59 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Financial Review
GRI - G4/ G4 - 9 G4 - 17 G4 - 22 NCAP Group logged one of the best financial year of its history In order to facilitate the comparison of performance with the supported by efficient and timely asset allocation decisions, previous year, the 2013 figures have been adjusted to exclude outperforming 2013 results (adjusted for the impact on profit Rs. 175 Mn one-off investment income earned from the cash due to the one-off investment income earned from the cash generated through the divestiture of Aviva NDB Insurance PLC, generated through the divestiture of Aviva NDB Insurance PLC) in the discussion hereafter. reporting a bottom line of Rs. 964 Mn.
Company Group For the period Rs. Mn 2013 2013 2014 % Change 2013 2013 2014 % Change Adjusted* Adjusted* Revenue 784 609 755 24% 1,469 1,294 1,417 9% Operating Profit 703 528 641 21% 1,032 857 959 12% Net Profit 681 506 665 31% 932 757 964 27% NP Margin 86.9% 83.1% 88.0% 6% 63% 59% 68% 16% ROE 12.8% 9.6% 11.3% 17% 16.1% 13.3% 15.6% 18% ROA 12.7% 9.6% 11.2% 17% 15.0% 12.4% 14.3% 15%
Note: *2013 figures have been adjusted to exclude Rs. 175 Mn one-off investment income earned from the cash generated through the divestiture of Aviva NDB Insurance PLC
Company Group As at the end of Rs. Mn 31-Dec-13 31-Dec-13 31-Dec-14 % Change 31-Dec-13 31-Dec-13 31-Dec-14 % Change *Adjusted *Adjusted Investments in Group Companies 995 995 995 0% - - - N/A Other Investments 4,736 4,561 5,005 10% 5,659 5,484 5,909 7% Other Assets 14 14 176 1154% 884 884 1,017 15% Total Assets 5,745 5,570 6,176 11% 6,543 6,368 6,926 8% Stated Capital 1,329 1,329 1,329 0% 1,329 1,329 1,329 0% Reserves 4,370 4,195 4,765 14% 4,523 4,348 5,203 18% Minority Interest - - - 0% - - (0) 100% Total Equity 5,699 5,524 6,094 10% 5,852 5,677 6,532 14% Total Liabilities 46 46 83 78% 691 691 394 -43% Total Equity and Liabilities 5,745 5,570 6,176 11% 6,543 6,368 6,926 8%
Note: *2013 figures have been adjusted to exclude Rs. 175 Mn one-off investment income earned from the cash generated through the divestiture of Aviva NDB Insurance PLC 60 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Financial Review (Contd.)
Revenue and Profitability The composition of the Company’s revenue is given in the chart The revenue and profitability performance of NCAP for the year below. 2014 in comparison to the preceding year is given in the chart below.
Company Performance
Rs. Mn 800 Interest Income 19% 700 Unit Trust Income 36% 600 500 Company Revenue Equity Income 34% 400 Composition - 2014 Other Income 11% 300 200 100 As indicated by the chart above, 36% of revenue was generated 0 through investments in unit trusts, a tax efficient mode of 2013 2014 investments. Rs. 257 Mn contributing to 34% of income was Company Revenue (Rs. Mn) Company Profit (Rs. Mn) driven by equity investments resulting in impressive returns of 35% for the year 2014 (ASPI returns: 23.44%). NCAP recorded a striking revenue growth of 24%, increasing the total income to Rs. 755 Mn in 2014 from Rs. 609 Mn in the As depicted in the chart below, the Group consolidated income previous year. Net profits for the current year rose to Rs. 665 increased by 9% to Rs. 1,417 Mn during the year 2014 from Mn from Rs. 506 Mn in the prior year, a rise of 31%. Profitability Rs. 1,294 Mn in 2013. This growth in revenue translated to a growth was mainly fueled by efficient asset allocation towards consolidated net profitability of Rs. 964 Mn for the year under high yielding investments and tax efficient investment review, an increase of 27% over Rs. 757 Mn recorded in the prior strategies. Accordingly, NCAP increased its exposure to the year. listed equity investments to benefit from the market run, mostly visible in the second and third quarters of 2014. NCAP vigilantly Consolidated Performance slashed its equity exposure by the fourth quarter as the market turn out to be more volatile with the political uncertainty after Rs. Mn the announcement of the presidential election. 16,000 14,000 12,000 1,000 800 600 400 200 0 2013 2014
Group Revenue (Rs. Mn) Group Profit (Rs. Mn) 61 | NDB Capital Holdings LTD | Annual Report 2014
The fee based operations of the NCAP Group contributed 48% financial year 2014 from 13.3% in 2013. In the same period, the of the consolidated income as exhibited by the chart below. Company bettered its ROE by 19% to 11.3%. Looking back at the ROEs prior to the restructuring, the Group has shown a highly impressive turnaround with the consolidated ROE which stood at 7.0% in 2011 increasing to 15.6% by the end of 2014.
NCAP made a successful structured equity investment in the listed space during the year. NCAP together with ACL Cables PLC Investments 52% and Trydan Partners (Pvt) Limited acquired a 75% stake in Resus Energy PLC (formerly known as Hemas Power PLC) in December Wealth Management 25% 2014. Trydan Partners (Pvt) Limited is a special purpose vehicle Investment Banking 12% Group Segmental backed by the management team of Resus Energy PLC. This Revenue 2014 Stock Brokering 12% investment is expected to yield attractive returns with planned capital restructuring of Resus Energy PLC and implementation The highest contribution to fee based revenue was by way of of new power projects that are in the pipeline. NCAP is fees earned by wealth management operations which added a presently in the process of creating a portfolio of structured sum of Rs. 347 Mn. This represents over 50% share of fee based equity investments especially through its commitment to the income during the year. Wealth Management operations have private equity fund to provide long term sustainable returns to increased their assets under management by 34% during the shareholders. year 2014 to Rs. 87 Bn, driving a major milestone by recording an aggregate of Rs. 100 Bn in Assets Under Management (AUM) Dividend Policy within NCAP group by January 2015. The dividend policy of NCAP is based on maximising shareholder wealth through striking a balance between Return on Equity profit retention and dividend payout to ensure availability of adequate investible funds for the future growth, culminating in % capital appreciation. 16% 14% 12% 10% 8% 6% 4% 2% 0% 2013 2014
Company Group
Return on equity (ROE) is considered one of the principal performance indicators for the investors. The restructuring carried out at NDB Group level in creating a pure capital markets play by NCAP is gradually starting to show results with the improved ROE for both company and group level as shown in the graph above. The Group ROE improved to 15.6% for the 62 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus
Our approach to stakeholder engagement is practical and hands- on, with customised solutions, wherever possible, to address their needs, concerns and issues most significant to them whilst seeking a ‘best-fit’, well-suited for our strategic value-creation process and the goals therein. 63 | NDB Capital Holdings LTD | Annual Report 2014
GRI - G4/ G4 - 24 G4 - 27 Stakeholder Engagement During a brainstorming session of our senior management, as will be discussed under the ‘Materiality Analysis’ section of this Annual Report, stakeholder groups taken into consideration in Approach to Engagement drawing up the ‘Strategic Plan 2012-2017’ was reconsidered Being at the helm of investment banking in the country and and revalidated. a part of an esteemed group, NDB, it is absolutely vital that we build progressive relationships with our stakeholders, Based on the stakeholder’s level of influence and their level responsive to their multifaceted expectations. We understand of interest of the NCAP Group and its operations, we sought the challenges entailed in shaping our operations to meet the to prioritise and come up with a list of key stakeholders. We varied demands of each and every stakeholder segment. Our also looked at the level of management required to keep approach to stakeholder engagement is practical and hands- the stakeholder groups engaged. The brainstorming results on, with customised solutions, wherever possible, to address on the stakeholder analysis are tabulated below, along with their needs, concerns and issues most significant to them whilst the prioritised list of stakeholders, their expectations and seeking a ‘best-fit’, well-suited for our strategic value-creation engagement. process and the goals therein. The stakeholder engagement process at NCAP is dynamic - quick to adapt with the changes that are inherent within our fast-paced world whilst being forthright and responsible.
Identification of Key Stakeholders Refer Materiality Analysis, pages : 67-74
Internal Stakeholders External Stakeholders
Minority Shareholders Parent Company Clients
Employees Government and Regulators
Strategic Partners
Community
Suppliers
Media
Advocacy Groups 64 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Stakeholder Prioritisation
Stakeholder Level of Influence Level of Interest Level of Management Internal Stakeholder Parent Company High High Engage and manage closely Employees High High Engage and manage closely External Stakeholder Minority Shareholders Medium High Keep satisfied and informed despite being a de-listed entity Clients High High Engage and manage closely Strategic Partners Medium Medium Keep satisfied Suppliers Low Low Monitor Community Low Medium Keep satisfied Government/ Regulators High Medium Engage, comply with rules and regulations and report Media Medium Medium Keep informed Advocacy Groups High Low Engage, when and if necessary
Key Stakeholder Engagement Stakeholders Engagement Frequency Expectations/ NCAP Group’s Concerns Solutions Parent Company ▪ Board reports ▪ Monthly ▪ Operations, ▪ Operate with a ▪ Management ▪ Quarterly profitability and focused strategy and reports ▪ Annually returns monitor targets ▪ Annual Report ▪ Governance ▪ Good governance ▪ Progress Review ▪ Business practices followed as per Meetings and ethics accepted guidelines ▪ Annual General ▪ Risk management ▪ Strong compliance Meeting ▪ Internal controls function to monitor ▪ Extraordinary ▪ Compliance on business practices General Meeting ▪ Social responsibility ▪ Consistently improve ▪ External the risk management Environment system ▪ Competition ▪ Structured social responsibility 65 | NDB Capital Holdings LTD | Annual Report 2014
Key Stakeholder Engagement Stakeholders Engagement Frequency Expectations/ NCAP Group’s Concerns Solutions Employees ▪ Team meetings ▪ Regularly ▪ Skills development ▪ Leadership and ▪ General staff ▪ Performance technical training meetings appraisals ▪ Transparent ▪ Cluster meetings ▪ Career development and interactive ▪ Performance ▪ Equal opportunity performance appraisals ▪ Fair recognition, appraisals ▪ Training rewards and ▪ Career planning programmes compensation ▪ Market based ▪ Staff circulars ▪ Empowerment remuneration and perks Minority Shareholders ▪ Annual Report ▪ Annually ▪ Profitability and ▪ Extend fair and just ▪ Annual General returns treatment in line Meeting ▪ Governance with listed company ▪ Extraordinary ▪ Business practices values General Meeting and ethics ▪ Uphold best ▪ Formal ▪ Protection of business practices correspondence minority interest and ▪ Disseminate timely fair dealing information on corporate affairs through disclosures and press releases ▪ Engage and make arrangements for minority shareholders to participate and vote at general meetings Clients ▪ One-to-one ▪ Regularly ▪ Customised, speedy ▪ Training employees meetings and flexible products on relationship ▪ Correspondence and services management and ▪ Print media ▪ Advisory services on products ▪ Official website product options ▪ Due investments ▪ Relationship in state-of the management art systems and ▪ Business ethics streamlined ▪ Confidentiality processes ▪ Education ▪ Strong compliance ▪ Information sharing function to monitor business practices 66 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Key Stakeholder Engagement Stakeholders Engagement Frequency Expectations/ NCAP Group’s Concerns Solutions Government and ▪ Correspondence ▪ Monthly ▪ Timely tax payments ▪ Strong compliance Regulatory Bodies ▪ Disclosures ▪ Quarterly ▪ Compliance function to monitor ▪ Meetings to statutory business practices ▪ Audits and regulatory ▪ Follow-up on good requirements governance with Board committees Strategic Partners ▪ Correspondence ▪ As and when ▪ Quality and ▪ Duly report on the ▪ One-to-one required reliability of services organisations plans meetings ▪ Business practices and performance ▪ Conferences and ethics ▪ Risk management ▪ Workshops ▪ Internal controls with parent ▪ Road-shows ▪ Compliance expertise ▪ Social responsibility ▪ Independent internal controls ▪ Strong firewalls Community ▪ Awareness ▪ Periodically ▪ Financial inclusivity ▪ Structured social programmes ▪ Creating business responsibility ▪ Discussions opportunities ▪ Private equity with community ▪ Market awareness venture to promote leaders educators and product options the SME sector and policy-makers ▪ Philanthropy ▪ Awareness building programmes on the market Media ▪ Press releases ▪ As and when ▪ Operational ▪ Press briefings on ▪ Press briefings required and financial significant events performance and performance ▪ Financial inclusivity periodically ▪ Business practices ▪ Periodic press and ethics releases ▪ Social responsibility ▪ Rapport with media ▪ Product launches institutions 67 | NDB Capital Holdings LTD | Annual Report 2014
GRI - G4/ G4 - 18 G4 - 19 G4 - 20 G4 - 21 Materiality Analysis The long list comprised the material aspects given in GRI-G4 and in the sector guidelines for financial services. The long- list, as the first step, was carefully evaluated in terms of the sustainability context, centered on the impact each aspect has The report is developed and defined on the lines of the on the organisation, strategy, goals and operations coupled with reporting principles set out by GRI-G4 covering ‘materiality, the impact on the identified key stakeholders. The long-list, stakeholder inclusiveness, sustainability context and then, was tapered down to a short-list based on the level of completeness’. Materiality was principally looked at from a significance of this impact: high, medium and low. strategic perspective and the implications and influences from key stakeholders. Materiality analysis covers the operations As the next step, the short-list was considered on the basis of NCAP and its three fully-owned subsidiaries in Sri Lanka - of materiality, drawing on the relevant aspect boundaries - NDBIB, NDBWB and NDBS along with pertinent deliberations, organisation, internal and external stakeholders and prioritised wherever applicable, to the new joint venture, NDBZ formed on the three-level basis - high, medium and low. Materiality with a New York based fund managing partner on the private was then established, setting out the level of significance to equity business. Materiality analysis also covers the working the organisation and internal stakeholders and to external ties with its parent company, NDB which has a 99.9% stake of stakeholders which supported us to define the report content, NCAP ownership with the de-listing that came into effect on giving priority to areas that have a combination of ‘high’ and 26th January 2015. ‘medium’ for both groups. Aspects that are identified with a combination of ‘medium’ and ‘low’ significance for both The report has not restated information provided in the groups have not been given priority in developing the reporting preceding year. content. Materiality Assessment Process The analysis is qualitative based on the judgments of the Refer Management Discussion and Analysis pages : 32 - 33 senior management and the results are validated by the Chief Executive Officer of the organisation. Materiality analysis discussed in this Annual Report was taken up at a ‘brain-storming session’ with the participation of the senior management of NCAP. The decisions taken therein were validated by the respective heads of operations of the three subsidiaries along with their senior team members at a cluster management meeting.
At the brain-storming session, the senior management revisited and reviewed the findings and decisions taken during strategic planning held in 2012 which formed the basis of the current five-year Strategic Plan prepared for 2012-2017. The key assumptions, risks, opportunities and strategic priorities identified under this Plan as set out in the Management Discussion and Analysis of this Annual Report underscored the identification of material aspects, in turn, determining the report content. Stakeholder expectations as revalidated above supported the qualitative analysis and results. 68 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Colour Keys High Medium Low
Sustainability Context Assessment Aspects Level of Significance Category: Economic Economic Performance High Market Presence Low Indirect Economic Impact Medium Procurement Practices Low Rationale: ▪ Operating at the forefront of investment banking within an emerging capital market backdrop, creating economic value and distributing amongst stakeholders fall within the core operations and thus the most material aspect for NCAP and the subsidiaries.
▪ The engagement in large-scale investment transactions in infrastructure and services including structuring finance, equity participation and advisory services also has an indirect impact on the economy and broadly on the society.
▪ Procurement for an investment banking organisation is limited relative to the operations and therefore procurement practices is not material.
▪ Given the lower penetration of investment banking services within the periphery of the country, the aspect of market presence is not significant as yet.
Category: Environment Materials Low Energy Low Water Low Biodiversity Low Emissions Low Effluents and Waste Low Product and Services Low Compliance Medium Transport Low Overall Low Environmental Grievance Mechanism Low 69 | NDB Capital Holdings LTD | Annual Report 2014
Sustainability Context Assessment Aspects Level of Significance Rationale: ▪ As specialised services based organisation, the utilisation of resources for value creation and the impact of operations on the environment is not that significant. Although, there is utilisation of energy in operations and resources like paper, the materiality on the total operational impact is low.
▪ As a responsible organisation, following rules and regulations in terms of the environment is important. Given the Group’s ties with strategic partners including multilateral agencies, compliance is a key aspect.
Category: Social- Labour Practices and Decent Workers Employment High Labour Management Relations Low Training and Education High Diversity and Equality High Equal Remuneration For Men and Women High Supplier Assessment For Labour Practices Low Labour Practices Grievance Mechanism Low Rationale: ▪ As a service organisation relying on employee proficiency, dedication and loyalty, addressing employee aspects are relevant and most significant to ensure their satisfaction in turn underscoring the sustainability of the organisation.
Category: Social - Human Rights Investment Medium Non Discrimination High Freedom of Association and Collective Bargaining Low Child Labour Low Forced or Compulsory Labour Low Security Practices Low Indigenous Rights Low Assessments Low Supplier Human Rights Assessments Low Human Rights Grievance Mechanism Low
Rationale : ▪ Upholding business ethics is vital to sustaining the brand and image. The strategic partners including bi-lateral and multilateral financial institutions expect and demand best practices in human rights aspects prior to engaging and sustaining relationships. 70 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Sustainability Context Assessment Aspects Level of Significance Category: Social -Society Local Communities Low Anti-Corruption High Public Policy Low Anti-Competitive Behaviour High Compliance High Supplier Assessments for Impacts on Society Low Grievance Mechanism for Impacts on Society Low Rationale: ▪ In keeping with the role as a prominent investment banking organisation, social and business responsibility is key to gain trust and respect from the public, clients and strategic partners. ▪ The organisation does not engage and have significant impacts on people in local communities.
Category: Social-Product Responsibility Customer Health and Safety Low Product and Service Labeling High Marketing Communication Low Customer Privacy High Rationale: ▪ Extending a responsible product offer within a dynamic industry, catering to diverse investor segments is core to the sustainability of operations in terms of trust, loyalty and retaining clients. Financial Services Category: Social-Product Portfolio Product Portfolio Medium Audit Medium Active Ownership Medium
Rationale : ▪ The investment banking arm structures finance, sources and advises medium to large-scale projects which may have environmental and social implications. Addressing these impacts is necessary to uphold the Group’s solid repute. This is also sought after by our strategic partners, investors and perhaps if significant, by the advocacy groups.
▪ There is not a significant active ownership within most of the equity investments with voting rights to make decisions which have environmental and social implications except with respect to the joint venture on private equity which was established in the reporting year 71 | NDB Capital Holdings LTD | Annual Report 2014
Materiality Assessment Aspect Materiality - Internal Boundary Materiality - External Boundary NCAP Group/ Level of Key Stakeholders Level of Key Stakeholders Significance Significance Category: Economic Economic Performance ▪ NCAP and High ▪ Minority Shareholders High Subsidiaries ▪ Clients Indirect Economic Impact ▪ Parent Company Medium ▪ Government and Medium ▪ Employees Regulators ▪ Strategic Partners ▪ Community Category: Environment Compliance ▪ NCAP and Medium ▪ Strategic Partners Medium Subsidiaries ▪ Government and ▪ Parent Company Regulators ▪ Media Category Social: Labour Practices and Decent Workers Employment ▪ NCAP and High ▪ Clients Medium Subsidiaries ▪ Strategic Partners Training and Education High Medium ▪ Parent Company Diversity and Equality ▪ Employees High Medium Equal Remuneration for Men and High Medium Women Category: Social - Human Rights Investment ▪ NCAP and Medium ▪ Minority Shareholders High Subsidiaries ▪ Strategic Partners ▪ Parent Company ▪ Government and Non Discrimination ▪ Employees Medium Regulators High ▪ Media Category: Social - Society Anti-Corruption ▪ NCAP and High ▪ Minority Shareholders High Anti-Competitive Behaviour Subsidiaries High ▪ Clients High ▪ Parent Company ▪ Strategic Partners Compliance High High ▪ Government and Regulators ▪ Media 72 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Materiality Assessment Aspect Materiality - Internal Boundary Materiality - External Boundary NCAP Group/ Level of Key Stakeholders Level of Key Stakeholders Significance Significance Category: Social - Product Responsibility Product and Service Labeling ▪ NCAP and Medium ▪ Clients High Customer Privacy Subsidiaries Medium ▪ Strategic Partners High ▪ Parent Company ▪ Government and Compliance Medium High Regulators Market Communications Financial Services Sector Category: Social - Product Portfolio Product Portfolio ▪ NCAP and Medium ▪ Clients Medium Audit Subsidiaries Medium ▪ Strategic Partners Medium ▪ Parent Company ▪ Regulators Active Ownership Medium Medium 73 | NDB Capital Holdings LTD | Annual Report 2014
Materiality Matrix
▪ Human Rights - Investment ▪ Economic Performance ▪ Non Discrimination ▪ Anti-Corruption ▪ Customer Privacy ▪ Anti-Competitive Behaviour
High ▪ Product and Service Labelling ▪ Society - Compliance ▪ Product Responsibility - Compliance ▪ Environment Aspects ▪ Indirect Economic Impacts ▪ Employment ▪ Supplier Chain Management ▪ Environnent - Compliance ▪ Training and Education ▪ Social and Environment ▪ Product Portfolio ▪ Diversity and Equal Opportunity Grievance Mechanisms ▪ Audit ▪ Equal Remuneration For Men and Medium ▪ Customer Health And Safety ▪ Active Ownership Women ▪ Public Policy ▪ Market Presence ▪ Marketing Communications ▪ Labour Management ▪ Procurement Practices Relations ▪ Occupational Health and Safety ▪ Freedom Of Association and Significance to External Stakeholders to External Significance Collective Bargaining Low ▪ Local Communities ▪ Security Practices ▪ Indigenous Rights
Low Medium High Significance to Internal Stakeholders
Refer Detailed GRI - G4 Content Index, pages : 121-126 74 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Materiality Defining Report Content
Material Aspect Management Page Reference Report Coverage Approach Category: Economic ▪ Economic Performance Economic Value Creation 75 - 79 Extensive ▪ Indirect Economic Impacts Category: Environmental ▪ Compliance Environment 83 Limited Category: Social - Labour Practices and Decent Work ▪ Employment Human Capital 84 - 89 Extensive ▪ Training and Education ▪ Diversity and Equality ▪ Equal Remuneration for Women and Men Category: Social - Human Rights ▪ Investment Product Responsibility 80 - 82 and 84 - 89 Moderate ▪ Non Discrimination and Human Capital ▪ Child Labour ▪ Forced or Compulsory Labour Category: Social -Society ▪ Anti-Corruption Ethics and Compliance 90 - 97 and 80 - 82 Extensive ▪ Anti-Competitive Behaviour Management and Product ▪ Compliance Responsibility Category: Social Product Responsibility ▪ Product and service labeling Product Responsibility 80 - 82 and 90 - 97 Moderate ▪ Customer Privacy and Ethics and ▪ Compliance Compliance Management
Social: Product Portfolio (Sector Disclosure) ▪ Product Portfolio Product Responsibility 80 - 82 and 98 - 102 Moderate ▪ Audit and Risk Management ▪ Active Ownership 75 | NDB Capital Holdings LTD | Annual Report 2014
Economic Value Creation Total Solution We seek to extend a total solution, tailor-made to meet diverse financial requirements and risk-return profiles of institutions, high-net-worth individuals and even the retail segment. Our businesses, offer a range of products in investment banking, securities trading, wealth management, and private equity NCAP Group Sharing Value management. Our approach advocates cross-selling and product bundling between subsidiaries and with our parent Shareholders whilst new product development is sought after with innovative Rs. 905 Mn financial products suited to spur activity within the emerging Employees’ Salaries and Defined Obligation: business landscape in the country. Rs. 266 Mn Large Scale Transactions Suppliers Payments: Our product strategy also encompasses large-scale and complex Rs. 211 Mn deals within both debt and equity markets. Our expertise in Community Initiatives: structuring and placing financial solutions and advisory services Rs. 3 Mn has facilitated capital with competitive terms to stimulate entrepreneurism in diverse sectors. Wherever feasible, we have also taken up equity participation in such projects, aiming NCAP in its leading role within the investment banking domain, at long-term returns whilst also paving the way for mergers underscored by the brand, financial prowess and mainstay of and acquisitions for sector consolidations. This, in turn, has NDB, is well positioned to create economic value with far- reinforced our forte in creating significant value, with cascading reaching benefits to society. NCAP together with its group benefits and with greater indirect impact on the economy. companies has the spirit and the expertise to reach out to diverse stakeholder segments in its value creation process - be Collaborations it as returns to the shareholders; careers and advancement Our value creation process is also supported by our for employees; business opportunities and funding for collaborations with our parent - sharing product knowledge entrepreneurs; taxes for public sector progress; value to the and expertise to be effective in extending a total package and community; and best in business practices for the industry to taking on transactions. Parent’s support is also leveraged in emulate. terms of accessing a cost effective distribution channel through its branch network whilst integrating administrative functions The Approach including procurement, enabling cost rationalisation. Parent’s In the backdrop of a burgeoning economy, we operate under risk management and good governance practices have also a full-service investment banking model, encompassing both backed our stance in delivering our strategy responsibly, leading fee and fund based activities. Our approach to value creation the path to sustainable value within the network. is multi-layered, with a long term standpoint - harmonising our business goals with corporate responsibility and uprightness. Apart from internal synergies, we also look upon our strategic We create significant value and contribute immensely through partners including multilateral agencies to support our our comprehensive product offer, our involvement in large-scale undertakings in terms of capital infusion, technical and market deals, our collaborations within the group and parent company know-how, and best international practices, empowering us to and our strategic ties. take on dynamic opportunities budding in our economy. 76 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
GRI - G4 / EC1 Private Equity and SMEs Adding further value, we also engage and support SME - Refer Management Discussion and Analysis, pages : 57 - 58 focused organisations viz. finance and leasing companies to raise the necessary capital, particularly through securitisations Beside our engagement on the capital market platform, we and debentures; indirectly leading up to small and medium also facilitate wealth creation through private equity. Targeting entrepreneurism. the potential of the SME sector, our initiatives in private equity seek to support the capital base which is found wanting and not Economic Value Addition addressed through conventional channels in banking and finance As discussed in detail under the ‘Management Discussion nor sophisticated enough to come under the realm of capital and Analysis’, the NCAP Group in the year 2014 reinforced its market funding. presence as a dominant investment banking entity with strong operational and financial results. Our economic value addition The joint venture and the dedicated private equity fund - ‘Emerald as set out in the value added statement totalled to Sri Lanka Fund I’ which took off during the year with strategic Rs. 1,417 Mn, out of which Rs. 1,379 Mn was distributed collaborations as discussed in detail under the ‘Management amongst our stakeholders, corresponding to 93% of the value Discussion and Analysis’ is expected to pave an ideal platform generated. The value retained within the organisation was for the emerging SME sector to secure its place as a significant Rs. 97 Mn, corresponding to 7%. partner to take the country’s development agenda forward.
Value Added Statement For the period Rs. Mn Group 2013 % 2014 %
How We Created Value Interest Income 160 11% 231 16% Unit Trust Income 602 41% 317 21% Equity Income 75 5% 227 15% Fee Income 631 43% 555 38% Other Income - 0% 87 6% Share of Associate Company’s Profit - 0% 59 4% Total Value Creation 1,469 100% 1,476 100%
How We Shared Value To Employees 261 33% 266 19% To Other Service Providers 143 18% 211 15% To Government as Taxes 99 13% (5) 0% To Providers of Capital (Proposed Dividend) 280 36% 905 66% To Community Initiatives 2 0% 3 0% Total Value Shared 786 100% 1,379 100%
Depreciation 31 2% 38 3% Retained Profits 652 44% 59 4%
Total Value Retained within the Business 683 47% 97 7% Total Value Shared 786 53% 1,379 93% 1,469 100% 1,476 100% 77 | NDB Capital Holdings LTD | Annual Report 2014
GRI - G4/ G4 - 12 EC3 Shareholder Returns Supporting our team of 137 employees across the Group Complemented by the strength of our consolidated financial inclusive of 52 new recruits within the year under review, performance in the year under review, we were able to extend we are conscientious in our approach to HR management sound returns to our parent company. Our consolidated and ensure that best practices are followed inter-alia, fair revenue reached Rs. 1,417 Mn with profits attributable for remuneration on par with the market, perks and rewards. shareholders at Rs. 964 Mn. The proposed dividend for the year is Rs. 905 with a pay-out ratio of 94%. We have in place a structure to ensure that all due defined contribution obligations are fully met as per the set guidelines. Supply Chain NCAP contributes 12% to Employee Provident Fund (EPF) and As an investment banking operation, our supply chain is not 3% to the Employee Trust Fund (ETF) as stipulated whilst the extensive and does not entail the range of processes that employee contributes 8% to EPF. In the reporting year, on a broadly fall under sourcing and delivering within a supply chain. consolidated basis, a sum of Rs. 21.5 Mn was provided for EPF and Our supply chain is more or less limited to processes of sourcing Rs. 5.4 Mn for ETF. Gratuity provisions reached Rs. 10.3 Mn. stationery products, office furniture, equipment inclusive of IT systems - hardware and software. Responsible Tax Payer We are diligent and timely in meeting our tax obligations. In the Within this, IT related supplies take up greater investment and year under review, the subsidiaries of NCAP made a provision bear direct consequences on our operations, particularly, for of Rs. 29 Mn for income tax while the NCAP Group had a tax wealth management and stock broking businesses. This is more refund due from the Department of Inland Revenue. so in today’s context where we place relationship management at centre-stage with priority given to total solutions combining Social Responsibility Initiatives products across the group organisations, customisation and Empowering Youth speedy and flexible transactions. Empowering youth is the most significant social facet that brings broader trickle-down benefits towards a sustainable economy. In In consultation with our parent company handling IT as a a knowledge-driven industry such as ours, this facet has a direct centralised function; we take heed on quality, standards and link to our businesses from a strategic perspective. cost-benefits. We also give due consideration to intellectual property rights in procuring IT hardware and software. Our In this light, we continue with our efforts to give career procurement selections are carefully weighed, giving preference opportunities for skilled and talented youth within our to suppliers who are responsible and credible in their processes organisation. Our management trainee recruitment programme and in the final product. complemented by our ties with Sri Lankan universities as discussed under the ‘Human Capital’ section has enabled us In the reporting year, at a consolidated level, we incurred a to identify and select the top talent amongst local graduates sum of Rs. 211 Mn on supplies including IT hardware, software and nurture their careers with due training to mould them into and technical support. This corresponded to 15% of the total future leaders within our organisation. revenue. NDB Capital Scholarship Trust Employee Benefit Obligations As initiated in the preceding year, we cemented our Refer Human Capital pages : 84 - 89 commitment towards undergraduate development, formally setting up the NDB Capital Scholarship Trust. The mandate Within a specialised industry, people factor as will be discussed sets out financial support for underprivileged and talented at length under the ‘Human Capital’ section, is the most vital undergraduates covering their academic life of four years at facet that underscores the sustainability of the organisation. national universities. Apart from financial support, the Trust will 78 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
GRI - G4 / EC7 also extend career guidance, leadership training programmes Private Sector Infrastructure and opportunities for internships within the NCAP network, Refer Management Discussion and Analysis, page : 42 differentiating the scholarship scheme from most others that are purely based on financial assistance. Reinforced by our expertise in large-scale transactions, we have established a niche to support private sector infrastructure In the year under review, we awarded the first round of development projects. Our forte in capital markets, capacity to scholarships to ten undergraduates pursuing their academic bring consortium of investors together to raise large amounts studies in engineering, medicine, law and management at the of funds and the vast experience we bring through our advisory University of Moratuwa, University of Sri Jayewardenepura and services have set a sound platform to take-off private sector University of Colombo. The selection process was transparent infrastructure projects. This supports the country to bridge the and carefully structured on financial need and merit including gap in infrastructure, vital to back its development goals. academic work, leadership qualities and extra-curricular activities. In the year under review as discussed in the ‘Management Discussion and Analysis’, NCAP invested a sum of Rs. 730 Mn The Scholarship Trust is funded by the profits of NCAP and as part equity contribution in the acquisition of a corporate its three key subsidiaries NDBIB, NDBWM and NDBS. The within the power and energy sector - Resus Energy PLC. management of the Trust falls under the purview of the Board Our investment bank structured and managed this deal of Trustees. NCAP made a contribution of Rs. 2.5 Mn to the and supported the investors in its advisory capacity. NDBIB fund during the year 2014. arranged debt financing for some of partnering investors. Our engagement with this project is not only expected to give firm Developing the Retail Segment returns to the Group, but also spur significant value within the As a top-notch investment banking organisation, we are power and energy sector, with far-reaching indirect economic committed to support capital market development and thereby benefits in the years to come. This investment also reinforces accrue greater benefits to the economy. We have the capability our drive towards green energy . and the capacity to take capital markets beyond the scope of corporates and high-net-worth individuals and reach out to the potential of retail markets. Our synergies with NDB branch network and our dedicated securities trading branches totalling to nine as at the year-end have aided us to be more inclusive, even reach the unexplored retailer segment within the periphery.
Our awareness building programmes, some in collaboration with the industry including the SEC of Sri Lanka and CSE, create awareness on the market and on the options available with us to widen their investment prospects, thus, influencing and encouraging greater participation from the public. Our school programmes which we conduct periodically in effect aim at changing the investment perspective of the next generation, leading up to economic transformation and progress in the long-term. Wind Power - Pawan Dhanavi 79 | NDB Capital Holdings LTD | Annual Report 2014
Giddawa Power Plant - Resus Energy PLC Bangladesh Power Plant - Investment Banking Client
Agra Oya Power Plant - Resus Energy PLC Bangladesh Power Plant - Investment Banking Client
In addition, we also supported infrastructure development within the region through our engagement with NDB Capital Bangladesh. Our investment banking arm, NDBIB structured and managed a syndicated loan of approximately USD 50 Mn for a power and energy project in Bangladesh, sponsored by a company within this sector in Sri Lanka. Our involvement in this instance is expected to support the local company as well as the local syndicate partners, through which, indirect benefits are expected to trickle-down to the economy. This is our second engagement of a similar power plant project with this client. 80 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
GRI - G4 / PR3 PR4 Product responsibility segments with appropriate advice and information. The Code of Conduct as discussed under Ethics and Compliance Management clearly sets out the ethical conduct along with all applicable laws, Being at the forefront of investment banking in the country, rules and regulations that employees should follow and comply, to following ethical practices in extending products and services be independent and transparent in their dealings. The Code which within the marketplace is highly warranted. Our product offer is well internalised amongst employees through regular training distributed through a well-linked group network including sets out strict guidelines on anti-money laundering, competition our parent is our forte; and therefore, placing due emphasis and fair dealing, anti-bribery, anti-corruption, intellectual property on responsible practices underscores the future progress and and marketing integrity. In the reporting year, we extended a viability of the NCAP Group. refresher training for 24 employees on product and market place responsibility through training on the Code of Conduct and for 52 The Approach new recruits through an orientation programme. Product responsibility at NCAP reflects the best in business practices and is approached pragmatically to suit diverse client In the reporting year, NCAP along with its three subsidiaries did segments. We have adopted clear guidelines and measures to not record any incidents of non-compliance with the Code of ensure that we extend fair and right product solutions; deliver Conduct in terms of product responsibility. transactions with positive impacts on the environment and society; and maintain the highest level of integrity in terms Building Financial Literacy of customer privacy and security of information. We seek to We recognise our responsibility to extend detailed information comply at all times with legal and regulatory requirements to clients on our product offer, thus, enabling them to make whilst upholding the voluntary codes and internal processes to informed decisions on their investments. The information we safeguard product responsibility. give seeks to build their literacy level on financial products whilst our advisory services lay out the options available to Competency and Fair Dealings maximise return on investments, mitigate related risks, take on Refer: Ethics and Compliance Management and Human Capital, alternative products and build ties with business partners. We Pages: 90 - 97 and 84 - 89 also give them our fee structure and ancillary charges upfront. The client mandates/agreements hold comprehensive legal We have with us a talented and well-rounded team, endowed provisions, informing clients on the terms and conditions that with multi-disciplinary skills and vast experience within form the basis of a transaction. and outside the industry. Based on our relationship-centric approach, our team seeks to engage closely with clients and We hold frequent one-to-one client meetings where we take support their investment needs with a best-fit to their risk- the opportunity to educate our clients. We also disseminate return profiles. The team is highly proficient and flexible to product and market information through print media, road- extend strategic advice and structure solutions for corporates shows and seminars held island wide in key locations including including raising capital on equity and debt markets, mergers schools. We have a set of brochures and leaflets with key and acquisitions, and loan syndication; whilst delivering the information, particularly for wealth management, mutual funds most feasible options for high-net-worth individuals and the and stockbroking. The official websites of the Group, interactive retail segment especially in terms of wealth planning and and informative, also facilitate the dissemination of information. management. Our research on macroeconomic and capital market trends and analysis on listed corporates on the CSE, published in three Due training for the team as discussed under the Human Capital languages, seeks to empower our clients and the public to make section to enhance their product and market knowledge is the right choices in their investments and wealth planning. prioritised, in turn, empowering them to reach out to clients of all 81 | NDB Capital Holdings LTD | Annual Report 2014
GRI - G4/ G4 - 14 G4 - 15 EC7, PR8, PR9 Financial Services Sector FS1 & FS2 (Former) Client Privacy Environmental and Social Considerations Refer Ethics and Compliance Management, page : 95 The NCAP Group closely follows responsible business practices, forming a firm foundation towards sustainability. We are As a principled organisation, we respect client privacy and place conscientious in extending a well-thought out product and highest priority to confidentiality of information. We have taken service offer, ensuring that our engagement is with those the necessary precautions to ensure that client identity and clients who are in turn conscious of sustainable business personal data and information are protected. practices. We are selective in our decision making process, in our transactions and in our relationships with clients. We Client information is handled with care and is not shared with seek to avoid involvement in projects that are deemed risky, external parties other than amongst the group companies sensitive and objectionable from an environmental and societal seeking to offer a better service and with institutions which perspective. However, NCAP has not pledged their allegiance to are duly authorised to support the functions of the Group. This any economic, environmental and social charters/principals. too is subject to prior agreement with clients and even such institutions are bound by legal obligation to keep information We have established a strong evaluation and approval process and data confidential. Client information is also shared in to address environmental and social risks and negative impacts the case of mandates from statutory and regulatory bodies and recommend mitigation, if feasible. Our client mandates/ including the Central Bank of Sri Lanka, SEC of Sri Lanka, CSE agreements entail comprehensive provisions and covenants to and under the Foreign Account Tax Compliance Act (FATCA) address these risks - not only for institutional clients but also in agreement within the purview of the USA legislature. the case of high-net-worth individuals and retail segment. Our private equity fund which took-off in the year under review has As discussed under Ethics and Compliance section, we have in a firm environmental and social management mechanism to place the necessary measures in terms of information security screen selected SMEs at the selection stage and thereafter. - well safeguarded with a sound Business Continuity Plan comprising an effective disaster recovery system. In the reporting year, we have evaluated around 80 SMEs with the total funding requirement of about Rs. 2.5 Bn in sectors We also have a complaint handling mechanism where clients covering manufacturing, exports, IT services, education, can report on product irresponsibility, any misdeeds, violations logistics, healthcare, construction, leisure, fast moving of best practices and ethics. This mechanism enables clients and consumer goods (FMCG), energy, etc. These deals were other stakeholders to make written complaints, anonymously or evaluated not only on pure financial grounds but also to be in complete confidence to an ombudsperson, the Chairperson in line with environmental, social and governance guidelines of Board Audit, Risk and Compliance Committee. Upon a specified by Fund investors, especially DFIs. complaint, the ombudsperson addresses the issue with due investigations in a timely manner and recommendations in response are tabled for Board review, deliberations and decisions on the required action.
In the year under review, the NCAP Group did not record any substantiated complaints regarding breaches of client privacy, loss of information and data. 82 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
GRI - G4 / PR9 SMEs Selection - Exclusion List for Private Equity Investment Additional Exclusions - Microfinance ▪ Production or trade in any product or activity deemed ▪ Production or activities involving harmful or exploitative illegal under laws and regulations or international forms of forced labor / harmful child labor conventions and agreements, or subject to international ▪ Production, trade, storage, or transport of significant phase outs bans, such as hazardous pharmaceuticals, volumes of hazardous chemicals, or commercial scale pesticides/herbicides, chemicals, ozone depleting usage of hazardous chemicals. Hazardous chemicals substances, PCBs, wildlife or products regulated under the include gasoline, kerosene, and other petroleum products. Convention on International Trade in Endangered Species ▪ Production or activities that impinge on the lands owned, (CITES) of Wild Fauna and Flora. or claimed under adjudication, by Indigenous Peoples ▪ Production or trade in weapons and ammunitions (as defined in Standard 7 of the Performance Standards), ▪ Production or trade in alcoholic beverages (excluding beer without full documented consent of such peoples. and wine) ▪ Production or trade in tobacco ▪ Gambling, casinos and equivalent enterprises Compliance ▪ Pornography and/or prostitution We are committed to uphold the highest standards of ethical ▪ Racist and/or anti-democratic media practices in extending our products and services to clients ▪ Production or trade in radioactive materials. This does including clients outside Sri Lanka’s jurisdiction. In the reporting not apply to the purchase of medical equipment, quality year, NCAP and the subsidiaries did not record any monetary control (measurement) equipment and any equipment fines for non-compliance with laws and regulations pertaining where IFC considers the radioactive source to be trivial to products and services. and/or adequately shielded. ▪ Production or trade in unbonded asbestos fibers. This does not apply to purchase and use of bonded asbestos cement sheeting where the asbestos content is less than 20%. ▪ Unsustainable fishing methods (e.g. blast fishing and drift net fishing in the marine environment using nets in excess of 2.5 km. in length). ▪ Cross-border trade in waste and waste products, unless compliant to the Basel Convention and the underlying regulations
Additional Exclusions - SMEs ▪ Production or activities involving harmful or exploitative forms of forced labor / harmful child labor ▪ Commercial logging operations for use in primary tropical moist forest. ▪ Destruction of High Conservation Value areas ▪ Production or trade in wood or other forestry products other than from sustainably managed forests. 83 | NDB Capital Holdings LTD | Annual Report 2014
GRI - G4 / EN29 Environmental Initiatives Compliance During the year under review, the NCAP Group has not been subject to any fines and non-monetary sanctions for non- Refer Product Responsibility, page : 81 compliance with environmental laws and regulations in the country. As an investment banking organisation, the direct impact of our operations on the environment is not significant. Our impact on the environment is largely indirect - coming from our engagement with projects that may have adverse environmental implications. The ‘Product Responsibility’ section will shed light on the measures we have adopted to mitigate the indirect impact of our businesses on the environment.
Apart from these measures, we are concerned and seek to do our part, even the simplest measures and practices to be environmentally friendly in our day-to-day operations. We rely on technological improvements to be more efficient in using resources and less reliant on paper. We have created awareness and mustered the full support of all employees across the Group for these initiatives.
▪ Build staff awareness at meetings and use of signage with environmental friendly messages
▪ E-mails for correspondence both internal and external
▪ E-memos for simple approvals and formal communication, wherever feasible Our ▪ Teleconferencing and video Simple Environmental conferencing with strategic Initiatives partners based abroad
▪ Double-sided printing and print only if necessary policy
▪ Cloud-based solutions to minimise the use of software and hardware
▪ Cloud-based HR performance management system 84 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
GRI - G4 /G4 - 10 Human Capital operations. The average age of around 30 years points out to the fact there is a strong base of younger staff members - open to new ideas and innovation whilst the senior management In a relationship based industry underscored by specialisation corresponding to over 15% of the cadre brings in maturity and and expertise, building a strong team is critical to reach out greater sense of business acumen to the operations. Over 70% to the organisation’s strategic goals and thereby, securing the of the cadre is dominated by the management and executive path towards sustainability. Hence, we give due precedence level members, demonstrating the strong operational base to to extend an enabling workplace where our employees could carry out the corporate strategy and plans. learn, progress, be rewarded and shape their careers. The analysis that is set out graphically herein demonstrates the The Approach cadre composition in terms of businesses, employee category, NCAP’s engagement with employees is pragmatic and contracts, gender and ethnicity for the reporting year, progressive. Following closely the best industry practices, NDB, NCAP seeks to build careers for its employees, beyond mere employment. The approach to HR is based on the principle of ‘equal opportunity’ and we seek to offer a non-discriminative workplace culture to reap the optimum level of employee motivation, leading to higher productivity, innovation and NCAP 4% dedication. We are focused in our efforts to recruit the best NDBWM 37% and the right-profiled people and retain them with attractive NDBIB 19% remuneration, performance based incentives, tactical training Cadre - Line of NDBZ 4% opportunities for career growth and measures to ensure their Business NDBS 36% wellbeing. Cadre - Line of Business HR management is guided by NCAP as the holding company, ▪ NCAP took up 4% of the total cadre whilst the day to day management and engagement are ▪ Subsidiaries absorbed 96% of the total cadre handled by individual business lines.
Cadre Composition As at reporting year-end, NCAP Group’s cadre totalled to 137 employees, representing a 17% increase over the position as at previous year-end.
The composition broadly reflects a good balance in keeping Permanent 64% with an ‘equal opportunity’ workplace. There is a fair mix Cadre - Employee Contract 17% between genders, although being skewed towards male Contract Probation 19% employees. Over half of the cadre is employed on a permanent basis, giving the organisation greater stability for sustainable Cadre - Employee Contract ▪ 64% of the cadre was employed on a permanent basis. 85 | NDB Capital Holdings LTD | Annual Report 2014
GRI - G4 / LA 12 LA 1 Diversity and Equal Opportunity Being an ethical organisation, nurturing diversity and building an inclusive workplace is a natural extension of our corporate ethos. HR strategy, related actions and aspired outcomes are founded on the principle of ‘equal opportunity’. This commitment along with the practices and processes in Senior Management Grade 17% place opens up opportunities to all in terms of recruitment, Management to Executive recognition, remuneration, rewards and training - irrespective Grade 64% Cadre - Employee of their differences in their age, gender, ethnicity and any Category Support Staff 7% other socio-economic facet that could spur discrimination. Our Cadre - Employee Category Code of Conduct clearly guides everyone from the Board level, ▪ Composition of employee category reflects a strong management and their respective teams to be conscious and operational team. respect diversity at the workplace and foster a collaborative spirit as will be discussed in the latter part of the review.
Our cadre is well represented in terms of gender and ethnicity as reflected in the graphical presentation of the cadre composition. The senior management has a fair representation of female employees with over 30% of the senior management cadre and 31% of the total cadre. Even our Board is represented by an accomplished female Board member, Ms. Aruni Rajakarier. Board Audit Risk and Compliance Committee is in Male 69% Cadre - Employee fact chaired by her and she also represents Remuneration and gender Female 31% Investment Committees of the Board. Cadre - Employee Gender ▪ Although skewed towards male employees, there is a fair Recruitment gender balance with female employees representing 30%. Recruitment Analysis Number % Gender Male 33 63% Female 19 37% Contract Type Permanent 16 31% Contract 28 54% Cadre - Employee Majority Group 77% Ethnicity Minority Group 23% Probation 8 15% Cadre - Employee Ethnicity Total: 52 ▪ Minority groups were well represented reflecting cadre diversity 86 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.) GRI-G4 / LA 3
GRI - G4 / LA 12 LA 1 As a versatile investment banking operation, we fully recognise Retention the significance of recruiting the most talented individuals to Turnover Analysis our cadre. Our strategy, therefore, is steadfast in its stance of giving ‘equal opportunity’ employment to those who possess Number % right skills, experience and personality traits to suit the Gender vacancies as per the respective job descriptions. We seek to Male 23 77% bring in the best undergraduates from our national universities Female 07 23% with a multi-disciplinary mix covering finance, economics, marketing, engineering and law - thus, supporting the NCAP Contract Type Group to reach out to diverse and complex needs of our Permanent 12 40% stakeholders. Contract 07 23% Probation 11 37% We continue to follow a sound recruitment process that is structured, competitive, transparent and impartial - purely Total: 30 based on merit. We have a clear basis for preparing a long- list of candidates, short-listing through aptitude tests and Being a highly specialised organisation, we understand the challenging interviews with the senior management and importance of retaining our talent within the NCAP Group. subsequently, selecting the best candidates in consultation with High turnover to an organisation such as ours is detrimental the Board. in terms of loss of know-how and experience, break-up in loyal relationships and networking ties and more so, the In the reporting year, we recruited 52 employees to the NCAP impact on the organisation’s morale and productivity. Hence, Group, taking the total to 137 employees. Out of the new retention strategies take centre-stage within the overall HR recruits, 37% comprised female employees; whilst 31% was strategy. We take great effort to be a best-in-class employer as absorbed into the permanent cadre with the balance 69% taken mentioned above - extending excellent remuneration packages in as contract staff and on probation. and rewards based on performance, developing skills and guiding and enhancing careers and ensuring the wellbeing of Aside our external recruitments, we give priority and advocate employees. internal recruitments. Based on our performance evaluation scheme, we are able to earmark potential employees for The Group’s retention level for the year under review was promotions and cross-placements within the network and almost 72% whilst our average staff turnover stood at 28%. extend due training, mentoring and coaching to best-fit the Over 60% of the movement in the year came from employees new job responsibilities. In the reporting year, we promoted 14 falling under contract and probation. The key retention employees across categories and cross-placed seven within the strategies are discussed in detail below. Group. 87 | NDB Capital Holdings LTD | Annual Report 2014
GRI-G4 / LA 13 LA 11 Remuneration In the year under review, we evaluated 100 employees out of Refer Economic Value Creation, page : 77 117 (March 2014) within the NCAP Group which corresponded to 85%. Out of the total evaluated, 34% were female employees With a HR strategy that aims at building a ‘best-in-class’ team, it across all categories. Out of 10 members of the support staff is extremely important that we maintain a fair and progressive grades, 07 were evaluated for their performance. remuneration structure. In effect, remuneration within the NCAP Group is well in line with the industry norms and in most instances, it stands as the benchmark.
Reiterating, we do not entertain any form of partiality to gender or to any other socio-economic facet, our remuneration policy is purely based on the level of proficiency and performance linked to the job descriptions assigned to each employee. Thus, we maintain a good balance in remuneration ratios between Evaluations - Male 66% genders. Female employees represent 31% of the employees performance Evaluations Evaluations - Female 34% in the Group and 27% of the total salary bill for 2014. All salary increments and incentives are based on our transparent performance evaluation scheme as elaborated in the ensuing Succession Planning section. We also meet our defined benefit obligations as Operating in a highly specialised industry, succession discussed under the ‘Economic Value Creation’ section. planning warrants a hands-on approach to ensure continuity of leadership. Guided by the Board of Directors, the senior Performance Evaluation management is proactive in identifying potential individuals displaying higher degree of competency and personality traits In keeping with our quest to ‘build careers’ for our employees, of management skills and leadership. The selected employees we seek to follow current and best practices in performance are then carefully mentored - reinforcing their strengths and evaluations which form the basis for salary increments, addressing the areas where they are weak. The performance incentives and bonuses, promotions, training opportunities and evaluation scheme discussed above plays a crucial role in this succession planning. process - identifying future leaders as well as setting out an effective mentoring plan with focused training opportunities Our evaluation scheme - structured and transparent, is carried including foreign training to give them confidence and exposure out annually. Employees are evaluated based on pre-agreed to current international best practices in management and targets that cascades down from the organisational goals set in leadership. Our management trainee programme, attracting the Corporate Plan. The process is interactive and enables both some of the best undergraduates in the country is successful employees and the management to openly discuss on career and rewarding. We closely monitor the effectiveness of this process through feedback and specialised assignments with the prospects and any other grievances that would stand in the engagement at the Board level. As at the year-end, we have 12 way of meeting their targets both at an individual and collective high-performers who have been earmarked and mentored by level. the senior management. 88 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
GRI-G4 / LA 9, LA 10, LA 2 Career Development the network, we structure customised programmes internally Amidst the demands off a rapidly changing business landscape, to address specific training needs, identified through the developing our team is recognised as the most decisive facet performance evaluation scheme. Our programmes range from within our organisation. Our aim is to build an accomplished technical to soft skills - negotiations, presentations, marketing, team with multi-disciplinary expertise, resourcefulness and management, ICT, business ethics and etiquette. We also extend agility. Our training is well deliberated and focused. We have a comprehensive induction programme for our new recruits with us a versatile network that can extend ample opportunities with learning and networking opportunities across the group. to learn and refine skills and learning. On-the-job training, staff rotations and cross-placements across the group have The external training programmes inclusive of foreign training paved the way for employees to be conversant and even be are carefully planned and selected to avail the maximum proficient in a gamut of fields from investment banking, wealth benefit to develop employees whilst enabling to meet the management, mutual funds, securities trading, private equity, organisational goals. We also guide and financially support our and retail banking and corporate finance through our parent, employees to pursue post-graduate level studies and further NDB. Our ties with strategic partners including DBS Bank, their professional careers. Singapore, multilateral financial institutions and joint venture partner from the US give a solid exposure for all employees, During the reporting year, we trained employees for 1,738 man advocating current and pre-eminent practices in financial hours. markets globally.
Apart from our comprehensive training mechanism within KEY STRUCTURED TRAINING PROGRAMMES SUMMARY – 2014 Number Man-hours Training Programme Employee Category Trained by Trained Trained Accelerated Management Programme Management – Executive Staff Indian School of Business 1 168 National Institute of Bank Credit Analysis Management – Executive Staff 1 50 Management, Pune, India Mastering Financial Modelling Management – Executive Staff Goldman Communication 5 80 Strategic Mergers and Acquisitions: A Management – Executive Staff Euromoney Training 1 24 disciplined approach AML Training All NDBS staff Compliance Department 50 225
Collaborative Culture At NCAP, we seek to foster and support a ‘team’ culture where competition and deliver operational excellence within the collaborative efforts are appreciated and encouraged. With investment banking domain in the country. a simple and a flatter organisation structure, the team is empowered to work together towards meeting collective goals. Employees within the NCAP Group are not covered by any They are encouraged to share their learning, skills, experience collective bargaining agreements. and work practices across the group, inspiring creativity and innovativeness, leading the organisation to be ahead of the 89 | NDB Capital Holdings LTD | Annual Report 2014
GRI-G4 / HR 3, HR 5, HR 6, LA 2 We give our employees space and support to plan their time at work whilst embracing a healthy lifestyle. Our initiatives for our permanent employees in this regard cover comprehensive health insurance including OPD and hospitalisation for employees and their immediate family; gymnasium facilities at concessionary membership rates and annual health check-ups at reputed hospitals. We are also planning to offer an employee share option scheme for the permanent staff which is currently being developed.
Labour Laws and Human Rights Refer Economic Value Creation and Product Responsibility, pages : 77 and 81
The NCAP Group conforms to all laws and regulations governing labour in Sri Lanka. The NCAP Group does not engage individuals below the minimum age of employment as stipulated by legislature. Necessary measures are in place to ensure that our recruitment process takes heed of the minimum age of employment. Similarly, the Group does not resort to any form of forced or compulsory labour. Due remuneration, defined benefit obligations and incentives are met conscientiously and fairly. The NCAP Group did not record any incident of discrimination on account of any form of socio-economic prejudices. All employees are encouraged to report any grievances related to workplace ethics to the Office of Compliance which has a structured mechanism to redress such issues, even resorting to Board intervention, if deemed necessary.
NCAP Christmas Party 2014 Wherever possible, as discussed under the ‘Supplier Chain - Economic Value Creation’ and ‘Product Responsibility’ sections, Advocating Employee Wellbeing we do seek to influence our suppliers and customers to adopt We are committed to nurture a well-balanced workplace and and maintain ethical business practices. encourage our employees to strike a healthy blend between work and life. In a fast-paced world, this assumes greater The Group did not report on any fines monetary or otherwise importance to ensure that the team is not over-worked, due to non-compliance with rules and regulations as per the stressed and unhealthy, in turn eroding the productivity levels Labour Laws in Sri Lanka as at the balance sheet date. The and compromising on the corporate goals. Group also did not report any grievances related to human rights. 90 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
GRI-G4 / G4 - 56 Ethics and Compliance Management Our Business Ethics
Our business model underscored by our values, policies ▪ We lead with integrity, honesty and conduct our and code of conduct is built on integrity, transparency business in accordance with the highest ethical standards and accountability. We place great emphasis in our daily operations to be in line with these valued tenets. Compliance ▪ We comply with all applicable laws, rules and regulations management, hence, takes centre-stage within our organisation, upholding our corporate ethos and ensuring our compliance to applicable laws and regulations. ▪ Our clients’ interest always comes first In 2014, NCAP sought to further strengthen the compliance function across the Group, building on the foundation set in ▪ We are loyal towards our clients and our Company the preceding year. Notwithstanding the delisting, NCAP is committed to uphold the highest business ideals and follow good governance practices, wherever feasible and applicable as ▪ We maintain independence and objectivity in our duly prescribed by the regulatory and statutory bodies. professional activities
Applicable Regulatory Bodies ▪ We take accountability for our actions NCAP in the reporting year came under the regulatory purview of the CSE and the SEC. As a subsidiary of a licensed commercial bank, NCAP is also required to comply with certain regulatory ▪ We respect the confidentiality of our clients and the provisions under the Banking Act and as stipulated by the information we receive in the course of our business Central Bank of Sri Lanka.
After de-listing from the CSE with effect from 26th January As an integrated function, compliance independently assesses, 2015, NCAP is no longer within the regulatory purview of the monitors and guides the Company and the subsidiaries, CSE. However, the Company continues to be regulated by on complying with good governance practices including the SEC as a Licensed Underwriter. NDBWM continues to be regulations, internal controls and business ethics. NCAP regulated by the SEC whilst NDBS continues to be regulated by has adopted globally recognised best practices in line with the SEC and CSE. multinational financial services organisations, thereby, bringing a world-class compliance culture into NCAP Group.
A dedicated officer - the Group Head of Compliance, independent from operations and reporting directly to the NCAP Board through the Board Audit, Risk and Compliance Committee leads the compliance function, engaging and working closely with the respective compliance units/officers of the subsidiaries.
Compliance Charter Guided by the Group Head of Compliance and in consultation with the Board Audit, Risk and Compliance Committee, we 91 | NDB Capital Holdings LTD | Annual Report 2014
sought in the reporting year to further internalise and establish operations. The Charter sets out the objective, risks, scope, the compliance function and processes across NCAP and the structure and governance, reporting, duties and tasks of the subsidiaries. Drafted in the preceding year, Compliance Charter compliance function. was finalised and was formally adopted in 2014, strengthening the effectiveness of compliance within NCAP Group. Compliance – Internal Reporting Structure Group compliance management ensures that compliance The Charter describes the governance roles and responsibilities reporting is independent and is done accurately, and operation of compliance management within NCAP Group. comprehensively and in a timely manner. Compliance reporting It defines the scope and task of the compliance function, is carried out on a regular basis - annually, quarterly, monthly, marking the commitment of NCAP Group to integrity in its daily daily and through incidental reporting.
NCAP Board Group Compliance Assessment and Decision Making
Audit Risk and Compliance Committee Assists to strengthen the compliance function and monitors Group Compliance Programme
Head of Group Compliance Integrated Compliance Management and Monitoring
Private Equity
International Financial Services Limited (Mauritious based) and Head of Group Compliance
Investment Banking Securities Trading Wealth Management
NDBIB Compliance NDBS Compliance NDBWM Compliance 92 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
GRI-G4 / G4 SO3 SO4 Group Compliance Programme company, Anti-Money Laundering, Suppression of Terrorist Driving sustainability of the organisation, NCAP has paved a Financing, Suspicious Transactions Reporting and Customer comprehensive compliance framework, encompassing business Due Diligence. Representatives across the Group participated ethics, operational and financial facets, regulatory and statutory in compliance related training programmes conducted by the requirements and ICT governance. Within this framework, NCAP Central Bank Centre for Banking Studies, including a training follows a stringent compliance programme which is structured conducted by the Australian Transaction Reports and Analysis on integrity and covering areas including prevention of insider Centre (AUSTRAC), specifically designed for stockbrokers. In trading, anti-money laundering, suppression of terrorists addition, NCAP Group Head of Compliance and respective financing and managing conflict of interest. All compliance compliance officers conducted staff training and briefing policies and procedures set out in the programme including sessions. reporting and monitoring seek to cover employees, the board of directors, the Company, clients, services and the market. All compliance obligations are backed by rigorous compliance and implementation procedures. NCAP’s compliance programme ensures that the NCAP Group complies with its Code of Conduct, designed to guide and support every member of NCAP Group to be compliant and accountable; along with compliance to all applicable laws, rules and regulations, . Some of the policies, internal control processes and reporting mechanisms are discussed below.
Group Code of Conduct Adopted in the preceding year, the revised Code of Conduct brings a world class compliance culture to the NCAP Group. The Code of Conduct acts as the main document guiding the ethical and professional behaviour of all employees across the NCAP Group. The guiding principles, governing the conduct of business is set upon the highest ethical standards and seeks to meet the expectations of stakeholders. It demonstrates NCAP’s commitment to uphold corporate responsibility and forms the basis for all group policies, procedures and guidelines in relation to its dealings with all stakeholders. It covers business ethics and its responsibility to clients, market place, company, shareholders, employees, community and other stakeholders. All members of NCAP Group are bound to follow the Code unreservedly in letter and spirit. The compliance programme seeks to ensure the continuous compliance of the Code by all group members and hold them accountable for failures of complying.
NCAP Group received a total of 390 compliance related training man hours in the year 2014. The training areas covered the Code of Conduct, compliance related procedures for each 93 | NDB Capital Holdings LTD | Annual Report 2014
RESPONSIBILITY TO SELF ▪ Application of the Code ▪ Compliance with the Code Code of Conduct ▪ Responsibility of Employees Broad Areas Covered ▪ Violations of the Code ▪ Reporting Violations of the Code ▪ Confidentiality ▪ Non-Retaliation
CLIENTS and MARKET PLACE COMPANY and SHAREHOLDERS ▪ Our Clients and Our Services and Products ▪ Use of Company Assets ▪ Insider Trading ▪ Physical assets and electronic communication ▪ Personal Investment Activities ▪ Proprietary Information and Intellectual Property ▪ Confidential and Proprietary Information ▪ Inside Information ▪ Privacy of information ▪ Employee Information and Privacy ▪ Public Disclosure ▪ Books and Record Keeping ▪ Ethical Business Practices ▪ Conflict of Interest ▪ Anti-Money Laundering ▪ Personal Relationships ▪ Competition and Fair Dealing ▪ Personal Investment and Outside Business/other ▪ Anti-Bribery, Anti-Corruption Activities ▪ Intellectual Property of Other ▪ Gifts and Entertainment ▪ Marketing Integrity ▪ Corporate Opportunities ▪ Acting on behalf of the Company ▪ Communicating Responsibly ▪ Leaving Our Company
COLLEAGUES COMMUNITY ▪ Diversity and Equal Employment Opportunities ▪ Political Activities and Contributions ▪ Harassment ▪ Community Involvement and Charitable Contributions ▪ Workplace Safety ▪ Environmental Stewardship ▪ Alcohol and Drug free Workplace ▪ Human Rights
OFFICE OF COMPLIANCE OFFICER ▪ Compliance Officer ▪ Code Administration ▪ Investigations ▪ Discipline and Corrective Action ▪ Waiver ▪ Where to Learn More 94 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
GRI-G4 / G4 SO7 Anti-Money Laundering and Suppression of procedure manuals for the entire Group with the expectation Terrorist Financing Policy of defining our systematic approach to implementing business NCAP Group, as a leading financial services organisation has expectations, plans, procedures and ensuring consistency. We continuously strived to enhance its anti-money laundering are currently in the process of reviewing and finalising the and suppression of terrorist financing framework in order to documents. bring itself into line with the recent regulatory developments and guidelines. As a result, the NCAP Group adopted a Group Record Management Policy comprehensive Policy on Anti-Money Laundering and NCAP Group acknowledges its responsibility to preserve Suppression of Terrorists Financing which also applies to all information relating to business activities, litigation, audit, of its subsidiaries. The Policy covers all applicable laws and investigation and to remain in compliance with applicable regulations including the directives and guidelines issued laws. In order to fulfil the growing demands of the statutory by the Financial Intelligence Unit of the Central Bank of Sri responsibilities to maintain accurate and sufficient records Lanka. In addition to the legislative framework, the Policy sets as well to ensure its records are adequately preserved and up the process for compliance with the relevant laws which maintained, NCAP Group has in place a policy for record includes a rigorous know your customer (KYC) and due diligence management. This Policy provides guidance to employees processes, compliance training, audit and implementation. on the effective record management including creation, Periodic training sessions are conducted to educate the staff management, access, retention, preservation and disposal. on Anti-Money Laundering, Suppression of Terrorist Financing, Customer Due Diligence and Suspicious Transactions Reporting. Currently, we are in the process of reviewing this policy. Once the Policy is formally adopted and the procedures are finalised, Taking a cue from the latest industry issues, we also reviewed NCAP Group will move towards a computer/technology aided the policies aligned to the revisions and new guidelines set record management system, which would further assist record by the Financial Intelligence Unit. We have obtained access to management efforts of NCAP Group. globally recognised database in order screen designated person as sanctioned by Sri Lanka Ministry of Defence and UN Security Employee Securities Trading Policy Council. Access to such a database will support a simplified and NCAP maintains at all times the confidentiality of any inside accelerated Customer Due Diligence process whilst enhancing information that we hold regarding our clients, their business or the KYC intelligence of the process. our own Group and its business.
Compliance Manuals Our compliance also gives precedence to Employee Securities In the reporting year, the compliance manuals were reviewed in Trading Policy as prescribed by the CSE and SEC to avoid any line with the applicable rules and regulations and Group Code conflict of interest and insider dealing transactions. Prior of Conduct. Necessary amendments to the compliance manuals compliance approval is required for employees to trade were done to further strengthen the compliance processes of securities. Necessary safeguards viz. updated “grey and NCAP Group. restricted” securities list, black-out periods, regular disclosures and employee declarations are in place and implemented to Procedure Manual ensure compliance to this policy. In addition, Chinese walls and As per the recommendations of the Board Audit, Risk and policies relating to personal investment policies are included in Compliance Committee, NCAP Group obtained services of the Company’s compliance manual and strict supervision and a reputed audit firm to review and carry out a gap analysis, monitoring are in place. In the reporting year, NCAP and the to document the procedures and to introduce integrated subsidiaries have fully complied with this policy. 95 | NDB Capital Holdings LTD | Annual Report 2014
GRI-G4 / G4 SO5 Information Technology (IT) Compliance satisfactorily. Ombudsperson provides recommendation to the NCAP Group understands the increased demand for faster and Board upon investigating such concerns or complaints. advanced technology for improving its services and delivery. As a result, the Group has acquired advanced systems which in In the reporting period, the Ombudsperson has not received effect ensure the Group’s compliance in many areas. any complaints pertaining to corruption and malpractices.
IT is an integral part and crucial to our operations and delivery Compliance Monitoring of service, more so in wealth management and securities Refer Risk Management, Report of Board Audit, Risk and Compliance trading businesses. NCAP Group, upon identification of its Committee, Pages : 98 - 102 and 134 reliance on IT infrastructure and uncertainties in the external environment has developed a business continuity plan with policies on record keeping, hardware and software including email and internet policies. The business continuity plan also Compliance Monitoring encompasses a comprehensive disaster recovery system which will safeguard businesses from loss of information and break- down of IT systems. IT systems are periodically tested for their Regulatory Bodies effectiveness by carrying out System Audits and the staff is provided with adequate training on a regular basis.
WhistleBlower Policy NDB Bank Integrated Risk Management Committee If employees are aware of any existing or potential violation of values, Code of Conduct, laws or any company policy, they can report their concerns to Group’s Office of Compliance. NCAP gives priority to confidentiality and ensures that identity External Audit of the reporter is protected. The Company values clear and open communications and respect employee’s contribution in safeguarding the integrity of its business. The Company Head of Compliance - NCAP Group under its Non-Retaliation Policy provides the opportunity for employees to raise concerns and report violations without fear of retaliation. Audit, Risk and Compliance Board Sub Committee NCAP also has an Ombudsperson under its Code of Conduct. The Chairperson of the Audit, Risk and Compliance Committee of the Company acts as the Ombudsperson and functions in accordance with the highest ethical standards including Subsidiary Compliance Units/Officers independence, neutrality, impartiality, and confidentiality. Employees can reach to the Ombudsperson when they want a neutral professional who has extensive knowledge of the System Compliance policies of the Company before making a formal step such as complaining to the HR Division or the Compliance Officer. The services of the Ombudsperson can be obtained if a complainant believes that the complaint was not dealt with appropriately or Third Party Audits - Clients 96 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Compliance monitoring is one of the key components of II) FATCA Compliance, reinforcing its commitment to the Group compliance programme entailing a systematic responsible finance, NDBS and NDBWM has registered monitoring process for this purpose. This also includes advising with Inland Revenue Services of the United States of on mitigation of identified compliance risks, designing and America (U.S.) to comply with the reporting obligations implementing proper control measures and taking appropriate imposed by the Foreign Account Tax Compliance Act corrective actions and guidelines on how to avoid or deal with (FATCA), a law that aims to reduce tax evasion by U.S. similar situations in the future. persons. NDBS and NDBWM will facilitate the necessary processes to report on the financial accounts and The Board Audit, Risk and Compliance Committee oversees the transactions carried out by clients that qualify as U.S. compliance and monitoring process of NCAP Group. Any non- persons as per FATCA. Being FATCA compliant, enables the compliance events and extraordinary items are reported to the respective companies to both retain and attract foreign NDB Integrated Risk Management Committee on a quarterly investors. basis. The Group Compliance leads the monitoring process with independent onsite and offsite monitoring with periodic (b) Statutory Payments Compliance reporting to the Board Audit, Risk and Compliance Committee. Under this category, the Office of Compliance monitors whether The Group Compliance is assisted by the Compliance Units/ NCAP Group has made the relevant statutory payments such Officers set up at each of the subsidiary company. In addition, as taxes, EPF, ETF and other employee benefits payments in a there are periodic compliance audits carried out by the timely manner regulatory authorities, NDB and clients and trustees for Wealth Management. (c) Investment Compliance Some of the companies under NCAP Group are subject to rules Board Audit Risk and Compliance Committee of regulators when it comes to clients’ funds investments. The Board Audit Risk and Compliance Committee reviews the In addition to that, there are internal investment policies adequacy of controls established to ensure compliance with applicable to all subsidiaries of NCAP. Monitoring under laws and regulations, policies and procedures, Code of Conduct Investment Compliance ensures that the Group makes its and business objectives in accordance with its Charter. investments in accordance with the applicable laws, clients’ mandates, internal investment guidelines and in compliance The monitoring process is mainly carried out under the with the policies relating to conflict of interest. categories of Regulatory Compliance, Statutory Payments Compliance, Investment Compliance, and Internal Compliance. (d) Internal Compliance The adherence of the members to NCAP Group’s Code of (a) Regulatory Compliance Conduct, laws and the policies and procedures of the Company I) The Office of Compliance monitors NCAP Group’s are monitored under Internal Compliance. Compliance compliance with applicable laws and regulations including with employee personal investment policy, confidentiality the compliance with Companies Act, the SEC Act, labour requirements, conflict of interest, gift policies, business laws, regulatory submissions and disclosures, anti-money transactions related compliance, directors’ compliance and laundering compliance including record management, company’s compliance with policies such as Software Policy is regulatory capital adequacy and other regulatory monitored and reported under this category. requirements under the applicable laws and regulations 97 | NDB Capital Holdings LTD | Annual Report 2014
GRI-G4 / G4 SO8 Compliance Review and Audits The Head of Compliance of NCAP reviews and conducts periodic reviews and compliance audits (onsite/off site) to assess compliance with and the effectiveness of the Compliance Programme and to assure that the Compliance Programme is functioning as designed with the guidance of the Board Audit, Risk and Compliance Committee. These Compliance audits assess whether the companies in the Group comply with applicable laws and internal policies and procedures, whether the policies and procedures are adequate and operated effectively throughout the period. The end result is tabled to the Board with findings and changes required and recommendations are implemented with the approval of the Board.
Compliance Status 2014 In the year under review, NCAP along with three subsidiaries NDBIB, NDBWM and NDBS were assessed and monitored on compliance related risks and the necessary recommendations were duly documented and addressed in consultation with the Board Audit, Risk and Compliance Committee and the final recommendations were tabled for Board’s deliberations.
NCAP along with its three subsidiary companies were not subject in the reporting year to any fines or non-monetary sanctions for legal and regulatory non-compliance. 98 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Risk Management follows the guidelines of BASEL II and working towards BASEL III requirements. NDB Group Risk Department under the purview of the Bank’s Integrated Risk Management Committee (IRMC) and NCAP Board Audit, Risk and Compliance Committee closely Overview works with the NCAP Group on risk management and ensures that We are well aware of the need to embrace an effective risk the highest standards are maintained within this process. Each management process which assumes greater significance in business line in the Group has developed and follows its own risk ensuring the sustainability of our Group in today’s business management framework and policies to manage and mitigate the context. Hence, we at NCAP as a group involved in diverse exposures to different types of risks within risk appetites of their fund-based and fee-based business activities such as investing, respective businesses. underwriting, proprietary trading, fund raising, corporate advisory, stockbroking, wealth management and private equity Given the complexity and dynamism of the financial markets give precedence to risk management. We firmly believe that today, we regularly review and revise the risk management it is our fiduciary responsibility towards our stakeholders policies and process of the NCAP Group. Each subsidiary to ensure that our strategy is sustainably executed within a company regularly monitors the varied risks impacting their prudent risk management framework. businesses which are reported to the Group Risk, respective boards and to the NCAP Board Audit, Risk and Compliance Risk Management Structure Committee on a regular basis. The NCAP Group is guided by the best practises of the integrated risk management process of the parent, NDB BANK which
Regulatory Authorities NCAP Board
Assesses NCAP’s risk status Independent audits aligned to the Bank’s strategy
NDB Internal Audit NDB Group Risk Independent audit of the Monitors risk processes, internal processes of NCAP assists and guides NCAP Group NCAP Board Group Audit, Risk and Compliance to formulate risk mitigatory Committee measures and reports risk status to the NDB Board, IRMC Assists, guides and monitors and NCAP Board Group’s risk management process aligned to corporate strategy and overall risk appetite
Fee Based Wealth Investing Investment Banking Securities Trading Management Private Equity NCAP and Subsidiaries NDBIB NDBS NDBWM NDBZ 99 | NDB Capital Holdings LTD | Annual Report 2014
The Approach Our risk management process includes identification of risks, assessment, management and control, reporting and Risk Dash-Boards Principal and Sub Risk Categories monitoring to ensure that the checks and balances are optimally executed. During the year under review, we further strengthened this process in consultation with the NCAP Board Investment Risk Audit, Risk and Compliance Committee to be more practical in ▪ Default managing risks that would support our businesses to balance ▪ Market risk-returns efficiently within our risk appetite in the decision ▪ Liquidity making process. Towards this end, we implemented ‘risk dash- ▪ Exit boards’ for each subsidiary as well as for NCAP which clearly set ▪ Currency out the principal and sub risk categories, impact and probability ▪ Performance of occurrence. Based on this, each principal risk is rated ▪ Legal which will enable the operational units to take the necessary measures and prioritise their actions to mitigate such risks Operational Risk according to the ratings from high to low. ▪ Compliance ▪ Process Risk Management - Business Lines ▪ Fraud A detailed discussion on the key risk factors affecting ▪ Reputational individual business lines of the NCAP Group together with risk ▪ System Failure management and mitigation strategies are presented below. ▪ Business Continuity ▪ Legal Investing - NCAP and Subsidiaries Our investment exposures include listed equities, private equity, fixed income securities (corporate papers, government Human Resources Risk securities, repos, securitisations, etc.) and unit trusts. The ▪ Key Person Dependency investments are made in the long-term, medium term and ▪ Succession Planning short-term instruments and include the investments made by NCAP and subsidiaries. The investments of subsidiaries Financial Risk are limited to their stated capital and reserves. To optimise ▪ Bankruptcy efficiency and returns, most often, NCAP and its subsidiaries ▪ Liquidity strategically collaborate to structure and make investments to ensure the anticipated returns. The key risks involved with these investments are market risk, interest rate risk, credit risk, Strategic Risk liquidity risk and reinvestment risk. ▪ New Business ▪ Concentration As a risk management strategy, all investments are subject to an asset allocation policy which provides for adequate level of External Risk diversification. The diversification is monitored and managed ▪ Macroeconomic within each asset class as well. The asset allocation policy is ▪ Capital Market regularly reviewed by the Investment Committee and NCAP and ▪ Political the subsidiary Boards. ▪ Competition 100 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
The market risk mainly involves the volatilities experienced investment banking business may have fluctuating business in debt and equity markets. Such volatilities are driven by results where an extremely good year maybe followed by a macroeconomic variables such as interest rates, exchange rates, very ordinary year. To manage this risk, NDBIB has established inflation and certain industry specific factors together with itself strongly in both debt and equity capital markets which systematic risks including credit risk. These volatilities can also generally have an inverse relationship. Further, we have be driven by investor sentiment. successfully established ourselves as one of the leading mergers and acquisition house in the country that would provide better The investments are managed by a team of competent business opportunities in an economic downturn. investment professionals who have specialised in specific areas. The specific investments that involve private equity and The retention of high performing professionals is given project financing are subject to a comprehensive investment priority. A strong culture is inculcated where organisational appraisal and due diligence process. Further, such investments values act as a cohesive force to retain key personnel where go through a tiered approval process with final approval being monetary benefits are not the sole consideration. In addition, granted by the Investment Committee and the NCAP Board. a performance based incentive scheme is in place to ensure The status of investments and the process are also reviewed goal congruence between the Company and its staff. A clear regularly by the Investment Committee and the NCAP Board. succession plan has been developed both at middle and senior managerial level to minimise the dependence on key personnel. Fee-based Investment Banking - NDBIB As a fee-based operation, this involves the provision of advisory NDBIB has a comprehensive internal compliance process which services and arranging financing for clients. Fund raising is on par with global best practices covering all critical areas mandates are undertaken strictly on a ‘best efforts’ basis and such as corporate governance, personal investments by staff, gift are legally vetted by reputed legal firms in the country. Any policy, conflict of interest, dealing with confidential information, failure to raise financing would adversely affect the reputation storage of documents, software policy, Know Your Customer of the company although the financial position will remain requirement, anti-money laundering policy and financial intact. Therefore, fee based investment banking activities are transaction reporting requirements. Each mandate goes through mainly subject to reputational risk. In addition, the investment a two tier compliance process at pre and post mandate stages. banking performance is dependent on the market conditions and the ability to retain key personnel. Stockbroking and Debt Securities Trading - NDBS The role of a securities firm is to facilitate trading in the stock In order to minimise the reputation risk, NDBIB conducts a exchange for a commission. In addition, other support services thorough market survey prior to entering into fund raising such as online-trading and research advice are provided to the mandates to gauge the appetite of potential investors. Further, client. The margin loan facilities are extended through NDB much time and effort are spent on client preparation stage to Bank. Therefore, NDBS does not directly take any exposure to make projects bankable by strengthening the project/financial the stock market. However, NDBS takes the credit risk of clients structure and other key aspects. The receiving of a mandate by for buy-side transactions. Other major risks involved with a client is taken as a serious responsibility. stockbroking operations are credit/ settlement risk, operational risk, compliance and regulatory risk and liquidity risk. As a result of these risk management measures, NDBIB has maintained an unblemished track record in delivery. NDBS is exposed to credit settlement risks whereby clients fail to honour their settlement payments to the firm within The economic and political conditions of the country and global the specified period. In order to mitigate the credit risk, the factors directly affect the deal pipeline of NDBIB which in CSE and SEC of Sri Lanka have stipulated rules and regulations turn impacts the business performance. As a result, fee based pertaining to extending credit to clients. Accordingly, NDBS has 101 | NDB Capital Holdings LTD | Annual Report 2014
appointed a committee headed by the CEO and the Compliance and any market manipulative trading patterns of market Officer to review credit requests. Based on this evaluation, professionals etc. The Compliance Officer of NDBS is responsible credit will be extended to clients. Portfolio exposure limits for monitoring the regulatory risk and continuously monitors and cash margins are imposed by the regulator to mitigate the the net capital of NDBS and implements proactive measures to credit risks arising from market fluctuations. These exposure rectify any possible shortfalls. Further, the Compliance Officer limits, both client-wise and portfolio-wise are continuously has implemented anti-money laundering and suppression monitored in order to minimise the impact. A debtor control of terrorist financing policies within the firm. Market system is in place where settlement obligations of clients are professionals are given a comprehensive training to avoid any closely monitored and action is taken on a continuous basis to market manipulative transactions and regularly participate in monitor such risks. A sound relationship is maintained between continuous professional development programmes conducted clients and investment advisors to facilitate the monitoring by the CSE and SEC of Sri Lanka. To further strengthen process. However, it should be noted that the credit exposures regulatory compliance and mitigate any regulatory risk, NDBS are backed by relatively liquid assets which can be converted has implemented a Compliance Policy/Code of Conduct in to cash within a few days. Plans are underway at the CSE to consultation with the Office of Compliance at NCAP which sets mitigate the settlement risk further by moving into a Delivery out the standards of ethical and professional conduct that all Verses Payment (DVP) mechanism. employees have to conform to.
NDBS is further exposed to operational risks, namely, error NDBS has in place a sophisticated IT system which complements trades/data entry risk, fraud risk, system failure risk and the risk management framework. The back office infrastructure business continuity risk. A trading monitoring mechanism is in has enabled the setting up of an effective MIS system to cater to place to mitigate these risks. This includes setting up of trading the expected business growth and industry requirements. NDBS limits, collection of margins, maintaining exposure levels has to meet liquidity requirements set by the CSE that stipulate etc. Advisors and clients have been allocated trading limits net capital requirements to cover these risks. Processes are in depending on the client’s risk profile and advisor’s experience. place by way of filing returns to monitor compliance with this Additionally, IT infrastructure has been developed to minimise requirement. NDBS has a daily monitoring mechanism to ensure delays and system failures. The employees are well trained and compliance and manages such risks by maintaining adequate IT systems have been structured in order to ensure smooth reserves and banking facilities. functioning with adequate back-up facilities in place. In order to manage the settlement risk, certain processes, procedures and Wealth Management - NDBWM regulations are in place by the CSE. This is a strictly fee based operation involving discretionary portfolio management, private wealth management and In order to minimise operational risks, all procedures and managing mutual funds. As per the mandates entered into with processes are documented and the senior management reviews the clients, all risks and rewards of the assets under management and evaluates the business processes and continuously improve are with the client, insulating NDBWM from any investment the existing controls to mitigate risks. The integrity and the risk. Therefore, NDBWM is exposed to reputational, operational, reliability of the data processing facilities and the suitability and regulatory and compliance risks in managing investments. effectiveness of the system of internal controls are reviewed from time to time. NDBWM has built a competent investment team to manage both debt and equity investments. The investment team consists NDBS is required to comply with the rules and regulations of qualified investment professionals with years of industry implemented by the SEC of Sri Lanka, CSE and the Central experience. The necessary information required for investment Depository System. Regulatory risks include failing to meet decision making is provided by the internal research unit. The the net capital, any violations of anti-money laundering rules Investment Committee and the NDBWM Board review the 102 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
GRI-G4 / FS - 9, FS - 10 overall investment strategy adopted by fund managers. The The company is exposed to reputational, investment, operational, above measures have enabled NDBWM to maintain satisfactory regulatory and compliance risks in managing investments. investment performance in turn supporting to manage the reputation risk. NDBZ’s investment philosophy will involve active participation in the management of investee companies to improve formulation NDBWM has developed robust internal controls and systems and execution of company’s strategy. NDBZ’s global network and to manage operational, regulatory and compliance risks. relationships are expected to position the Fund as an attractive Internal controls are in place with regard to misappropriation partner for Sri Lankan businesses looking to expand into overseas by segregation of functions without overlapping roles. The markets. NDBZ’s investment team and senior advisors have several investment managers have no role in investment administration decades of experience in building and managing companies. All and all trades are processed and settled by the administration investments should be approved by the Management Committee unit and the fund managers’ role ends with placement of and Investment Committee comprising of industry veterans. The deals and their entry into the system. All order matching Management Committee will be actively involved in guiding the and settlements are done by the back office. NDBWM has a investment team during all phases of the investment process. comprehensive IT system from an industry preferred global Careful selection of investment through industry expertise of software firm to support its operations with all built-in control senior managers is expected to cover reputational risk of NDBZ. measures and risk mitigating actions. In order to mitigate operational risk by infrastructure failure and disasters, NDBWM The team takes all possible measures to manage risk in an has a fully functioning disaster recovery system housed outside investment through careful due diligence conducted by way of the company premises. The wealth management operation working with qualified service providers such as accounting, has been subject to periodic process and internal audits by audit, tax and legal consultants. Furthermore, prior to the fund multinational organisations and NDB Bank. Further, SEC of Sri disbursement, the team works closely with the company to Lanka carries out its own audits. develop a joint business plan, which further enhances the team’s understanding about the business. Therefore, these measures NCAP Board Audit, Risk and Compliance Committee regularly are expected to cover investment and operational risk. reviews investment performance and risk exposures and mandate violations, etc. The investment policy document Apart from stringent internal controls, Emerald Fund is approved by the Board sets out the risk appetite of NDBWM expected to comply with the investment guidelines set by the and details out the risk control measures that should be in Development Finance Institutes (DFIs) who are the investors of place. Further, steps are taken to segregate functions without Emerald Sri Lanka Fund 1. The Fund is committed to identify, overlapping roles. analyse and manage environmental and social impacts and risks on a project by project basis and maintain compliance Private Equity - NDBZ with all environmental and social requirements in accordance NDBZ a company 60% owned by NCAP and based in Mauritius, with the requirements of local regulations and other standards is in the business of managing private equity funds and currently established by DFIs such as IFC, DEG and FMO. An Environmental manages the Emerald Sri Lanka Fund I, the largest private equity and Social Due Diligence (“ESDD”) is an integral part of the Fund’s fund dedicated to Sri Lanka. The Fund will be investing in equity investment process and the Fund will apply the environmental or equity related securities in growth oriented organisations and social risk management procedures to all its investments. in Sri Lanka. Apart from providing much needed capital for the organisations, the investment team will provide guidance to Retention of talented staff is also a critical success factor in portfolio companies in areas of strategy, finance and management private equity management. Performance based incentive development in order to enhance the value of the companies. schemes would be implemented to reward and retain talented staff within the organisation. 103 | NDB Capital Holdings LTD | Annual Report 2014
GRI-G4 / G4 - 34 Corporate Governance Directors’ profiles are given on pages 112-113 of this Annual Report.
As a capital market conglomerate, we at NCAP give highest Responsibilities of the Board precedence to ensure compliance to principles of good The Board is responsible in leading the organisation to meet governance. We have adopted and adhered to a strong the corporate goals aligned to the vision and mission of the governance structure to conduct our operations in an ethical, NCAP Group. The Board plays an active role in formulating the legal and financially responsible manner. This is not only corporate strategy and the action plans. significant for our long term sustainability, but also protects our Company, Directors, employees, shareholders and external The Board further closely monitors the output/outcome of stakeholders from a plethora of risk exposures. such strategy and plans periodically and guides the Company to take necessary measures if the corporate goals and targets are Corporate Governance Structure lagging or not met. The NCAP’s governance structure, practices and compliance measures adopted and implemented under the able Board and Board Committee Meetings stewardship of the Chairman and the Board of Directors are The Board meets on a quarterly basis to make effective aligned to the the Corporate Governance Rules as per Section decisions on the Group strategy, corporate goals and to carry 7.10 stipulated under the Listing Rules of the Colombo Stock out performance reviews. Additional meetings are held as Exchange (CSE). Despite delisting we shall continue to align and when required. The Board met 4 times during the year ourselves with Corporate Governance Best Practices as far as under review. Information required and necessary to carry out practicable as an unlisted company. Given below are some of effective proceedings which include reviews, reports and ad-hoc the salient features of our governance structure. information are submitted to the Directors in a timely manner.
Board and Duties The Board Committees under the purview of the Board meet on Board Composition a regular basis to discharge their supervisory duties. The Board of Directors is the apex body responsible and accountable for the stewardship of the Company. As at end Chairman and CEO December 2014, the Board of Directors of NDB Capital Holdings The roles of the Chairman and the Chief Executive Officer are Limited comprised of six Directors, five of whom are Non- clearly set out and well segregated to ensure balance of power Executive Directors including the Chairman. The Chief Executive and authority. This prevents any one individual from holding Officer is an Executive Director. unfettered decision making powers.
Out of the five Non-Executive Directors, two are Independent Appraisal of the CEO Directors in line with the corporate governance principles and A dynamic process is in place to evaluate the performance of the rules of the CSE. Independence of Directors is determined the Chief Executive Officer in line with the corporate targets set as per the Listing Rules of the CSE. out for the Group. The CEO’s performance is evaluated at the end of the financial year by the Board. Versatility and Professionalism of the Board All Directors are well reputed and respected professionals Director Disclosures with impeccable track records. They bring vast expertise and The Board of Directors submit the disclosures relevant and experience to the decision making process. The Directors necessary as per the CSE Listing Rules and other relevant work together as an efficient team and exercise independent regulatory bodies as prescribed. As at end December 2014, all judgment, skill and diligence in discharging their duties. disclosures have been submitted on time. 104 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Board Committees ▪ Set goals and targets for the Chief Executive Officer Audit, Risk and Compliance Committee and key management personnel of the Company and The Board has established the Audit, Risk and Compliance subsidiaries Committee to assist the Board in the oversight function in terms of financial, risk and compliance of the execution of the ▪ Evaluate the performance of the Chief Executive Officer corporate strategy, actions plans and financial reporting and and key management personnel against the set targets to make recommendations for an effective decision making and goals periodically process. During the year under review, the Board reviewed, revised and adopted a new Charter for the Audit, Risk and ▪ Determine the basis for revising remuneration, benefits Compliance Committee which clearly sets out the composition, and other payments of performance-based incentives scope, responsibilities and duties. The primary duties of the including Employee Share Ownership Scheme (if in place). Committee as set out in the Charter are given below. Investment Committee ▪ Oversee and assess reliability and integrity of financial The Investment Committee is responsible to review and statements, accounting policies and financial reporting recommend investment policies to the NCAP Board. The Committee is also responsible to approve investments subject ▪ Ensure Compliance with legal and regulatory to delegations which may be extended by the Board and review requirements the performance of investments made by the Company. The salient duties of the Investment Committee are set out below. ▪ Oversee the external and internal audit functions ▪ Review and recommend investment policies related to ▪ Oversee and assess risk management structure, adequacy, listed equity, private equity, fixed income securities, hybrid assessment and mitigatory measures securities, derivatives, any other suitable asset classes and off-balance sheet exposures for Board approval ▪ Oversee the Group compliance functions ▪ Review investment policies to determine whether The Audit, Risk and Compliance Report for the year ended 2014 there have been any material changes to the goals and is set out on pages 134-136 of this Annual Report. objectives or to the risk/return profile of the Company
Human Resources and Remuneration Committee ▪ Approve investments subject to delegations which may be The Board has in place a Committee on Human Resources and extended by the Board of NCAP from time to time Remuneration to oversee and make due recommendations on remuneration for Directors, senior management, executive ▪ Review the performance of investments made by the staff and other employees. NCAP remuneration is determined Company based on a transparent Remuneration Policy which is aligned to the best practices in the industry. Salient duties of the Human ▪ Review current economic, political and investment Resources and Remuneration Committee are set out below: climate and their implications on the overall investment strategy ▪ Determine the human resources and remuneration policies of Directors, Chief Executive Officer, key Financial Reporting management personnel and other staff members of the The Annual Report presents a comprehensive and an impartial Company and subsidiaries review of the Group’s operational performance, financial position, future outlook and plans together with the Financial 105 | NDB Capital Holdings LTD | Annual Report 2014
Statements and the related notes. The Annual Report contains key reports - Chairman’s Message, CEO’s Review, Management Discussion and Analysis, Directors’ Responsibility Statement and Annual Report of the Board of Directors on the Affairs of the Company. The Company also discloses on the internal controls, risk management processes including risk analysis and the mitigatory measures. Good governance and compliance is a vital part of the annual reporting.
Listing Rules of the CSE Although no longer listed as a result of having being delisted from the official list of the Colombo Stock Exchange (CSE) with effect from 26th January 2015, the Company is committed to complying with the corporate governance rules stipulated under Section 7.10 of the Listing Rules of the CSE. Set out below is the level of compliance by the Company on the Listing Rules on Corporate Governance. 106 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Though NCAP has been de-listed from the CSE with effect from January 26,2015, we have made every effort to adhere to corporate governance rules of the CSE as if it were a listed Company.
Corporate Governance Rules under the Listing Rules of the CSE Compliance Rule Remarks Status 7.10.1 Non-Executive Directors a} The Board of Directors of a listed entity shall Complied Out of the six Directors as at 31.12.2014 five were include at least two non-executive directors; or Non-Executive Directors. Mr. C.V Kulatilaka, the such number of non-executive directors equivalent CEO of the Company is an Executive Director. to one third of the total number of directors, whichever is higher. b) The total number of directors is to be calculated based on the number as at the conclusion of the immediately preceding annual general meeting. (c) Any change occurring to this ratio shall be rectified within 90 days from the date of the change. 7.10.2 Independent Directors (a) Where the constitution of the Board of Directors Complied Out of the Five Non-Executive Directors, two includes only two non-executive directors as Directors of the Company were Independent mentioned above, both such non-executive Directors as at 31.12.2014. Three Directors are directors shall be 'independent'. In all other not independent due to their involvement in the instances two or 1/3 of non-executive directors parent company National Development Bank PLC appointed to the Board of Directors, whichever is (NDB) which owns 99.9% shares of the Company. higher shall be ‘independent'. b) The board shall require each non-executive director Complied All Directors have submitted a signed Declaration to submit a signed and dated declaration annually of their independence. Independence of the of his/her independence or non-independence Directors has been determined in accordance against the specified criteria. with the CSE Listing Rules. 7.10.3 Disclosures Relating to Directors (a) The board shall make a determination annually as Complied Based on the declarations received from the to the independence or non-independence of each Directors, two Directors namely Ms. A Rajakarier non-executive director based on such declaration and Mr. W M De Fonseka Arsakularatne of the and other information available to the board and Company were Independent Directors as at shall set out in the annual report the names of 31.12.2014. Three Directors are not independent directors determined to be 'independent' due to their involvement in the parent company (b] In the event a director does not qualify as Not Applicable National Development Bank PLC (NDB) which 'independent' against any of the criteria set out owns 99.9% shares of the Company, and one in clause 7.10.4 but if the board, taking account Director namely Mr. C V Kulatilaka is an Executive all the circumstances, is of the opinion that the Director. director is nevertheless 'independent', the board shall specify the criteria not met and the basis for its determination in the annual report. 107 | NDB Capital Holdings LTD | Annual Report 2014
Compliance Rule Remarks Status c) In addition to disclosures relating to the Complied Brief resumé of each Director of the Company as independence of a director set out above the board at the date of the annual report, are set out on shall publish in its annual report a brief resume pages 112-113 of the Annual Report. of each director on its board which includes information on the nature of his/her expertise in relevant functional areas. d) Upon appointment of a new director to its board, the company shall forthwith provide to Complied with No longer applicable in view of the Company the Exchange a brief resume of such director for during the year having delisted from the official list of the dissemination to the public. Such resume shall 2014 Colombo Stock Exchange with effect from 26th include information on the matters itemized in January 2015. paragraphs (a), (b) and (c) above 7.10.4 Criteria for Defining Independence a) – (h) Requirements for meeting the criteria to be an Complied Declarations have been received from the Directors Independent Director of their compliance with the independence criteria given in the CSE Listing Rules. 7.10.5 Remuneration Committee A listed company shall have a remuneration committee in Complied The Human Resources and Remuneration conformity with the following: Committee of the Company consists of two Composition: The remuneration committee shall Independent Non-Executive Directors and one comprise of a minimum of two independent non- Non-Executive Director. executive directors (in instances where a company has only two directors on its board); or of non-executive directors a majority of whom shall be independent, whichever shall be higher.
▪ In a situation where both the parent company Not Applicable The Company has its own Remuneration and the subsidiary are 'listed companies', the Committee. remuneration committee of the parent company may be permitted to function as the remuneration committee of the subsidiary. ▪ However, if the parent company is not a listed Not Applicable The parent company is a listed entity, however, company, then the remuneration committee of the Company has formed its own Remuneration the parent company is not permitted to act as the Committee. remuneration committee of the subsidiary. The subsidiary should have a separate remuneration committee. ▪ One non-executive director shall be appointed as Complied Ms. Rajakarier a Non-Executive Independent Director chairman of the committee by the board of directors. of the Company is the Chairperson of the Committee. 108 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Compliance Rule Remarks Status b) Functions; The Remuneration Committee shall Complied The remuneration of the Executive Directors recommend the remuneration payable to the and Chief Executive Officer is determined as executive directors and chief executive officer of per the Group remuneration policies and the the listed entity and/or equivalent position thereof recommendations given by the Human Resources to the Board of the listed entity, which will make and Remuneration Committee of the Company. the final determination upon consideration of such recommendations. c) Disclosure: The annual report should set out Complied The members of the Remuneration Committee of the names of directors (or persons in the parent the Company as at 31st December 2014 are: company's committee in the case of a group company) comprising the remuneration committee, 1) Ms Aruni Rajakarier (Chairperson) contain a statement of the remuneration policy 2) Mr Ashok Pathirage and set out the aggregate remuneration paid to 3) Mr Malinga Arsakularatne executive and non-executive directors.
# The term 'remuneration' shall make reference to cash The aggregate remuneration paid to the and all non-cash benefits whatsoever received in Executive and Non-Executive Directors is provided consideration of employment with the listed company in page 129 (excluding statutory entitlements such as Employees' Provident Fund and Employees' Trust Fund). 7.10.6 Audit Committee A listed company shall have an audit committee in conformity with the following: a) Composition: The audit committee shall comprise Complied The Audit Committee of the Company comprises of a minimum of two independent non-executive of two Independent Non-Executive Directors and directors (in instances where a company has one Non-Executive Director. only two directors on its board) or of non- executive directors, a majority of whom shall be independent, whichever shall be higher.
▪ In a situation where both the parent company and Not Applicable The Company has formed its own Audit the subsidiary are 'listed companies', the audit Committee. committee of the parent company may function as the audit committee of the subsidiary.
▪ However, if the parent company is not a listed Not Applicable The parent company is also a listed entity; company, then the audit committee of the parent however, the Company has formed its own Audit company is not permitted to act as the audit Committee. committee of the subsidiary. The subsidiary should have a separate audit committee. 109 | NDB Capital Holdings LTD | Annual Report 2014
Compliance Rule Remarks Status ▪ One non-executive director shall be appointed Complied Ms. Rajakarier a non-executive director of the as chairman of the committee by the board of Company is the Chairperson of the Committee. directors. Complied The Chief Executive Officer, Group Chief Financial ▪ Unless otherwise determined by the audit Officer and the Group Head of Internal Audit have committee the chief executive officer and the chief attended all the Committee meetings. financial officer of the listed company shall attend audit committee meetings ▪ The chairman or one member of the committee Complied The Chairperson and one other member of the should be a Member of a recognized professional Audit Committee are members of the Institute of accounting body. Chartered Accountants of Sri Lanka. b) Functions shall include ▪ Overseeing of the preparation, presentation and Complied The functions of the Audit Committee are laid adequacy of disclosures in the financial statements down in the Board Audit, Risk and Compliance of a listed entity in accordance with Sri Lanka Committee Charter approved by the Board of Accounting Standards. Directors and include all the functions specified in ▪ Overseeing of the Company's compliance with Complied the CSE Listing Rules. financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements. ▪ Overseeing the processes to ensure that the Complied entity's internal controls and risk management are adequate, to meet the requirements of the Sri Lanka Auditing Standards. ▪ Assessment of the independence and performance Complied of the company's external auditors. ▪ To make recommendations to the board pertaining Complied to appointment, reappointment and removal of external auditors and to approve the remuneration and terms of engagement of the external auditors. 110 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Compliance Rule Remarks Status (c) Disclosure in the Annual Report ▪ The names of the directors (or persons in the Complied The members of the Audit Committee of the parent company's committee in the case of a group Company as at 31st December 2014are: company) comprising the audit committee should Ms. Aruni Rajakarier - Chairperson be disclosed in the annual report Mr. Malinga Arsakularatne Mr. Sarath Wikramanayake
▪ The committee shall make a determination of the Complied independence of the auditors and shall disclose the basis for such determination in the annual report. ▪ The annual report shall contain a report by the Complied The Report of the Audit, Risk and Compliance audit committee, setting out the manner of Committee is set out on pages 134-136 of this compliance by the Company in relation to the Annual Report. above, during theperiod to which the annual report relates. 111 | NDB Capital Holdings LTD | Annual Report 2014
Board of directors
1. 2.
3. 4.
5. 6.
7. 112 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
1. He is also a former member of the Sri Lanka Accounting and Mr. Ashok Pathirage Auditing Standards Monitoring Board, Deputy Vice Chairman of Chairman Ceylon Chamber of Commerce and immediate past Chairman Mr. Pathirage is one of the co-founders of Softlogic and was of the Chartered Institute of Management Accountants (U.K.) appointed as Chairman of Softlogic in 2000. He was appointed Sri Lanka Governing Board. He is also Sri Lanka’s representative as Deputy Chairman of National Development Bank PLC in 2011. in the CIMA UK’s Global Council. He is also an independent He is also the Chairman/Managing Director of Asiri hospital Non-Executive Director of Carson Cumberbatch PLC and several chain, Softlogic Capital PLC, Softlogic Finance PLC, Asian Alliance companies in the NDB Group. Insurance PLC, and Odel PLC which are listed in addition to the private companies of the Group operating in Leisure and 3. Restaurants, Retail, Automobile and ICT industries. Due to his Mr. Vajira Kulatilaka business acumen and corporate leadership he is one of the top Director/CEO business leaders in the country. Mr. Kulatilaka holds a BSc in Civil Engineering with First Class Honours from the University of Moratuwa and a M.Sc in 2. Industrial Engineering and Management, from the Asian Institute Mr. Rajendra Theagarajah of Technology, Thailand. He is a Chartered Financial Analyst Director (CFA) and is a Fellow Member of The Chartered Institute of Mr. Theagarajah joined the Group from one of the largest Management Accountants, UK. Mr. Kulatilaka is the CEO of the private sector banks in Sri Lanka where he was the CEO. Prior Investment Banking cluster of the NDB Group and is a Director of to being appointed as the Chief Executive Officer at the said NDB Investment Bank, NDB Securities (Pvt) Limited, NDB Wealth bank, Mr. Theagarajah had been a member of the Corporate Management Limited, NDB Zephyr Partners Limited, NDB Capital Management Team of that bank for nearly eight years. Limited and Resus Energy PLC. He is at present, the Chairman of the Colombo Stock Exchange (CSE) and the Chairman of the Mr. Theagarajah counts over 30 years of experience in banking, South Asian Federating of Exchanges (SAFE). Mr. Kulatilaka is including overseas experience. He had been with Chase also a Member of the Governing Council of the University of Manhattan Bank (now known as JP Morgan Chase) in London Moratuwa. He counts for over 30 years of experience in Banking and had served in the European, Middle Eastern and African and Finance and Capital Market operations in Sri Lanka. Prior to Area office. joining the NDB Group, he worked at Sampath Bank, USAID and CKN Fund Management (Pvt) Limited. He has been instrumental Mr. Theagarajah is a Fellow Member of the Institute of in introducing a number of innovative financial products to the Chartered Accountants of Sri Lanka (ICASL) and the Chartered country. Institute of Management Accountants (CIMA), United Kingdom. He also holds a MBA from the Cranfield School of Management, 4. United Kingdom. Mr. Sarath Wikramanayake Director His contribution and expertise has also been extended through Mr. Wikramanayake is a Chartered Accountant. He has worked many professional bodies. He was a past Chairman of Sri previously with the Bank of Butterfield, a Bermuda-based Lanka Banks’ Association (Guarantee) Ltd, Chairman of Asian international bank for 19 years, where he reached the position Banks Association and a former Director of the Colombo Stock of Executive Vice-President. Since returning to Sri Lanka, he has Exchange. He was the first Sri Lankan to assume Chairmanship been the Chief Executive Officer of Union Assurance Ltd and of the Asian Banks’ Association from November 1, 2010 for a the President of the Insurance Association of Sri Lanka in 2002. two-year tenure. He is currently engaged in providing consultancy services to the Financial Services and ICT Industries. In addition to his role as 113 | NDB Capital Holdings LTD | Annual Report 2014
a Director of NDB Capital Holdings LTD. Mr. Wikramanayake is of the Board of Management of Hemas Group. He has been also a Director to several other companies including National a part of the Hemas Group since 2004 and had gained over 8 Development Bank PLC, Orient Finance PLC, Bartleets Finance years of experience in the Fund Management Industry prior PLC, NDB Investment Bank Ltd and NDB Wealth Management Ltd to joining Hemas. Mr. Arsakularatne also serves on the Boards of Serendib Hotels PLC, Dolphin Hotels PLC and Hotel Sigiriya 5. PLC. He is a CFA Charter Holder and Past President of CFA Sri Ms. Aruni Rajakarier Lanka. He is also a Fellow Member of the Chartered Institute Director of Management Accountants and Past Board Member of the Ms. Rajakarier has over 25 years working experience as a CIMA Sri Lanka Division. He has a BSc in Computer Science finance professional and is a founder director of SheConsults and Engineering from the University of Moratuwa, an MSc in (Pvt) Ltd, a financial consulting company. During this period the Investment Management from Cass Business School, and an company has built up a portfolio of clients in the financial sector Executive MBA from INSEAD. providing services such as strategic planning, implementation of GRI reporting framework, investment proposals, corporate 7. report writing and sustainability report writing. She also works Mr. Faizan Ozman in the capacity of Consultant to World Bank apart from the Director work done with SheConsults. Aruni serves on the board of Mr. Ozman currently serves as the Group Chief Financial NDB Capital Holdings LTD as an independent non - executive Officer of National Development Bank PLC (NDB). Mr. Ozman director and is the Chairperson of the Audit Committee and the counts over 20 years of management experience and exposure Remuneration Committee and a member of the Investment both locally and internationally across a wide spectrum of Committee. She is an Associate member of the Institute of banking and financial services such as corporate banking, risk Chartered Accountants, Sri Lanka. management, international markets, Operations and Strategic planning. Prior to founding SheConsults, she served as the Country Manager for ACCA Sri Lanka with additional responsibility for Prior to joining NDB in 2011, Mr. Ozman served as the Head of the Maldives for almost 7 years. In this role she was responsible Risk Management and Compliance/Chief Risk Officer of Seylan for formulating local strategy aligned to global strategy, Bank PLC. He has served at Standard Chartered Bank for a marketing the qualifications and building ACCAs reputation and period of 11 years from 1999 to 2010 where he had functioned influence and managing key relationships in the markets under as the Chief Operating Officer and the Chief Financial Officer. her purview. Prior to this she was with NDB Bank as Assistant He played a lead role in the integration of Standard Chartered Vice President Corporate Banking. Her other roles at NDB Bank with Grindlays, Union Bank and American Express Bank in include Senior Manager Merchant Banking and Consultancy Sri Lanka. Mr. Ozman also served at Citibank N.A. from 1990 to and Consultant Internal Audit. Before joining NDB she served 2010 managing corporate and multinational relationships. as Finance Director of Lanka Cellular Services (Pvt) Ltd, then, a subsidiary of Singapore Telecom. She was trained at Ernst & Mr. Ozman is a Fellow member of the Chartered Institute of Young where she served as Senior Manager in both auditing Management Accountants of the United Kingdom and a Certified and consultancy. Public Accountant of Australia and a Certified Management Accountant of Australia. He obtained his first degree in Business 6. and Commerce from the University of Sri Jayewardenepura, Mr. Malinga Arsakularatne Sri Lanka. He has also attended executive leadership training Director programmes at Insead France and Stanford U.S.A. Mr. Arsakularatne is an Executive Director and the Chief Financial Officer of Hemas Holdings PLC. He is also a member 114 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Senior management
2. 3. 4.
NDB Investment Bank Ltd NDB Wealth Management Ltd NDB Securities (Pvt) Ltd Mr. Darshan Perera Mr. Prabodha Samarasekera Ms. Prasansani Mendis Chief Executive Officer Chief Executive Officer Chief Executive Officer
5. 6. 7.
NDB Zephyr Partners Lanka (Pvt) Ltd NDB Capital Holdings Ltd NDB Capital Holdings Ltd Mr. Senaka Kakiriwaragodage CFA Mr. Kusal Jayawardana Ms. Anusha Nishanthi Managing Director Chief Operating Officer Head of Compliance
8. 9. 10.
NDB Capital Holdings Ltd NDB Investment Bank Ltd NDB Investment Bank Ltd Ms. Vidushini Denipitiya Ms. Kaushini Laksumanage Ms. Avanthi Dissanayake Interim Compliance Officer Chief Operating Officer Vice President 115 | NDB Capital Holdings LTD | Annual Report 2014
11. 12. 13.
NDB Investment Bank Ltd NDB Investment Bank Ltd NDB Investment Bank Ltd Mr. Shahane De S. Gunasekera Mr. Udana Siriwardana Mr. Nilendra Weerasinghe Assistant Vice President Assistant Vice President Assistant Vice President
14. 15. 16.
NDB Investment Bank Ltd NDB Wealth Management Ltd NDB Wealth Management Ltd Mr. Viraj Wijesinghe Mr. Ruwan Perera Ms. Bimanee Meepagala Assistant Vice President Chief Operating Officer Assistant Vice President
17. 18. 19.
NDB Wealth Management Ltd NDB Securities (Pvt) Ltd NDB Securities (Pvt) Ltd Ms. Vindhya Jayasekera Mr. Gihan R. Cooray Mr. Jagath Jayantha Samarasinghe Assistant Vice President Vice President –Head of Sales Assistant Vice President - Sales 116 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
20. 21. 22.
NDB Securities (Pvt) Ltd NDB Securities (Pvt) Ltd NDB Securities (Pvt) Ltd Mr. Aroos Faleel Ms. Surangi Widanaarachchi Mr. Nalin Wickramatilleke Assistant Vice President - Sales Assistant Vice President - Finance and Compliance Assistant Vice President- Information Technology
23. 24.
NDB Securities (Pvt) Ltd NDB Zephyr Partners Lanka (PVT) LTD Mr. Sidath Kalyanaratne Mr. Mahesh Amarasiri Assistant Vice President–Head of Research Principal
NDB Capital Holdings Ltd a BSc in Physical Science and an MBA from the University of 1. Colombo. He is an Associate Member of the Institute of Bankers, Sri Mr. Vajira Kulatilaka Lanka and the Chartered Institute of Marketing, UK. He also holds Director/CEO CIMA qualification. Prior to joining NDBIB, he worked at Vanik (Refer page 112 for the profile of Mr. Kulatilaka) Incorporation Ltd as an Assistant Vice President. He also functions as a Trustee to NDB Capital Scholarship Trust. NDB Investment Bank Ltd 2. NDB Wealth Management Ltd Mr. Darshan Perera 3. Chief Executive Officer Mr. Prabodha Samarasekera Mr. Darshan Perera joined the NDB Group in 2001 and has been Chief Executive Officer heading its Investment Banking arm since 2009. He counts for over Mr. Prabodha Samarasekera offers a successful background in 20 years of experience in the financial services sector covering asset management and has over 20 years of experience within areas of investment banking, corporate finance and commercial the financial services industry. He has gained extensive experience banking. He has to his credit, led teams that have successfully and training in banking, finance and capital markets in the U.S.A, managed a large number of IPOs, most of which have achieved Hong Kong, Singapore and Sri Lanka. His responsibilities have record breaking results, and other funds raising deals. He holds included the successful setting up and managing all aspects 117 | NDB Capital Holdings LTD | Annual Report 2014
of a fund management business. He has steered NDB Wealth NDB Capital Holdings Ltd Management from 2008 to make it Sri Lanka’s largest private sector 6. fund management firm. He has a BSc in Management Information Mr. Kusal Jayawardana Systems and an MBA from the University of Southern California, Los- Chief Operating Officer Angeles, U.S.A. Mr. Kusal Jayawardana is a Chartered Financial Analyst and Associate Member of the Chartered Institute of Management Accountants, UK. NDB Securities (Pvt) Ltd He also obtained the Associate Membership of the Association of 4. Chartered Certified Accountants, UK and holds a Master of Business Ms. Prasansani Mendis Administration from the Open University of Colombo in collaboration Chief Executive Officer with Commonwealth of Learning, Canada. Mr. Jayawardana Ms. Prasansani Mendis joined the NDB Group in 1990. She holds counts over 17 years experience in investment banking. He has a a B Com (Special) Degree and is a CIMA finalist. Prior to joining unique combination of expertise in equity capital markets, debt NDB she functioned as an Accountant for around four years in two capital markets, corporate advisory, mergers and acquisitions and leading private companies. She has been a Banker for over 17 years investment management and has involved in introducing a number and has gained wide experience in corporate finance, merchant of innovative capital market products to Sri Lanka and Bangladesh. banking and consultancy, audit and restructuring of companies. Kusal started NDB’s investment banking operation in Bangladesh and She also functioned as the Head of Special Projects and Leasing was the CEO of NDB Capital Limited, Bangladesh prior to the present Departments of NDB. In addition she was involved in setting up of assignment. Previously he had worked at Vanik Incorporation Limited the initial branch of NDB and the Maldivian leasing subsidiary. In and KPMG, Colombo. Kusal is presently a non-executive director of 2008, she joined NDB Securities (Pvt) Ltd as the CEO. Resus Energy PLC and Panasian Power PLC and also a member of the audit committees of the two companies. NDB Zephyr Partners Lanka (Private) Ltd 5. NDB Capital Holdings LTD. Mr. Senaka Kakiriwaragodage 7. Managing Director Ms. Anusha Nishanthi Mr. Senaka Kakiriwaragodage is the Managing Director of NDB Head of Compliance Zephyr Partners Lanka (Private) Limited and previously he was the Ms. Anusha Nishanthi is the Head of Compliance of NCAP where Vice President and Head of Capital markets at NDB Investment she is responsible for overall group compliance. She is an Attorney- Bank (NDBIB) and possesses 10 years of investment banking at- law and has over 8 years of combined experience in commercial experience at NDBIB. Prior to joining NDBIB he worked as a law and compliance in the financial services industry. Before senior software engineer at Virtusa Inc, a U.S.A. head quartered joining NCAP in 2013, she served at the Securities and Exchange IT Services company for 2 years. He was the onsite team leader Commission of Sri Lanka, Heraymila Group, Asia Capital PLC and for assignments for U.S.A. based clients such as Morgan Stanley M/s Paul Rathnayeke Associates. Her internships include the and Bear Stearns. He has extensive experience in valuations, IPOs, Center for International Corporate Governance Research- Australia, equity placements and M&A across a range of industry sectors in Julius & Creasy and Lankem Ceylon PLC. Ms. Nishanthi has a LL.B Sri Lanka. In addition, he has led many advisory transactions such Second Class Honours (Upper) Degree from the University of as structuring ESOPs, operational and financial restructuring of Colombo. She is an awardee of the Australian Leadership Award companies, feasibility studies and diagnostic studies for Sri Lankan under which she completed her LL.M in Commercial law at the companies. University of Melbourne, Australia. Ms. Anusha Nishanthi received the prestigious Fulbright/Humphrey Fellowship funded by the U.S Mr. Kakiriwaragodage is a Fellow Member of Chartered Institute Congress in 2014. She is currently undertaking courses from LL.M of Management Accountants, UK and holds a MBA with in Finance & Banking Program from the School of Law – Boston Distinction from University of Manchester and a BSc First Class University, U.S and focuses on compliance, risk management Honours Degree from University of Moratuwa. He is also a CFA and governance. Ms. Nishanthi recently started a professional Charterholder and a Board Member of CIMA Sri Lanka. affiliation with the U.S Securities and Exchange Commission and will complete her second professional affiliation with the State 118 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
Street Global Advisors, U.S. She is also a Trustee to the NDB Capital structures. She has taken part in many landmark transactions leading Scholarship Trust. the teams including first two rated securitisations, first three credit card securitisations and the largest corporate debenture issue NDB Capital Holdings LTD. upto date. She has substantial experience in managing key client 8. relationships in structuring and executing transactions, and working Ms. Vidushini Denipitiya with Capital Market intermediaries in distributing products. Interim Compliance Officer Ms. Vidushini Denipitiya is an Attorney-at-Law and an Associate NDB Investment Bank Ltd Member of Chartered Institute of Management Accountants, 11. UK. She obtained her MBA from Post Graduate Institute of Mr. Shahane De S. Gunasekera Management, University of Sri Jayawardenepura. Ms. Denipitiya Assistant Vice President has a BSc (Hons) in Business Computing from University of Mr. Shahane Gunasekera has ten years of experience in investment Wolverhampton. Ms. Denipitiya has over four years of experience banking. His experience includes a gamut of investment banking in investment banking including compliance for NCAP Group. activities including mergers and acquisitions, restructuring, initial Prior to joining NDB Investment Bank, she has worked at Amsafe public offerings, debt and equity placements, feasibility studies, Bridport (Private) Limited and Dialog Axiata PLC. diagnostic studies, loan syndications and project Financing. He holds a BSc First Class Honors Degree in Civil Engineering from the Ms. Denipitiya is currently overseeing the Group Compliance University of Moratuwa. function of NCAP Group. NDB Investment Bank Ltd NDB Investment Bank Ltd 12. 9. Mr. Udana Siriwardana Ms. Kaushini Laksumanage Assistant Vice President Chief Operating Officer Mr. Udana Siriwardana possesses over 10 years of banking sector Ms. Kaushini Laksumanage specialises in the marketing and experience including more than 7 years at NDBIB. He specializes placement of capital market instruments. She is also an expert in in structuring and placement of Structured Debt, fixed income the area of structured finance having led teams that have placed securities, managing loan syndications and project Financing. the largest securitisations and debentures in the country as well as He was actively involved and provided leadership in executing being instrumental in introducing new financial products to many landmark transactions at NDBIB including the first USD Sri Lanka, such as interest rate swaps. denominated syndicated loan. He has substantial experience in managing key client relationships. He holds a BBM First Class Kaushini is a dedicated financial professional with a B.Com (Hon), Honors Degree in Finance from the University of Bangalore and an Major Finance and Marketing (Cum Laude), University of Ottawa, MBA in Finance from the University of Colombo. Prior to joining Canada. On her return to Sri Lanka upon completion of her studies, NDBIB he had worked at DFCC Bank PLC and People’s Bank. in the year 2000, she joined the NDB Group. She was appointed as the COO of NDBIB in April 2010. NDB Investment Bank Ltd 13. NDB Investment Bank Ltd Mr. Nilendra Weerasinghe 10. Assistant Vice President Ms. Avanthi Dissanayake Mr. Nilendra Weerasinghe is a CFA Charterholder and a graduate Vice President in Computer Science and Engineering with a First Class Honours Ms. Avanthi Dissanayake counts over 10 years experience in capital Degree from the University of Moratuwa. He also holds an MBA in markets of Sri Lanka. She holds a BSc Special Degree in Business, Strategy and Operations from the National University of Singapore. Finance and Computational Mathematics from the University of His previous work experience includes Goldman Sachs and Virtusa Colombo. She specialises in Structured Debt including all types of Sri Lanka, and he has over five years of experience in investment asset-backed financing, loan syndications, debentures and derivative banking. He is currently involved in the Corporate Advisory Division 119 | NDB Capital Holdings LTD | Annual Report 2014
of NDBIB and has a wide array of experience having handled initial management. She also functions as the Secretary of the Investment public offerings, project financing, loan syndications and mergers Committee of NDB Wealth Management. and acquisitions. NDB Wealth Management Ltd NDB Investment Bank Ltd 17. 14. Ms. Vindhya Jayasekera Mr. Viraj Wijesinghe Assistant Vice President Assistant Vice President Ms. Vindhya Jayasekera graduated in Civil Engineering with First Mr. Viraj Wijesinghe possesses over eight years of experience in Class Honors from the University of Moratuwa. She is a recipient corporate finance, financial risk management, and investment of the Fulbright Scholarship under which she completed her banking. He joined NDBIB as an Assistant Vice President in 2014. MSc in Finance at the University of Illinois, U.S.A. with a medal Prior to joining NDB Group he was with the Universal Enterprises for Academic Excellence in the program. She is a Chartered Pvt. Ltd, in Republic of Maldives, functioning as the Group Treasury Financial Analyst (CFA), an Associate of the Chartered Institute of Manager. Management Accountants (ACMA), Chartered Global Management Accountant (CGMA) and a Certified Financial Risk Manager (FRM) Viraj holds a BBA, specialized in Finance, from the University of the Global Association of Risk Professionals. of Colombo. He is an Associate Member of CIMA (UK), a CFA Charterholder, and a Certified Financial Risk Manager (FRM) from Her previous work experience includes NDBIB and Lehman Global Association of Risk Professionals in U.S.A. Brothers U.S.A. and she has over ten years of combined experience in the investment banking and fund management industries. She NDB Wealth Management Ltd is currently a Fund Manager at NDBWM managing discretionary 15. funds and the unit trust product range offered by the company. Mr. Ruwan Perera Chief Operations Officer NDB Securities (Pvt) Ltd Mr. Ruwan Perera joined NDB Group in 2009 and has over 14 years 18. experience in variety of streams in the financial sector including Mr. Gihan R. Cooray Primary Dealer and Fund Management Industry in Sri Lanka. He was Vice President – Head of Sales appointed as the COO of NDB Wealth Management in April 2014. Mr.Gihan Cooray joined NDBS 12 years ago and currently holds the position of Vice President - Head of Sales. He commenced his He is an Associate Member of the Chartered Institute of career as a Research Analyst with First Capital DSA Securities and Management Accountants, UK and he holds an MBA in Finance counts over 14 years experience in capital market services industry. from the University of Colombo, a BSc Degree in Physical Science He is specialised to provide investment advisory services to foreign from the University of Colombo. At present he also serves as the and local high net worth, corporate and institutional clients. Secretary of the Unit Trust Association of Sri Lanka. NDB Securities (Pvt) Ltd NDB Wealth Management Ltd 19. 16. Mr. Jayantha Samarasinghe Ms. Bimanee Meepagala Assistant Vice President - Sales Assistant Vice President Mr.Jayantha Samarasinghe is a veteran in the stock broking industry Ms. Bimanee Meepagala currently manages one of the largest with over 22 years of experience in the business. He joined NDBS insurance portfolios in Sri Lanka and institutional clients at in 1994 and after holding myriad of positions in the company was NDBWM. She holds a Masters of Arts in Financial Economics elevated to the position of AVP – Sales in 2010. (MAFE) from the University of Colombo, a Bachelor of Arts Degree, (BA) from the University of Colombo and is a Fellow Member of the Chartered Institute of Management Accountants, UK (FCMA). She counts over 9 years of experience in equity research and asset 120 | NDB Capital Holdings LTD | Annual Report 2014 Management discussion and analysis / Sustainability in focus (Contd.)
NDB Securities (Pvt) Ltd NDB Zephyr Partners Lanka (PVT) LTD. 20. 24. Mr. Aroos Faleel Mr. Mahesh Amarasiri Assistant Vice President - Sales Principal Aroos Faleel is currently the Assistant Vice-President – Sales. He Mr. Amarasiri is Principal of NDB Zephyr Partners (Lanka) (Pvt) Ltd is in charge of branch operations and the retail team. He was He counts over 12 years of experience in Apparel Manufacturing, instrumental in successfully setting up the branch network. He joined Investment Banking and Telecommunication Industries in middle and NDBS in 2000 as a Research Assistant and has been in the stock senior managerial positions. Prior to Joining NDB Zephyr Partners broking and investment advisory field for the past 22 years. (Lanka) (Pvt) Limited, he held the position of Head of Strategic Planning at Etisalat Lanka (Private) Limited, a fully owned subsidiary of Etisalat, UAE, where he was responsible for Strategic Planning, NDB Securities (Pvt) Ltd New Business Development, Special Projects and Regulatory 21. Affairs. Previously, he worked at NDB Investment Bank (NDBIB) as Ms. Surangi Widanaarachchi Management Associate where he worked on company valuations Assistant Vice President - Finance and Compliance and mergers and acquisitions. He held the position of Management Surangi Widanaarachchi Joined NDBS in 2003 and is currently Accountant at MAS Holdings, one of the largest apparel exporters in responsible for the Finance and Compliance functions of the Sri Lanka, before joining NDBIB. Mahesh holds a B.Sc Degree (Second company. She holds a BSc Business Administration (Special) Class Upper) specialising in Electrical Engineering from University Degree from the University of Sri Jayawardenepura and is a of Moratuwa, Sri Lanka, and an MBA. He is a Fellow Member of Certified Business Accountant of ICASL. She counts over 13 years of The Chartered Institute of Management Accountants (CIMA), UK, experience in the field of finance and compliance. Member of The Chartered Institute of Marketing (CIM), UK and a Member of Toastmaster International, U.S.A. He is also a Board NDB Securities (Pvt) Ltd Member CIMA Sri Lanka. 22. Mr. Nalin Wickramatilleke Assistant Vice President - Information Technology Nalin Wickramatilleke Joined NDBS in 2009, and currently functions as the Head of IT. He counts over 20 years of experience in the field of information technology related to Stock broking, Leasing, Shipping, Garment manufacturing and several other Industries. He holds the Associate Member state of the Australian Computer Society.
NDB Securities (Pvt) Ltd 23. Mr. Sidath Kalyanaratne Assistant Vice President - Head of Research Sidath serves as the Head of Research. He holds a BSc (Hons) Degree in Engineering from University of Moratuwa, Sri Lanka. He is also an Associate Member of CIMA, UK. He started his career with NDBS in 2008 as a Trainee. After serving close to 4 years at NDBS, Sidath joined Allianz Insurance Lanka Ltd as the lead analyst to manage the Life and General Insurance funds of the Sri Lankan subsidiary of Allianz SE, Germany. He was also responsible for managing the treasury division of the two companies. After leaving Allianz, Sidath gained global frontier and emerging market experience in both Dubai and Abu Dhabi. He is currently reading for CFA and FRM. 121 | NDB Capital Holdings LTD | Annual Report 2014 GRI Checklist - g4
GENERAL STANDARD DISCLOSURES General Description Section in the Report Page Standard Number Disclosures STRATEGY AND ANALYSIS G4-1 Statement from the most senior decision-maker Chairman's Message and CEO's 8 - 11 and Review 12 - 16 ORGANIZATIONAL PROFILE G4-3 Name of the organization. Corporate Information - 189 Inner Back Cover G4-4 Primary brands, products, and services What is Investment Banking 17 - 20 and Close-up G4-5 Location of the organization’s headquarters Corporate Information - I 189 nner Back Cover G4-6 Number of countries where the organization operates What is Investment Banking 17 - 20 and Close-up G4-7 Nature of ownership and legal form Corporate Information - 189 Inner Back Cover G4-8 Markets served What is Investment Banking 17 - 20 and Close-up G4-9 Scale of the organisation What is Investment Banking and 17 - 20 and Close-up and Financial Review 59 - 61 G4-10 Total number of employees by employment contract and Sustainability in Focus - Human 84 - 85 gender Capital G4-11 Percentage of total employees covered by collective bargaining Sustainability in Focus - Human 88 agreements. Capital G4-12 Organization’s supply chain. Sustainability in Focus - Economic 77 Value Creation G4-13 Any significant changes during the reporting period What is Investment Banking 17 - 20 and Close-up and Management and 36 Discussion and Analysis - NCAP Operational Performance G4-14 Precautionary approach or principle addressed Sustainability in Focus - Product 81 Responsibility G4-15 Externally developed economic, environmental and social Economic Value Creation 81 charters, principles, or other G4-16 Memberships of associations Management Discussion and 49 and 54 Analysis 122 | NDB Capital Holdings LTD | Annual Report 2014 GRI Checklist - g4 (Contd.)
GENERAL STANDARD DISCLOSURES General Description Section in the Report Page Standard Number Disclosures IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES G4-17 Entities included in the organization’s consolidated financial Report Profile and Financial 3 and statements and report. Review 59 - 61 G4-18 Process for defining the report content and aspect boundaries.
G4-19 Material Aspects identified in the process for defining report content. Sustainability in Focus - 67 - 74 Materiality Analysis G4-20 For each material Aspect, report the Aspect Boundary within the organization G4-21 For each material Aspect, report the Aspect Boundary outside the organization G4-22 Report the effect of any restatements of information provided Report Profile and Financial 3 and in previous reports, and the reasons for such restatements. Review 59 - 61 G4-23 Significant changes from previous reporting periods in the 3 Report Profile Scope and Aspect Boundaries STAKEHOLDER ENGAGEMENT G4-24 Stakeholder groups engaged by the organization 63 - 66 G4-25 Basis for identification and selection of stakeholders with whom to engage
G4-26 Organisation’s approach to stakeholder engagement G4-27 Key topics and concerns that have been raised through stakeholder engagement, and the organisation's response
Sustainability in Focus - Stakeholder Engagement 123 | NDB Capital Holdings LTD | Annual Report 2014
GENERAL STANDARD DISCLOSURES General Description Section in the Report Page Standard Number Disclosures REPORT PROFILE G4-28 Reporting period G4-29 Date of most recent previous report G4-30 Reporting cycle G4-31 Contact point for questions regarding the report or its contents. Report Profile 3 G4-32 ‘In accordance’ option the organization has chosen, GRI
Content Index , external assurance
G4-33 Organisation’s policy and current practice with regard to seeking external assurance for the report. GOVERNANCE G4-34 a. Report the governance structure of the organization, Sustainability in Focus - 103 - 110 committees and responsibilities Corporate Governance ETHICS AND INTEGRITY G4-56 Organization’s values, principles, standards and norms of Sustainability in Focus - Ethics 90 - 97 behaviour such as codes of conduct and codes of ethics. and Compliance Management SPECIFIC STANDARD DISCLOSURES DMA and Indicators CATEGORY: ECONOMIC MATERIAL ASPECT: ECONOMIC PERFORMANCE G4-DMA Generic Disclosures on Management Approach 75 Sustainability in Focus - Economic G4-EC1 Direct economic value generated and distributed 76 Value Creation G4-EC3 Coverage of the organisation's defined benefit plan obligations 77 MATERIAL ASPECT: INDIRECT ECONOMIC IMPACTS G4-DMA Generic Disclosures on Management Approach 75 G4-EC7 Development and impact of infrastructure investments and 78 services supported Sustainability in Focus - Economic Value Creation 124 | NDB Capital Holdings LTD | Annual Report 2014 GRI Checklist - g4 (Contd.)
GENERAL STANDARD DISCLOSURES General Description Section in the Report Page Standard Number Disclosures CATEGORY: ENVIRONMENTAL MATERIAL ASPECT: COMPLIANCE G4-DMA Generic Disclosures on Management Approach G4-EN29 Monetary value of fines and total number of non-monetary Sustainability in Focus - sanctions for non-compliance with environmental laws and Environmental Initiatives 83 regulations CATEGORY: SOCIAL SUB-CATEGORY: LABOR PRACTICES AND DECENT WORK MATERIAL ASPECT: EMPLOYMENT G4-DMA Generic Disclosures on Management Approach 84 G4-LA1 New employee hires and employee turnover Sustainability in Focus - Human 85 - 86 G4-LA2 Benefits provided to full-time employees not provided to Capital 89 temporary or part-time employees MATERIAL ASPECT: TRAINING AND EDUCATION G4-DMA Generic Disclosures on Management Approach 84, 88 G4-LA9 Average hours of training per year per employee 88 Sustainability in Focus - Human G4-LA10 Programmes for skills management and lifelong learning Capital 88 G4-LA11 Employees receiving regular performance and career 87 development reviews MATERIAL ASPECT: DIVERSITY AND EQUAL OPPORTUNITY G4-DMA Generic Disclosures on Management Approach 84, 85 Sustainability in Focus - Human G4-LA12 Composition of governance bodies and breakdown of Capital 85 employees as per indicators of diversity MATERIAL ASPECT: EQUAL REMUNERATION FOR WOMEN AND MEN G4-DMA Generic Disclosures on Management Approach 84, 87 G4-LA13 Ratio of basic salary and remuneration of women to men 87
Sustainability in Focus - Human Capital 125 | NDB Capital Holdings LTD | Annual Report 2014
GENERAL STANDARD DISCLOSURES General Description Section in the Report Page Standard Number Disclosures SUB-CATEGORY: HUMAN RIGHTS MATERIAL ASPECT: NON-DISCRIMINATION G4-DMA Generic Disclosures on Management Approach Sustainability in Focus - Human 84, 89 G4-HR3 Incidents of discrimination and corrective actions taken Capital 89 MATERIAL ASPECT: CHILD LABOR G4-DMA Generic Disclosures on Management Approach 84, 89 G4-HR5 Operations and suppliers identified as having significant risk Sustainability in Focus - Human 89 for incidents of child labour, and measures taken towards Capital addressing MATERIAL ASPECT: FORCED OR COMPULSORY LABOR G4-DMA Generic Disclosures on Management Approach 84, 89 G4-HR6 Operations and suppliers identified as having significant risk for Sustainability in Focus - Human 89 incidents of forced or compulsory labour, and measures taken Capital to eliminate same SUB-CATEGORY: SOCIETY MATERIAL ASPECT: ANTI - CORRUPTION G4-DMA Generic Disclosures on Management Approach 90 G4-SO3 Operations assessed for risks related to corruption and the 92 significant risks identified Sustainability in Focus - Ethics G4-SO4 Communication and training on anti-corruption policies and and Compliance Management 92 procedures G4-SO5 Confirmed incidents of corruption and actions taken 97 MATERIAL ASPECT: ANTI-COMPETITIVE BEHAVIOR G4-DMA Generic Disclosures on Management Approach 94 Sustainability in Focus - Ethics G4-SO7 Legal actions for anti-competitive behaviour, anti-trust, and 94 and Compliance Management monopoly practices and their outcomes MATERIAL ASPECT: COMPLIANCE G4-DMA Generic Disclosures on Management Approach 97 Sustainability in Focus - Ethics G4-SO8 Fines and total number of non-monetary sanctions for non- 97 and Compliance Management compliance with laws and regulations 126 | NDB Capital Holdings LTD | Annual Report 2014 GRI Checklist - g4 (Contd.)
GENERAL STANDARD DISCLOSURES General Description Section in the Report Page Standard Number Disclosures SUB-CATEGORY: PRODUCT RESPONSIBILITY MATERIAL ASPECT: PRODUCT AND SERVICE LABELING G4-DMA Generic Disclosures on Management Approach 80 G4-PR3 Type of product and service information required by the 80 organisation's procedures for product and service information Sustainability in Focus - Product Responsibility G4-PR4 Incidents of non-compliance with regulations and voluntary 82 codes concerning product and service information MATERIAL ASPECT: CUSTOMER PRIVACY G4-DMA Generic Disclosures on Management Approach 80, 81 Sustainability in Focus - Product G4-PR8 Substantiated complaints regarding breaches of customer Responsibility 81 privacy and losses of customer data MATERIAL ASPECT: COMPLIANCE G4-DMA Generic Disclosures on Management Approach 80, 82 Sustainability in Focus - Product G4-PR9 Fines for non-compliance with laws and regulations concerning 82 Responsibility the provision and use of products and services FINANCIAL SERVICES - SECTOR SPECIFIC ASPECTS PRODUCT PORTFOLIO G4-DMA Generic Disclosures on Management Approach 80, 81 G4-FS1 Policies with specific environmental and social components Sustainability in Focus - Product 81 G4-FS2 Procedures for assessing and screening environmental and Responsibility 81 - 82 social risks AUDIT G4-DMA Generic Disclosures on Management Approach 81 Sustainability in Focus - Product G4-FS9 Audits to assess implementation of environmental and social Responsibility 81 - 82 policies and risks assessment procedures ACTIVE OWNERSHIP G4-DMA Generic Disclosures on Management Approach 81 G4-FS10 Interaction with portfolio companies on environmental and Sustainability in Focus - Product 81 - 82 social issues Responsibility 127 | NDB Capital Holdings LTD | Annual Report 2014 go
Your continued Confidence will be the Leverage upon Which we will create Incredible change. 128 | NDB Capital Holdings LTD | Annual Report 2014 ANNUAL REPORT OF THE DIRECTORS ON THE STATE OF AFFAIRS OF NDB CAPITAL HOLDINGS LIMITED
The Directors of NDB Capital Holdings Limited have pleasure DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING in presenting to the members their Report together with the The Directors are responsible for the preparation of the Audited Financial Statements for the year ended 31st December Financial Statements of the Company to reflect a true and fair 2014. view of the state of its affairs. The Directors are of the view that these Financial Statements have been prepared in conformity REVIEW OF ACTIVITIES with the requirements of the Sri Lanka Financial Reporting The Chairman’s Message, the Chief Executive’s Review and Standards/Sri Lanka Accounting Standards, the Companies Management Discussion and Analysis contains a detailed Act No 7 of 2007, and the Listing Rules of the Colombo Stock description of operations of the Company for the year ended Exchange. 31st December 2014. The Directors consider that, in preparing these Financial PRINCIPAL ACTIVITIES Statements, suitable accounting policies have been used which The principal activities of the Company and its subsidiaries are applied consistently and supported by reasonable and are fee based and fund based investment banking. The fund prudent judgment and that all applicable accounting standards based investment banking activities include private equity have been followed. The Financial Statements are prepared investments, proprietary trading, underwriting and investments on a going concern basis. The Directors are satisfied that all in listed equities, fixed income securities, hybrid securities statutory payments have been made up to date. and unit trusts. Fee based activities include investment banking, stockbroking, wealth management and private equity management, which are carried out through the subsidiaries of the Company.
PROFITS AND APPROPRIATIONS For the year Ended Group Company Rs. (Mns) 2014 2013 2014 2013 Net profit after charging all expenses 964 932 665 681 Add: accumulated profit brought forward 4,179 9,938 4,036 10,042
Appropriations Final Dividend paid (Gross) (Y/E 31-12.2013-Final) (280) - (280) - (Y/E 31-12.2012-Final) - (719) - (719) Share Repurchase - (5,968) - (5,968)
Goodwill Write-off - (4) - - Non Controlling Interest (0) - - - Accumulated profit carried forward 4,864 4,179 4,421 4,036 129 | NDB Capital Holdings LTD | Annual Report 2014
FINAL DIVIDEND The names of the Directors who were appointed in 2014 and The Company paid a final dividend of Rs. 8.50 per share, for the 2015 and those who resigned in 2014 are also stated therein. year 2013. In terms of the provisions of the Articles of Association of the RESERVES Company, one third of the elected Directors shall retire from The total reserves of the Group amounted to Rs. 5,203 Mn as at office and new Directors appointed during the year under 31 December 2014, consisting of the General Reserve review and during the year 2015 will be elected at each Annual (Rs. 290 Mn), Available for Sale Reserve (Rs. 50 Mn) and General meeting of the Company. Accordingly, Mr. Sarath Revenue Reserve (Rs. 4,864 Mn). Wikramanayake and Ms. Aruni Rajakarier will retire and stand for re-election by the shareholders of the Company and Mr. The total reserves of the Company amounted to Rs. 4,765 Mn as Faizan Ozman will stand for re-appointment by the shareholders at 31 December 2014, consisting of the General Reserve of the Company. (Rs. 290 Mn), Available for Sale Reserve (Rs. 53 Mn) and Revenue Reserve (Rs. 4,421 Mn). The Statement of Changes in Equity on None of the Directors as at 31st December 2014 held any shares pages 141 depicts the movements in reserves. in the Company as at 31st December 2014.
DONATIONS No donations to external charitable or political organizations INTEREST REGISTER were made by the Company during the year except for the The Company as per the Companies Act No.7 of 2007, maintains following: the Interest Register. All Directors as at 31st December 2014 have made declarations as provided for in Section 192 (2) of The Company donated Rs. 2.5 Mn to NDB Capital Scholarship the Companies Act aforesaid. The related entries were made Trust for the purpose of extending scholarships to university in the Interest Register during the year under review. The students. share ownership of Directors is indicated elsewhere in this Report (Page 180) Entries were made in the Interest Register POST BALANCE SHEET EVENTS on Director’s interest in contracts, remuneration paid to the On 26 March 2015, the Board of Directors approved a payment Directors etc. The Interest Register is available for inspection as of Rs. 27.50 per share as a final dividend for the year 2014. required under the Companies Act. Accordingly, the total amount to be paid as dividend would amount to Rs. 905 Mn. Other than the aforementioned events, Directors’ interests in contracts or proposed contracts with the there have been no events subsequent to the end of the Company, both direct and indirect are disclosed on page 131 reporting period that require disclosure to the shareholders of of the Annual Report. These interests have been declared at the Company. Director’s Meetings. As a practice, Directors have refrained from voting on matters in which they were materially interested. SHARE CAPITAL/STATED CAPITAL Directors have no direct or indirect interest in any other The Stated Capital of the Company at the beginning and end of contract or proposed contract with the Company, except for the the year under review was Rs. 1,328,880,070. interests disclosed on page 131.
DIRECTORATE DIRECTORS’ REMUNERATION Corporate Information section of this Annual Report carries Directors’ fees and emoluments, in respect of the Company for the names of the Board of Directors of NDB Capital Holdings the financial year ended 31st December 2014 amounted to Limited as at date. In addition, a brief resumé of each of the Rs. 3,900,000. Directors is depicted in pages 112-113. 130 | NDB Capital Holdings LTD | Annual Report 2014 ANNUAL REPORT OF THE DIRECTORS ON THE STATE OF AFFAIRS OF NDB CAPITAL HOLDINGS LIMITED (Contd.)
INSURANCE AND INDEMNITY APPLICATION OF THE CORPORATE GOVERNANCE RULES OF The Company has not up-to date obtained indemnities and THE COLOMBO STOCK EXCHANGE insurance policies to cover Directors’ liability. However, the As per Section 7 of the Listing Rules of the Colombo Stock Exchange Directors and Officers insurance policy of National Development on Corporate Governance, it is mandatory for all listed companies Bank PLC covers Directors of subsidiary companies as well. to publish a Table in the Annual Report confirming that the Further the subsidiaries of NCAP have obtained professional Company complies with the Corporate Governance Rules set out indemnity insurance covering the professional services in the above Section and if not, the reasons for non-compliance. rendered at subsidiary level. Further, it is mandatory for all listed companies to comply with the above Corporate Governance Rules with effect from the financial MAJOR SHAREHOLDINGS year commencing on or after 1st April 2008, and also to include the The 20 largest shareholders of the Company as at 31st relevant affirmative statements in the Annual Report. December 2014 are given on page 179 together with an analysis of the shareholding. As at that date the Company had 198 Although the Company was delisted from the official list of shareholders. the Colombo Stock Exchange the Company has decided to illustrate the Company’s compliance with the above in view BOARD SUBCOMMITTEES of good governance. Accordingly, the status of the Company’s Members of the board sub-committees as at 31st December compliance with the Listing Rules on Corporate Governance as 2014 are as follows; at 31st December 2014 is tabulated on pages 106-110.
Investment Committee AUDITORS Mr. Malinga Arsakularatne -Chairman The Financial Statements of the Company for the year under Ms. Aruni Rajakarier review have been audited by Messrs. Ernst and Young, Mr. Rajendra Theagarajah Chartered Accountants.
Human Resources and Remuneration Committee FEES TO AUDITORS Ms Aruni Rajakarier - Chairperson The fees paid to Auditors during the year were Rs. 1,097,590 for Mr Ashok Pathirage audit work. Mr Malinga Arsakularatne REAPPOINTMENT OF AUDITORS Audit, Risk and compliance Committee The Auditors have indicated there willingness to offer Ms. Aruni Rajakarier - Chairperson themselves for reappointment for the ensuing year. A resolution Mr. Malinga Arsakularatne appointing Messers Ernst & Young as Auditors and authorizing Mr. Sarath Wikramanayake the Directors to fix their remuneration will be proposed at the Annual General Meeting.
For and on behalf of the Board
Ashok Pathirage Vajira Kulatilaka Mayomi Samarawickrama Chairman CEO/Director Secretary to the Board
18th May 2015 131 | NDB Capital Holdings LTD | Annual Report 2014 directors’ interest in contracts with the company
Balance Balance Name Relationship Accommodation Outstanding Outstanding Granted / Deposits as at 31 Dec 2014 as at 31 Dec 2013 Rs.000's Rs.000's (a) Mr. A K Pathirage National Development Bank PLC Director Deposits and Investments 22,821 17,789 Softlogic Holdings PLC Chairman Investments 207,940 207,940 (b) Mr. R Theagarajah National Development Bank PLC Director Deposits and Investments 22,821 17,789 (c) Mr. D S P Wickramanayake National Development Bank PLC Director Deposits and Investments 22,821 17,789 132 | NDB Capital Holdings LTD | Annual Report 2014 Directors’ statement on internal controls over financial reporting
RESPONSIBILITY KEY FEATURES OF THE PROCESS ADOPTED IN APPLYING The Board of Directors (“Board”) is responsible for the AND REVIEWING THE DESIGN AND EFFECTIVENESS OF THE adequacy and effectiveness of the internal control mechanism INTERNAL CONTROL SYSTEM OVER FINANCIAL REPORTING in place at NDB Capital Holdings PLC, (“the Company”) (De- The key processes that have been established in reviewing the listed on 26th January 2015) adequacy and integrity of the system of internal controls with respect to financial reporting include the following: In considering such adequacy and effectiveness, the Board recognises that the business requires reward to be balanced ▪ Board Audit, Risk and Compliance Committee is with risk on a managed basis and as such the internal control established by the Board to assist the Board in ensuring systems are primarily designed with a view to highlighting the effectiveness of Company’s daily operations and that any deviations from the limits and indicators which comprise the Company’s operations are in accordance with the the risk appetite of the company. In this light, the system corporate objectives and strategies as well as the policies of internal controls can only provide reasonable, but not and business directions that have been approved. absolute assurance, against material misstatement of financial information and records or against financial losses or fraud. ▪ The Internal Audit Department of the National Development Bank PLC checks for compliance with The Board has established an on-going process for identifying, policies and procedures and the effectiveness of the evaluating and managing the significant risks faced by the internal control systems on a frequency agreed with the Company and this process includes enhancing the system of Board Audit, Risk and Compliance Committee. Findings of internal controls over financial reporting as and when there are the Internal Audit Department are submitted to the Board changes to business environment or regulatory guidelines. The Audit, Risk and Compliance Committee for review at their Board has assessed the internal control over financial reporting periodic meetings. taking into account principles for the assessment of internal control system as given in that guidance. ▪ The Board Audit, Risk and Compliance Committee of the Company reviews internal control issues identified by The Board is of the view that the system of internal controls the Internal Audit Department, regulatory authorities over financial reporting in place is sound and adequate to and management, and evaluate the adequacy and provide reasonable assurance regarding the reliability of effectiveness of the risk management, compliance and financial reporting, and that the preparation of financial internal control systems. They also review the internal statements for external purposes is in accordance with relevant audit functions with particular emphasis on the scope of accounting principles and regulatory requirements. audits and quality of internal audits. The minutes of the Board Audit, Risk and Compliance Committee meetings The management assists the Board in the implementation are forwarded to the Board of the Company on a periodic of the Board’s policies and procedures on risk and control by basis. Further details of the activities undertaken by the identifying and assessing the risks faced and in the design, Audit, Risk and Compliance Committee of the Company operation and monitoring of suitable internal controls to are set out in the Audit, Risk and Compliance Committee mitigate and control these risks. Report on pages 134-136. 133 | NDB Capital Holdings LTD | Annual Report 2014
▪ The Company adopted the new Sri Lanka Accounting Standards comprising LKAS and SLFRS in 2012. The processes and procedures initially applied to adopt the aforementioned accounting standards were further strengthened during the year 2013 and 2014 based on the feedback received from the external auditors, Internal audit department ,regulators and the Board Audit, Risk and Compliance Committee.
CONFIRMATION Based on the above processes, the Board confirms that the financial reporting system of the Company has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes and has been done in accordance with Sri Lanka Accounting Standards.
By order of the Board
A.K.Pathirage Chairman
Aruni Rajakarier Chairman Audit Committee
Vajira Kulatilake Chief Executive Officer
18th May 2015 134 | NDB Capital Holdings LTD | Annual Report 2014 Report of board, audit, risk and compliance committee
Composition of the Committee The composition requirements, roles and functions of the The Board Audit, Risk and Compliance Committee of NDB Committee are set out in “Rules on Corporate Governance Capital Holdings PLC (de-listed on 26th January 2015) under the Listing Rules of the Colombo Stock Exchange” and the comprised of three Non-Executive Directors as at the end of the “Code of Best Practice on Corporate Governance” issued jointly year 2014. Subsequent to de-listing the name of NDB Capital by the Institute of Chartered Accountants of Sri Lanka and the Holdings PLC (“the Company”) changed to NDB Capital Holdings Securities and Exchange Commission of Sri Lanka. Ltd with effect from 2nd March 2015 Meetings The Chairperson of the Committee, Mrs. Aruni Rajakarier is an The Committee met four times during the year. Minutes of Independent Non-Executive Director and an Associate Member such meetings, which include adequate details of the matters of the Institute of Chartered Accountants of Sri Lanka, while discussed are reported regularly to the Board of Directors. the other members of the Committee are also from a specialist financial/auditing background. On the invitation of the Committee, the company’s External Auditors, Messrs.’, Ernst and Young attended all meetings during The Structure and Composition of the Board Audit, Risk and the year. Compliance Committee for the year 2014 and the attendance of each Director is set out in the table below. In addition, the Chief Executive Officer, the Chief Operating Name of the Director Independent/ No. of Officer and the Head of Compliance of the Company and Non independent Meetings the Chief Executive Officer, Vice President – Group Risk under ICASL/SEC Attended / Management and Vice President – Finance of NDB have Directions Scheduled attended the meetings as permanent invitees. The Chief Executive Officers of the respective subsidiary companies were Mrs. Aruni Rajakarier Independent 4/ 4 also invited to participate in the meetings as and when the Mr. Sarath Non-Independent 3 / 4 necessity arose. Wikramanayake Mr. Malinga Independent 3 / 4 Financial Reporting Arsakularatne The Committee assists the Board to discharge their responsibility in the preparation of Financial Statements The Group Internal Auditor functions as the Secretary to the that evidence a true and fair view on financial position and Committee. performance in accordance with the Company’s accounting records and as per the stipulated requirements of the Sri Lanka Purpose and Terms of Reference Accounting Standards. The Committee reviews: The Charter of the Board Audit, Risk and Compliance Committee clearly defines the Terms of Reference of the Committee. The ▪ The adequacy and effectiveness of the Internal Control Charter was approved by the Board of Directors in October 2013. Systems and Procedures to provide reasonable assurance that all transactions are accurately and completely The Board Audit, Risk and Compliance Committee is responsible recorded in the books of account. to the Board of Directors in its general oversight of financial reporting, internal control, risk management and compliance. ▪ The effectiveness of the Financial Reporting Systems in The Committee reports to the Board of Directors on its activities place to ensure reliability of the information provided to regularly. This Report focuses on the activities of the Committee the stakeholders. for the year under review. 135 | NDB Capital Holdings LTD | Annual Report 2014
▪ The Company’s financial statements and accounting Internal Audit Charter and Manual policies and practices. The internal audit function is governed by the Internal Audit Charter which defines the scope, functions, authority, ▪ The processes by which compliance with Sri Lanka responsibility, reporting, external relationship management Accounting Standards (SLFRS/LKAS) and other regulatory and ethics that assist and direct/guide the Internal Audit provisions relating to financial reporting and disclosures Department to discharge its function independently. are ensured. External Audit ▪ The Annual Report and Accounts, and the Interim The Committee is satisfied that the independence of the Financial Statements together with the press releases External Auditors has not been impaired by any event or service prior to submission to the Board. that gives rise to a conflict of interest. Due consideration has been given to the level of audit and non-audit fees received by Having assessed the prevailing System of Internal Controls and the External Auditors from the NDB Group and confirmation has Procedures, the Committee is of the view that adequate controls been received from the External Auditors of their compliance and procedures are in place to provide reasonable assurance with the independence criteria given in the Code of Ethics of that the Company’s assets are safeguarded and that the financial the Institute of Chartered Accountants of Sri Lanka. position of the company is well monitored and accurately reported. The performance of the External Auditors has been evaluated and discussed and the Committee has recommended to the Risks and Internal Controls Board that Messrs.’ Ernst & Young be re-appointed as the During the year, the Committee reviewed the effectiveness External Auditors of NDB Capital Holdings Ltd for the financial of the Internal Control Systems of the Company and its year ending 31st December 2015, subject to the approval by subsidiaries and bi-annual confirmations provided by the the shareholders at the Annual General Meeting. respective CEOs on the internal control environment of their respective companies. The Committee reviewed the audited Financial Statements with the External Auditor, who is responsible for expressing Internal Audit an opinion on its conformity with the Sri Lanka Accounting During the year, the Committee reviewed the independence, Standards. objectivity and performance of the internal audit function and the adequacy of resources. The audit plan for the Company was Risk Management approved by the Committee and the findings of the internal The Committee reviewed the Risk Management processes audits completed and their evaluation of respective company’s followed by NDB Group Risk Management Department in Internal Control Systems were reviewed by the Committee. respect of NCAP Group and reviewed the Risk Assessment Reports prepared for the Company and its subsidiaries including During the third quarter of the year the Committee reviewed the five (05) key risks to the companies with the mitigants and approved the Group Audit Policy of NDB Capital Holdings identified as at 31st December 2014. PLC and its subsidiaries. Regulatory Compliance The Committee also reviewed updates on audit activities and the The Committee closely scrutinizes compliance with the adequacy of coverage of the approved audit plan, the results of requirements specified by the Securities and Exchange any unsatisfactory audits, the action plan to address these areas Commission of Sri Lanka (SEC) and the Colombo Stock Exchange and the implementation status. Audit findings presented in the (CSE) and the Systems and Procedures in place to ensure reports are prioritized based on the level of risk. compliance with such regulatory requirements. 136 | NDB Capital Holdings LTD | Annual Report 2014 Report of board, audit, risk and compliance committee (Contd.)
The quarterly compliance report submitted by the Head of Compliance is reviewed by the Committee to determine the level of compliance with all legal and statutory requirements.
Evaluation of the Committee As authorized by the Board, the Board Audit, Risk and Compliance Committee carried out a formal self-evaluation/ appraisal on the effectiveness of the Committee. Report with the results of the Self-Assessment was submitted to the other members of the Board for their review and the Board concurred that the Committee had carried out its responsibilities in a satisfactory manner.
Aruni Rajakarier Chairperson
18th May 2015 137 | NDB Capital Holdings LTD | Annual Report 2014 Independent auditors’ report
TO THE SHAREHOLDERS OF NDB CAPITAL HOLDINGs control. An audit also includes evaluating the appropriateness of LIMITED accounting policies used and the reasonableness of accounting estimates made by Board, as well as evaluating the overall Report on the Financial Statements presentation of the financial statements. We have audited the accompanying financial statements of NDB Capital Holding Limited,(Formally known as NDB Capital Holding We believe that the audit evidence we have obtained is sufficient PLC) (“the Company”), and the consolidated financial statements and appropriate to provide a basis for our audit opinion. of the Company and its subsidiaries (“Group”), which comprise the statement of financial position as at 31 December 2014, and the Opinion statement of profit or loss and comprehensive income, statement In our opinion, the consolidated financial statements give a true and of changes in equity and, statement of cash flow for the year then fair view of the financial position of the Group as at 31 December ended, and a summary of significant accounting policies and other 2014, and of its financial performance and cash flows for the year explanatory information. then ended in accordance with Sri Lanka Accounting Standards.
Board’s Responsibility for the Financial Statements The Board of Directors (“Board”) is responsible for the preparation Report on other legal and regulatory requirements of these financial statements that give a true and fair view in As required by Section 163(2) of the Companies Act No. 7 of 2007, accordance with Sri Lanka Accounting Standards, and for such we state the following: internal controls as Board determines is necessary to enable the a) The basis of opinion, Scope and Limitations of the audit are preparation of financial statements that are free from material as stated above. misstatement, whether due to fraud or error. b) In our opinion : ▪ We have obtained all the information and explanations Auditor’s Responsibility that were required for the audit and, as far as appears Our responsibility is to express an opinion on these financial from our examination, proper accounting records have statements based on our audit. We conducted our audit in been kept by the Company, accordance with Sri Lanka Auditing Standards. Those standards ▪ The financial statements of the Company give a true require that we comply with ethical requirements and plan and and fair view of the financial position as at 31 December perform the audit to obtain reasonable assurance about whether the 2014, and of its financial performance and cash flows financial statements are free from material misstatement. for the year then ended in accordance with Sri Lanka Accounting Standards, and An audit involves performing procedures to obtain evidence ▪ The financial statements of the Company and the about the amounts and disclosures in the financial statements. Group, comply with the requirements of Section 151 The procedures selected depend on the auditor’s judgment, and 153 of the Companies Act No. 07 of 2007. including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control (Sgd.) relevant to the entity’s preparation of the financial statements that Ernst & Young give a true and fair view in order to design audit procedures that Chartered Accountants are appropriate in the circumstances, but not for the purpose of 18th May 2015 expressing an opinion on the effectiveness of the entity’s internal Colombo 138 | NDB Capital Holdings PLC | Annual Report 2014 Income statement
Group Company For the year ended 31 December Note 2014 2013 Change 2014 2013 Change Rs.'000 Rs.'000 % Rs.'000 Rs.'000 %
Interest Income 3 230,649 160,444 44 147,219 128,962 14 Dividend Income 4 37,340 41,479 (10) 67,127 61,558 9 Equity Income 5 189,772 33,507 466 189,772 33,507 466 Other Income 6 959,177 1,233,606 (22) 351,008 560,304 (37) Total Operating Income 1,416,937 1,469,036 (4) 755,126 784,331 (4)
Operating Expenses Personnel Expenses 7 (266,005) (261,248) 2 (54,483) (58,239) (6) Administrative and Other Operating Expenses 8 (251,229) (176,274) 43 (59,563) (22,960) 159 Total Operating Expenses (517,234) (437,522) 18 (114,046) (81,199) 40 Share of Associate Company’s Profit 59,166 - 100 - - - Profit Before Tax 958,869 1,031,514 (7) 641,080 703,132 (9) Taxation 9 5,430 (99,460) (105) 23,783 (21,916) (209) Profit for the Year 964,299 932,054 3 664,863 681,216 (2)
Attributable to: Equity Holders of the Parent 964,378 932,054 3 664,863 681,216 (2) Non - Controlling Interest (79) - 100 - - - 964,299 932,054 3 664,863 681,216 (2) Earnings Per Share (Rs.) 10 29.31 26.15 12 20.21 19.11 6 Dividends Per Share (Rs.) 11 - - - 27.50 8.50 224
Statement of Comprehensive Income Profit for the Year 964,299 932,054 3 664,863 681,216 (2)
Other Comprehensive Income / (Expenses) Net Gains on Available-for-Sale Investments 9,500 61,035 (84) 9,500 61,035 (84) Actuarial Gains / (Losses) on Defined Benefit Plans (13,953) 10,212 (237) - - - Total Other Comprehensive Income /(Expenses ) (4,453) 71,247 (106) 9,500 61,035 (84) Less: Tax Expenses relating to Components of Other Comprehensive Income - (17,090) (100) - (17,090) (100) Total Other Comprehensive Income /(Expenses ), net of Taxes (4,453) 54,157 (108) 9,500 43,945 (78) Total Comprehensive Income for the Year 959,846 986,211 (3) 674,363 725,161 (7)
Attributable to: Equity Holders of the Parent 959,925 986,211 (3) 674,363 725,161 (7) Non - Controlling Interest (79) - 100 - - - 959,846 986,211 (3) 674,363 725,161 (7)
The Accounting Policies and Notes on pages 143 through 176 form an integral part of the Financial Statements. 139 | NDB Capital Holdings PLC | Annual Report 2014 Statement of Financial Position
Group Company As at 31 December Note 2014 2013 Change 2014 2013 Change Rs.'000 Rs.'000 % Rs.'000 Rs.'000 %
ASSETS Non-Current Assets Property, Plant and Equipment 12 61,616 35,458 74 11,743 704 1,568 Investment in Subsidiaries 13 - - - 995,080 995,080 - Investment in Associate 14 788,556 - 100 729,390 - 100 Deferred Tax Asset 15 27,880 8,532 227 12,340 - 100 Intangible Assets 16 47,641 35,481 34 283 309 (8) Other Non Current Financial Assets 17 1,490,862 1,073,342 39 1,067,707 780,615 37 Total Non Current Assets 2,416,555 1,152,813 110 2,816,543 1,776,708 59
Current Assets Trade and Other Receivables 19 661,534 804,100 (18) 113,570 13,305 754 Income Tax Receivable 23,727 - 100 14,787 - 100 Other Financial Investments classified as Loans and Receivables 20 386,283 959,120 (60) 381,048 855,517 (55) Financial Investments - Held for Trading 21 3,243,280 3,469,787 (7) 2,827,158 3,079,406 (8) Cash and Bank Balances 22 194,874 156,917 24 22,936 20,309 13 Total Current Assets 4,509,698 5,389,924 (16) 3,359,499 3,968,537 (15) Total Assets 6,926,253 6,542,737 6 6,176,042 5,745,245 7
EQUITY AND LIABILITIES Equity Attributable to Equity Holders of the Parent Stated Capital 23 1,328,880 1,328,880 - 1,328,880 1,328,880 - Reserves 339,429 343,882 (1) 343,170 333,670 3 Retained Earnings 4,863,653 4,178,967 16 4,421,463 4,036,292 10 6,531,962 5,851,729 12 6,093,513 5,698,842 7 Non-Controlling Interest (79) - 100 - - - Total Equity 6,531,883 5,851,729 12 6,093,513 5,698,842 7
Non-Current Liabilities Employee Benefit Liabilities 24 43,091 28,338 52 2,914 1,719 70 Deferred Tax Liability 18,335 20,550 (11) 17,090 17,090 - Total Non-Current Liabilities 61,426 48,888 26 20,004 18,809 6 140 | NDB Capital Holdings PLC | Annual Report 2014 Statement of Financial Position (Contd.)
Group Company As at 31 December Note 2014 2013 Change 2014 2013 Change Rs.’000 Rs.’000 % Rs.’000 Rs.’000 %
Current Liabilities Other Payables 25 315,950 577,540 (45) 62,525 25,169 148 Bank Overdrafts 1,867 16,281 (89) - - - Income Tax Payable 15,127 48,299 (69) - 2,425 (100) Total Current Liabilities 332,944 642,120 (48) 62,525 27,594 127 Total Liabilities 394,370 691,008 (43) 82,529 46,430 78 Total Equity and Liabilities 6,926,253 6,542,737 6 6,176,042 5,745,245 7
These Financial Statements are in compliance with the requirements of the Companies Act No. 7 of 2007.
Dhanan Senathirajah Faizan Ozman Vice President - Finance & Planning Group Chief Financial Officer National Development Bank PLC National Development Bank PLC
The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the Board by,
Ashok Pathirage Vajira Kulatilaka Mayomi Samarawickrama Chairman CEO / Director Company Secretary
The Accounting Policies and Notes on pages 143 through 176 form an integral part of the Financial Statements.
18th May 2015 Colombo 141 | NDB Capital Holdings PLC | Annual Report 2014 Statement of Changes in Equity
Attributable to the Parent Non For the year ended 31 December Stated General Available For Retained Controlling Group Capital Reserves Sale Reserves Earnings Total Interest Total Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Balance as at 1 January 2013 1,328,880 289,725 - 9,938,268 11,556,873 - 11,556,873
Total Comprehensive Income for the Year Profit for the Year - - - 932,054 932,054 - 932,054 Dividends paid - - - (719,222) (719,222) - (719,222) Share Repurchase - - - (5,967,791) (5,967,791) - (5,967,791) Goodwill write-off - - - (4,342) (4,342) - (4,342) Other Comprehensive Income / (Expenses), net of Tax - - 54,157 - 54,157 - 54,157 Balance as at 31 December 2013 1,328,880 289,725 54,157 4,178,967 5,851,729 - 5,851,729
Balance as at 01 January 2014 1,328,880 289,725 54,157 4,178,967 5,851,729 - 5,851,729 Total Comprehensive Income for the Year Profit for the Year - - - 964,378 964,378 (79) 964,299 Dividends paid - - - (279,692) (279,692) - (279,692) Other Comprehensive Income / (Expenses), net of Tax - - (4,453) - (4,453) - (4,453) Balance as at 31 December 2014 1,328,880 289,725 49,704 4,863,653 6,531,962 (79) 6,531,883
Non For the year ended 31 December Stated General Available For Retained Controlling Company Capital Reserves Sale Reserves Earnings Total Interest Total Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Balance as at 1 January 2013 1,328,880 289,725 - 10,042,089 11,660,694 - 11,660,694
Total Comprehensive Income for the Year Profit for the Year - - - 681,216 681,216 - 681,216 Dividends Paid - - - (719,222) (719,222) - (719,222) Share Repurchase - - - (5,967,791) (5,967,791) - (5,967,791) Other Comprehensive Income / (Expenses), net of Tax - - 43,945 - 43,945 - 43,945 Balance as at 31 December 2013 1,328,880 289,725 43,945 4,036,292 5,698,842 - 5,698,842
Balance as at 01 January 2014 1,328,880 289,725 43,945 4,036,292 5,698,842 - 5,698,842 Total Comprehensive Income for the Year Profit for the Year - - - 664,863 664,863 - 664,863 Dividends Paid - - - (279,692) (279,692) - (279,692) Other Comprehensive Income / (Expenses), net of Tax - - 9,500 - 9,500 - 9,500 Balance as at 31 December 2014 1,328,880 289,725 53,445 4,421,463 6,093,513 - 6,093,513 The Accounting Policies and Notes on pages 143 through 176 form an integral part of the Financial Statements. 142 | NDB Capital Holdings PLC | Annual Report 2014 Cash Flows Statement
Group Company Year ended 31 December 2014 2013 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Cash Flows From / (Used in) Operating Activities Profit Before Tax 958,869 1,031,514 641,080 703,132
Adjustments for Share of Profit of the Associate (59,166) - - - Depreciation / Amortisation 37,948 30,869 1,827 176 Income from Investments (353,843) (771,413) (338,612) (621,862) Profit from Sale of Equity Investments (269,295) (33,507) (269,295) (33,507) Provision for Bad / Doubtful Debts 166 (456) - - Provision for Defined Benefit Plans 8,040 (8,572) 1,195 1,719 Operating Profit/(Loss) before Working Capital Changes 322,719 248,435 36,195 49,658 (Increase)/ Decrease in Trade and Other Receivables 142,566 (556,199) (100,265) 47,859 Increase/ (Decrease) in Trade and Other Payables (261,590) 541,495 37,356 18,582 Cash Flows Generated from Operations 203,695 233,731 (26,714) 116,099 Defined Benefit Plan Costs Paid (4,778) (1,008) - - Income Tax Paid (71,710) (55,061) (6,520) (18,215) Net Cash From/(Used in) Operating Activities 127,207 177,662 (33,234) 97,884
Cash Flows from / (Used in) Investing Activities Net Proceeds from Sale/(Purchase) of Investments 267,276 1,021,091 298,805 (143,037) Acquisition of Property, Plant and Equipment (46,347) (6,870) (12,840) (558) Acquisition of Intangible Assets (29,894) (2,767) - (380) Net Investment in Financial Assets (254,168) 5,358,108 (184,758) 6,581,014 Interest Received 230,649 169,546 147,219 125,900 Dividend Received 37,340 35,422 67,127 46,835 Net Cash Flows from/(Used in) Investing Activities 204,856 6,574,530 315,553 6,609,774
Cash Flows from / (Used in) Financing Activities Dividends Paid (279,692) (719,222) (279,692) (719,222) Share Repurchase - (5,967,791) - (5,967,791) Net Cash Flows from/(Used in) Financing Activities (279,692) (6,687,013) (279,692) (6,687,013)
Net Increase/(Decrease) in Cash and Cash Equivalents 52,371 65,179 2,627 20,645
Cash and Cash Equivalents at the beginning of the Year 140,636 75,457 20,309 (336) Cash and Cash Equivalents at the end of the Year * 193,007 140,636 22,936 20,309
*CASH AND CASH EQUIVALENTS Favourable Cash and Cash Equivalents Balance Short Term Deposits 138,126 95,004 - - Cash and Bank Balances 56,748 61,913 22,936 20,309 194,874 156,917 22,936 20,309 Unfavourable Cash and Cash Equivalent Balances Bank Overdraft (1,867) (16,281) - - Total Cash and Cash Equivalents for the Purpose of Cash Flow Statement 193,007 140,636 22,936 20,309
The Accounting Policies and Notes on pages 143 through 176 form an integral part of the Financial Statements. 143 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements
1.0 Corporate Information and notes, (Financial Statements), i.e consolidated Financial NDB Capital Holdings PLC (“NCAP” or “the Company”) is a Statements of NCAP Group as at 31 December 2014 and for company which offers full-service investment banking services the year then ended, have been prepared in accordance with comprising of fee based activities such as debt and equity Sri Lanka Accounting Standards (SLFRS and LKASs) issued raising, corporate advisory, mergers and acquisitions, stock by the Institute of Chartered Accountants of Sri Lanka. The broking, wealth management and fund based activities such preparation and presentation of these Financial Statements are as investment in listed equity securities, private equity, fixed in compliance with the Companies Act No. 07 of 2007. income securities and underwriting. The fee based activities are carried out via subsidiaries of NCAP whereas fund based 2.1.3 Materiality and Aggregation activities are performed directly under the Company. In compliance with Sri Lanka Accounting Standards - LKAS 01 on Presentation of Financial Statements, each material National Development Bank PLC is the ultimate parent of the class of similar items is presented separately in the Financial Group. NCAP is a listed limited liability company incorporated Statements. Items of dissimilar nature or functions are and domiciled in Sri Lanka. Its registered office is at No.40, presented separately, unless they are immaterial. Nawam Mawatha, Colombo 2, Sri Lanka. Financial assets and financial liabilities are offset and the net The Financial Statements of NDB Capital Holdings PLC for the amount reported in the Consolidated Statement of Financial year ended 31 December 2014 was authorized for issue in Position only when there is a legally enforceable right to offset the accordance with a resolution of the Board of Directors on recognized amounts and there is an intention to settle on a net 18th May 2015. basis, or to realize the assets and settle the liability simultaneously.
2. Accounting Policies Income and expenses are not offset in the Consolidated Income 2.1 Basis of Preparation Statement unless required or permitted by any accounting The consolidated financial statements have been prepared on standard or interpretation, and as specifically disclosed in the a historical cost basis, except for the following material items in Accounting Policies of the Company. the statement of Financial Position, Basis of Consolidation ▪ Other financial assets and liabilities held for trading which The consolidated financial statements comprise the financial are measured at fair value statements of the Company and its subsidiaries for the year ▪ Liabilities for defined benefit obligations which are ended 31 December 2014. The financial statements of NDB recognized at the present value of the defined benefit Capital Holdings PLC’s subsidiaries are prepared for the same obligations less the net totals of plan assets reporting year as NDB Capital Holdings PLC, using consistent and unrecognized past service cost. accounting policies.
2.1.1 Functional and Presentation Currency All intra-group balances, income and expenses and unrealised The consolidated financial statements are presented in Sri gains and losses resulting from intra-group transactions are Lankan Rupees and all values are rounded to the nearest eliminated in full in preparing the Consolidated Financial thousand rupees, except when otherwise indicated. Statements.
2.1.2 Statement of Compliance Subsidiaries are fully consolidated from the date on which The Statement of financial Position, Statement of control is transferred to the Company. Non-controlling interests comprehensive income, statement of Changes in equity and represent the portion of profit or loss and net assets of statement of Cash flows together with Accounting policies subsidiaries not owned, directly or indirectly, by Company. 144 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
Non-controlling interests are presented separately in the determination of what is ‘significant’ or ‘prolonged’ requires Consolidated Income Statement and within equity in the judgment. In making this judgment, the Company evaluates, Consolidated Statement of Financial Position, but separate from among other factors, historical share price movements and Parent shareholders’ equity. duration and extent to which the fair value of an investment is less than its cost. 2.2 significant accounting judgments, estimates and assumptions Deferred Tax Assets In the process of applying group’s accounting policies, Deferred tax assets are recognized in respect of tax losses to management is required to make judgments, which may have the extent that it is probable that taxable profit will be available significant effects on the amounts recognized in the Financial against which such items can be deducted in the future. Statements. Further, management is also required to consider Significant management judgment is required to determine key assumptions concerning the future and other key sources the amount of deferred tax assets that can be recognized, of estimation uncertainty at the Statement of the Financial based upon the likely timing and level of future taxable profits position date that have significant risk of causing a material together with future tax planning strategies. adjustment to the carrying amounts of assets and liabilities within the next financial year. Actual results may differ from Defined Benefit Plans these estimates. The cost of the defined benefit plans (gratuity and pension plan) is determined using an actuarial valuation. The actuarial The key significant accounting judgments, estimates and valuation involves making various assumptions which may assumptions involving uncertainty are discussed below, differ from actual developments in the future. These include whereas the respective carrying amounts of such assets and the determination of discount rates, expected rates of return liabilities are as given in related Notes. on assets, future salary increases, mortality rates and future pension increases. Due to the long–term nature of these Going Concern plans, such estimates are subject to significant uncertainty. All The Board of Directors of the Company has made an assumptions are reviewed at each reporting date. assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for In determining the appropriate discount rate, management the foreseeable future. Furthermore, Board of Directors is not considers the interest rates of Sri Lanka Government bonds with aware of any material uncertainties that may cast significant extrapolated maturities corresponding to the expected duration doubt upon the Company’s ability to continue as a going of the defined benefit obligation. concern. Therefore, the Financial Statements continue to be prepared on the going concern basis. The mortality rate is based on publicly available mortality tables. Future salary increases and pension increases are based Impairment of Available for Sale Investments on expected future inflation rates and expected future salary The Group review it’s debt securities classified as available for increase rate of the Company. sale investments at each reporting date to assess whether they are impaired. This requires similar judgment as applied to the Useful Life time of Property, Plant and Equipments individual assessment of loans and advances. The group reviews the residual values, useful lives and methods of depreciation of property, Plant and equipment at each The Company also records impairment charges on available reporting date. Judgement of the management is exercised in for sale equity investments when there has been a significant the estimation of these values, rates, methods and hence they or prolonged decline in the fair value below their cost. The are subject to uncertainty. 145 | NDB Capital Holdings PLC | Annual Report 2014
Commitments and contingencies terms of the contract, or when the right to the payment has All discernible risks are accounted for in determining the been established. amount of all known liabilities. Included in this classification are investments in unit trusts, Contingent liabilities are possible obligations whose existence equities that have been acquired principally for the purpose of will be confirmed only by uncertain future events or present selling or repurchasing in the near term. obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities (e) Available for Sale Financial Investments are not recognised in the Statement of Financial Position but Available for sale investments include equity and debt are disclosed unless they are remote. securities. Equity investments classified as available for sale are those which are neither classified as held for trading nor 2.3 summary of Significant accounting policies designated at fair value through profit or loss. 2.3.1 Financial instruments – initial recognition and subsequent measurement Debt securities in this category are intended to be held for an (a) Date of recognition indefinite period of time and may be sold in response to needs All financial assets and liabilities are initially recognized on the for liquidity or in response to changes in the market conditions. trade date, i.e., the date that the Company becomes a party The Group has not designated any loans or receivables as to the contractual provisions of the instrument. This includes available-for-sale. After initial measurement, available-for-sale purchases or sales of financial assets that require delivery of financial investments are subsequently measured at fair value. assets within the time frame generally established by regulation or convention in the market place. Unrealized gains and losses are recognized directly in equity (Other comprehensive income) in the “Available for sale” (b) Initial measurement of financial instruments reserve. When the investment is disposed of, the cumulative The classification of financial instruments at initial recognition gain or loss previously recognized in equity is recognized in the depends on their purpose and characteristics and the Income Statement in “Other operating income”. Where the management’s intention in acquiring them. All financial Group holds more than one investment in the same security, instruments are measured initially at their fair value plus they are deemed to be disposed of on a first–in first–out transaction costs, except in the case of financial assets and basis. Interest earned whilst holding available for sale financial financial liabilities recorded at fair value through profit or loss. investments is reported as interest income using the Effective Interest Rate (EIR). (c) ‘Day 1’ difference for Staff Loans All staff loans granted at below market interest rates were Dividends earned whilst holding available for sale financial recognized at fair value. The difference between the fair value investments are recognized in the Income Statement as and the amount disbursed were treated as day one difference “Dividend Income” when the right to receive the dividend has and amortized as staff cost over the loan period by using been established. effective interest rate. The staff loans were subsequently measured at amortized costs. (f) Held to Maturity Financial Investments Held to maturity financial investments are non–derivative (d) Financial assets held for trading financial assets with fixed or determinable payments and fixed Financial assets held for trading are recorded in the Statement maturities, which the Group has the intention and ability to hold of Financial Position at fair value. Changes in fair value are to maturity. After initial measurement, held-to-maturity financial recognized in Income Statement. Interest and dividend income investments are subsequently measured at amortized cost using or expense is recorded in Income Statement according to the the EIR, less impairment. Amortized cost is calculated by taking 146 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
into account any discount or premium on acquisition and fees 2.3.3 Determination of fair value of Financial Instruments that are an integral part of the EIR. The amortization is included The fair value for financial instruments traded in active markets in ‘Interest and similar income’ in the Income Statement. at the reporting date is based on their quoted market price without any deduction for transaction costs. If the Group were to sell or reclassify more than an insignificant amount of held to maturity investments before maturity (other For all other financial instruments not traded in an active than in certain specific circumstances), the entire category market, the fair value is determined by using appropriate would be tainted and would have to be reclassified as available valuation techniques. Valuation techniques include the for sale. Furthermore, the Company would be prohibited from discounted cash flow method, comparison with similar classifying any financial asset as held-to-maturity during the instruments for which market observable prices exist. following two years. 2.3.4 Impairment of Non Financial Assets Other than Goodwill 2.3.2 De recognition of financial assets and financial liabilities Group assesses at each reporting date whether there is (a) Financial assets an indication that an asset may be impaired. If any such A financial asset (or, where applicable a part of a financial asset indication exists, or when annual impairment testing for an or part of a group of similar financial assets) is derecognized asset is required, the Group makes an estimate of the asset's when: recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs ▪ The rights to receive cash flows from the asset have to sell and its value in use and is determined for an individual expired asset, unless the asset does not generate cash inflows that ▪ The Company has transferred its rights to receive cash are largely independent of those from other assets or groups flows from the asset or has assumed an obligation to pay of assets. Where the carrying amount of an asset exceeds its the received cash flows in full without material delay to a recoverable amount, the asset is considered impaired and is third party under a ‘pass–through’ arrangement; and written down to its recoverable amount. either: ▪ The Company has transferred substantially all the risks 2.3.5 Offsetting financial instruments and rewards of the asset or Financial assets and financial liabilities are offset and the net ▪ The Company has neither transferred nor retained amount reported in the Statement of Financial Position if, and substantially all the risks and rewards of the asset, but has only if, there is a currently enforceable legal right to offset transferred control of the asset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability (b) Financial liabilities simultaneously. This is not generally the case with master A financial liability is de recognized when the obligation under netting agreements, therefore, the related assets and liabilities the liability is discharged or cancelled or expires. Where an are presented gross in the Statement of Financial Position. existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an 2.3.6 Business combinations and goodwill existing liability are substantially modified, such an exchange Business combinations are accounted for using the purchase or modification is treated as a de recognition of the original method of accounting. This involves recognising identifiable liability and the recognition of a new liability. The difference assets (including previously unrecognised intangible assets) and between the carrying value of the original financial liability and liabilities (including contingent liabilities and excluding future the consideration paid is recognized in profit or loss. restructuring) of the acquired business at fair value. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If the cost of acquisition 147 | NDB Capital Holdings PLC | Annual Report 2014
is less than the fair values of the identifiable net assets acquired, that future economic benefits associated with the asset will flow the discount on acquisition (negative goodwill) is recognised to the Group and the cost of the asset can be reliably measured directly in the income statement in the year of acquisition. (b) Basis of measurement Goodwill acquired in a business combination is initially An item of Property, Plant and Equipment that qualifies measured at cost, being the excess of the cost of the business for recognition as an asset is initially measured at its cost. combination over the Company's interest in the net fair value Cost includes expenditure that is directly attributable to the of the identifiable assets, liabilities and contingent liabilities acquisition of the assets and subsequent cost as explained acquired. Following initial recognition, goodwill is measured below. The cost of self constructed assets includes the cost at cost less any accumulated impairment losses. Goodwill is of the materials and direct labour, any other cost directly reviewed for impairment, annually or more frequently if events attributable to bringing the assets to a working condition for or changes in circumstances indicate that the carrying value its intended use and cost of dismantling and removing the old may be impaired items and restoring site on which they are located. Purchased software which is integral to the functionality of the related For the purpose of impairment testing, goodwill acquired in a equipment is capitalised as part of computer equipment. business combination is, from the acquisition date, allocated to each of the Company's cash-generating units, or groups of (c) Subsequent cost cash-generating units, that are expected to benefit from the There are costs that are recognised in the carrying amount synergies of the combination, irrespective of whether other of an item if it is probable that the future economic benefits assets or liabilities of the acquiree are assigned to those units or embodied within that part will flow to the Group and it can be groups of units. reliably measured.
Where goodwill forms part of a cash-generating unit (or group (d) Depreciation of cash-generating units) and part of the operation within that Depreciation is calculated on a straight-line basis over the useful unit is disposed of, the goodwill associated with the operation life of the assets, commencing from when the assets are available disposed of is included in the carrying amount of the operation for use. The estimated useful lives of the assets are as follows. when determining the gain or loss on disposal of the operation. Goodwill disposed off in this circumstance is measured based Motor vehicles 4 Yrs on the relative values of the operation disposed off and the Furniture and Office Equipment 5 Yrs portion of the cash-generating unit retained. Depreciation is provided proportionately for the completed Carrying amount of the goodwill arising on acquisition of number of months the asset is in use, if it is purchased or sold subsidiaries is presented as an intangible asset and the goodwill on during the financial year. an acquisition of an equity accounted investment in investment in associates is included in the carrying value of the investment. (e) De-recognition An item of Property, Plant and Equipment is derecognised upon When subsidiaries are sold, the difference between the selling disposal or when no future economic benefits are expected. price and the net assets plus cumulative translation differences Any gain or loss arising on derecognition of the asset (calculated and unamortised goodwill is recognised in the Income Statement. as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Income 2.3.7 Property, Plant and Equipment Statement in the year the asset is derecognised. (a) Basis of recognition Property, plant and equipment are recognised if it is probable 148 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
2.3.8 Intangible assets ▪ Where the deferred tax liability arises from the initial The Company’s intangible assets include the value of recognition of goodwill or of an asset or liability in a computer software and work in progress. An intangible asset is transaction that is not a business combination and, at the recognized only when its cost can be measured reliably and it is time of the transaction, affects neither the accounting probable that the expected future economic benefits that are profit nor taxable profit or loss; and attributable to it will flow to the Company. ▪ In respect of taxable temporary differences associated with investments in subsidiaries and associates, where Intangible assets acquired separately are measured on initial the timing of the reversal of the temporary differences recognition at cost. The cost of intangible assets acquired in can be controlled and it is probable that the a business combination is their fair value as at the date of temporary differences will not reverse in the foreseeable acquisition. Following initial recognition, intangible assets are future. carried at cost less any accumulated amortization and any accumulated impairment losses. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax Intangible assets are amortised using the straight line method losses, to the extent that it is probable that taxable profit will be to write down the cost over its estimated useful economic lives available against which the deductible temporary differences, as given below. and the carry forward of unused tax credits and unused tax losses can be utilized except - Computer software 5 Yrs ▪ Where the deferred tax asset relating to the deductible Intangible assets are derecognized on disposal or when no temporary difference arises from the initial recognition future economic benefits are expected. Any gain or loss arising of an asset or liability in a transaction that is not a on de recognition of an intangible asset is measured as the business combination and, at the time of the transaction, difference between the net disposal proceeds and the carrying affects neither the accounting profit nor taxable profit or amount of the asset) is included in the Income Statement in the loss; and year the asset is derecognized. ▪ In respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred 2.3.9 Taxes tax assets are recognized only to the extent that it is (a) Current Tax probable that the temporary differences will reverse in Current tax assets and liabilities for the current and prior year the foreseeable future and taxable profit will be available are measured at the amount expected to be recovered from against which the temporary differences can be utilized. or paid to the taxation authorities. The tax rates and laws used to compute the amount are those that are enacted or The carrying amount of deferred tax assets is reviewed at each substantively enacted by the reporting date. Statement of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profit will (b) Deferred tax be available to allow all or part of the deferred tax asset to be Deferred tax is provided on temporary differences at the date utilized. Unrecognized deferred tax assets are reassessed at of the Statement of Financial Position between the tax bases each Statement of Financial Position date and are recognized of assets and liabilities and their carrying amounts for financial to the extent that it has become probable that future taxable reporting purposes. Deferred tax liabilities are recognized for all profit will allow the deferred tax asset to be recovered. taxable temporary differences except 149 | NDB Capital Holdings PLC | Annual Report 2014
Deferred income tax assets and liabilities are measured at the (a) Interest and similar income and expense tax rates that are expected to apply to the year when the asset For all financial instruments measured at amortised cost, is realized or the liability is settled, based on tax rates (and tax interest bearing financial assets classified as available for- sale laws) that have been enacted or substantively enacted at the and financial instruments designated at fair value through date of the Statement of Financial Position. profit or loss, interest income or expense is recorded using the EIR. EIR is the rate that exactly discounts estimated future 2.3.10 Employee benefits cash payments or receipts through the expected life of the Gratuity financial instrument or a shorter period, where appropriate, The costs of retirement gratuities are determined by a qualified to the net carrying amount of the financial asset or financial actuary using projected unit credit method. This item is stated liability. The calculation takes into account all contractual terms under other liabilities in the Statement of Financial Position. of the financial instrument (for example, prepayment options) Actuarial gains and losses are recognized as income or expense and includes any fees or incremental costs that are directly in other comprehensive income during the financial year in attributable to the instrument and are an integral part of the which they arise. EIR, but not future credit losses.
Employees’ Provident fund and Employees’ trust fund The carrying amount of the financial asset or financial liability Employees are eligible for Employees' Provident Fund is adjusted if the Company revises its estimates of payments or contributions and Employees' Trust Fund contributions in receipts. The adjusted carrying amount is calculated based on accordance with the respective statutes and regulations. . the original EIR and the change in carrying amount is recorded Company and Group Companies contribute 12% and 3% to as ’Interest and similar income’ for financial assets and ‘Interest Central Bank of Sri Lanka for eligible employees for Employees' and similar expense’ for financial liabilities. However, for a Provident Fund contributions and Employees' Trust Fund reclassified financial asset for which the Company subsequently contributions respectively. increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of 2.3.11 Provisions that increase is recognised as an adjustment to the EIR from the Provisions are recognised when the Group has a present date of the change in estimate. obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic Once the recorded value of a financial asset or a group of benefits will be required to settle the obligation and a reliable similar financial assets has been reduced due to an impairment estimate can be made of the amount of the obligation. loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the 2.3.12 Dividends on Ordinary Shares purpose of measuring the impairment loss. Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the (b) Dividend income Company’s shareholders. Interim dividends are deducted from Dividend income from shares is recognized when the equity when they are declared and no longer at the discretion Company's right to receive the payment is established. of the Company. (c) Income from fee - based activities 2.3.13 Recognition of income and expenses Fees for underwriting, advisory work, loan syndication, Revenue is recognised to the extent that it is probable that the management of funds and all other fees and commissions are economic benefits will flow to the Company and the revenue recognised on a cash basis. can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. 150 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
(d) Expenditure Recognition 2.3.16 New Accounting Standards that became effective during Operating expenses are recognized in the Income Statement on the Year the basis of a direct association between the cost incurred and LKAS 1 -Presentation of Items of Other Comprehensive Income the earning of specific items of income. All expenditure incurred – Amendments to LKAS in the running of the business and in maintaining the Property, The amendments to LKAS 1 introduce a grouping of items Plant and Equipment in a state of efficiency has been charged to presented in Other Comprehensive Income. Items that will be income in arriving at the profit for the year. reclassified (‘recycled’) to profit or loss at a future point in time (e.g., net loss or gain on Available For Sale financial assets) have 2.3.14 Cash and Cash Equivalents to be presented separately from items that will not be reclassified Cash and Cash equivalents comprise of cash balances, short- (e.g., revaluation of freehold land and buildings). The said term funds. The cash flow has been prepared by using “The amendments affect presentation only and have no impact on the In Direct Method”, whereby gross cash receipts and gross Company’s or Group’s Financial Position or Performance. cash payments of operating activities, investing and financing activities have been recognized. SLFRS 7 Financial Instruments: Disclosures -Offsetting Financial Assets and Financial Liabilities 2.3.15 Segment Reporting Amendments to SLFRS 7 require an entity to disclose An operating segment is a component of the Group that engages information about rights to set-off financial instruments in business activities from which it may earn revenues and and related arrangements (e.g., collateral agreements). The incur expenses, including revenues and expenses that relate to disclosures would provide users with information that is useful transactions with any of the Group’s other components, whose in evaluating the effect of netting arrangements on an entity’s operating results are reviewed regularly by the chief operating Financial Position. The new disclosures are required for all decision maker to make decisions about resources allocated to recognised financial instruments that are set off in accordance each segment and assess its performance, and for which discrete with LKAS 32. The disclosures also apply to recognised financial financial information is available. instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether the For management purposes, the Company has identified three financial instruments are set off in accordance with LKAS 32. operating segments based on products and services, as follows: The necessary disclosures required by the new amendment have been included in the Notes to the Financial Statements. ▪ Investments ▪ Capital Market SLFRS 10 Consolidated Financial Statements and LKAS 27 ▪ Fund Management Separate Financial Statements SLFRS 10 establishes a single control model that applies to all Management monitors the operating results of its business entities including special purpose entities. SLFRS 10 replaces the units separately for the purpose of making decisions about parts of previously existing LKAS 27 Consolidated and Separate resource allocation and performance assessment. Segment Financial Statements that dealt with Consolidated Financial performance is evaluated based on operating profits or Statements and SIC-12 Consolidation – Special Purpose Entities. losses which, in certain respects, are measured differently SLFRS 10 changes the definition of control such that an investor from operating profits or losses in the Consolidated Financial controls an investee when it is exposed, or has rights, to Statements. Income taxes are managed on a group basis and variable returns from its involvement with the investee and has are not allocated to operating segments. the ability to affect those returns through its power over the investee. To meet the definition of control in SLFRS 10, all three criteria must be met, including: 151 | NDB Capital Holdings PLC | Annual Report 2014
(a) an investor has power over an investee; Group Financial Statements are disclosed below. The Company (b) the investor has exposure, or rights, to variable returns and the Group intends to adopt these standards, if applicable, from its involvement with the investee; and when they become effective. (c) the investor has the ability to use its power over the investee to affect the amount of the investor’s returns. (i) SLFRS 9 -Financial Instruments: Classification and Measurement SLFRS 10 had no impact on the consolidation of investments held by the Company and Group. SLFRS 9, reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial SLFRS 11 Joint Arrangements and LKAS 28 Investment in assets and liabilities. Associates and Joint Ventures SLFRS 11 replaces LKAS 31 Interests in Joint Ventures and SIC-13 This standard was originally effective for annual periods Jointly-controlled Entities — Non-monetary contributions by commencing on or after 01 January 2015. However the effective Ventures. SLFRS 11 removes the option to account for jointly date has been deferred subsequently. controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture under (ii) SLFRS 14 -Regulatory Deferral Accounts SLFRS 11 must be accounted for, by using the equity method. The scope of this standard is limited to first-time adopters SLFRS 12 Disclosure of Interests in Other Entities of SLFRS that already recognise regulatory deferral account SLFRS 12 sets out the requirements for disclosures relating to an balances in their Financial Statements. Consequently, the entity’s interests in subsidiaries, joint arrangements, associates Financial Statements of rate regulated entities that already and structured entities. Necessary disclosures required by the apply SLFRS, or that do not otherwise recognise such balances, new Standard have been included in the Notes to the Financial will not be affected by this standard. This standard is effective Statements for the annual periods beginning on or after 01 January 2016.
SLFRS 13 Fair Value Measurement (iii) SLFRS 15 -Revenue from Contracts with SLFRS 13 establishes a single source of guidance under SLFRS Customers for all fair value measurements. SLFRS 13 does not change when an entity is required to use fair value, but rather provides SLFRS 15 establishes a comprehensive framework for guidance on how to measure fair value under SLFRS when fair determining whether, how much and when revenue is value is required or permitted. The application of SLFRS 13 has recognised. It replaces existing revenue recognition guidance, not materially impacted the fair value measurements carried including LKAS 18 Revenue, LKAS 11 Construction Contracts and out by the Company and Group. International Financial Reporting Interpretations Committee (IFRIC) 13 Customer Loyalty Programmes. This standard is SLFRS 13 also requires specific disclosures on fair values, effective for the annual periods beginning on or after 01 some of which replace existing disclosure requirements in January 2017. other standards, including SLFRS 7 – ‘Financial Instruments: Disclosures’. Necessary disclosures required by the new Standard None of these new standards and interpretations is expected have been included in the Notes to the Financial Statements. to have an effect on the Consolidated Financial Statements of the Company and the Group Financial Statements, except for 2.3.17 Standards Issued But Not yet Effective SLFRS 9 and 15. Pending the detailed review of such standards The standards and interpretations that are issued but not yet and interpretations, the extent of the impact has not been effective up to the date of issuance of the Company and the determined by the management. 152 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
Group Company Year ended 31 December 2014 2013 2014 2013 Rs. '000 Rs. '000 Rs. '000 Rs. '000
3. INTEREST INCOME Interest Income from Debentures 201,273 104,473 144,765 85,940 Interest from Money Market Operations 1,385 3,063 1,252 3,063 Interest on Bank Deposits 4,219 11,262 - 148 Interest on Securitizations 1,458 39,811 1,202 39,811 Other Interest Income 22,314 1,835 - - 230,649 160,444 147,219 128,962
4. DIVIDEND INCOME Dividend Income from Securities - Quoted Investments 28,979 17,873 28,979 17,873 - Non-Quoted Investments 8,361 23,606 8,361 23,606 Dividend Income from Subsidiaries/Associates - Non-Quoted Investments - - 29,787 20,079 37,340 41,479 67,127 61,558
5. EQUITY INCOME Realized Equity Capital Gains 83,817 26,851 83,817 26,851 Un Realized Equity Capital Gains 105,955 6,656 105,955 6,656 189,772 33,507 189,772 33,507
6. OTHER INCOME Income from Unit Trusts 316,503 602,303 271,485 560,304 Other Fee based Income 555,229 631,303 - - Gain / (Loss) from Disposal of Debentures 79,523 - 79,523 - Other Income 7,922 - - - 959,177 1,233,606 351,008 560,304
7. PERSONNEL EXPENSES Remuneration 179,206 192,796 24,218 24,123 Contribution to Defined Contribution Plans - EPF / ETF 26,881 29,663 3,630 2,889 Contribution to Defined Benefit Plans - Gratuity 10,314 6,114 1,194 1,719 Others 49,604 32,676 25,441 29,508 266,005 261,248 54,483 58,239 153 | NDB Capital Holdings PLC | Annual Report 2014
Group Company Year ended 31 December 2014 2013 2014 2013 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000
8. ADMINISTRATIVE EXPENSES and OTHER OPERATING EXPENSES Directors Emoluments 4,260 3,353 3,900 2,993 Auditors Remuneration 2,438 1,954 1,098 613 Portfolio Management Fees 12,126 - 12,537 542 Professional Fees 19,672 21,489 7,071 1,244 Depreciation of Property, Plant and Equipment 37,947 30,869 1,825 176 Office Administration and Establishment Expenses 174,786 118,609 33,132 17,392 251,229 176,274 59,563 22,960
9. TAXATION The components of income tax expense for the years ended 31 December 2014 and 2013 are:
Current tax expenses Income Tax Expenses - 20,791 - 20,791 Income Tax of Subsidiary Companies 25,341 74,739 - - 25,341 95,530 - 20,791 Adjustment in respect of Current Income Tax of Prior Years (19,714) 1,658 (11,443) 1,125 5,627 97,188 (11,443) 21,916
Deferred tax expenses Deferred taxation (Reversal) / charge (11,057) 2,272 (12,340) - Total Tax charged to the Income Statement (5,430) 99,460 (23,783) 21,916
Effective Tax Rate 10% 3%
a. Reconciliation of the total Tax Expenses Profit before Tax 958,869 1,031,514 641,080 703,132
Exempt Profit (861,944) (672,164) (746,532) (711,636) Non Deductible Expenses 150,109 37,789 61,694 83,011 Deductible Expenses (157,091) (55,961) (314) (254) Taxable Income / (Losses) 89,944 341,178 (44,071) 74,253
Income Tax on Taxable Income 25,341 95,530 - 20,791 Charge/(Reversal) of Deffered Tax (Note 15.3) (11,057) 2,272 (12,340) - Adjustment in Respect of Current Income Tax of Prior Years (19,714) 1,658 (11,443) 1,125 (5,430) 99,460 (23,783) 21,916 154 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
10. EARNINGS PER SHARE The basic earnings per share for 2014 and 2013 have been calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year as required by the Sri Lanka Accounting Standard No.33 on Earnings Per Share
Group Company Year ended 31 December 2014 2013 2014 2013 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000
Amount used as the Numerator Profit attributed to Ordinary Shareholders (Rs.'000) 964,299 932,054 664,863 681,216 Amount used as the Denominator Weighted Average Number of Ordinary Shares for EPS calculation 32,904 35,643 32,904 35,643 Weighted Average Basic Earnings Per share (Rs.) 29.31 26.15 20.21 19.11
11. DIVIDENDS PER SHARE The Company has declared Rs. 27.50 per share as a Final Dividend for the year 2014. (2013 - Rs. 8.50 per share).
12 PROPERTY, PLANT and EQUIPMENT 12.1 group 12.1.1 Gross Carrying Amounts Year ended 31 December Balance Additions Disposals Balance as at during the during the as at 01.01.2014 year year 31.12.2014 Rs.'000 Rs.'000 Rs.'000 Rs.'000
At Cost Computer Equipment 26,919 2,616 (3,146) 26,389 Office Equipment and Furniture 46,442 3,684 (1,560) 48,566 Motor Vehicles 58,818 40,047 (7,250) 91,615 Total Value of Depreciable Assets 132,179 46,347 (11,956) 166,570 155 | NDB Capital Holdings PLC | Annual Report 2014
12.1.2 Depreciation Year ended 31 December Balance Additions Disposals Balance as at during the during the as at 01.01.2014 year year 31.12.2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000
At Cost Computer Equipment 24,325 4,265 (3,184) 25,406 Office Equipment and Furniture 42,674 2,386 (1,547) 43,513 Motor Vehicles 29,722 13,563 (7,250) 36,035 Total Depreciation 96,721 20,214 (11,981) 104,954
12.1.3 Net Book Value Computer Equipment 983 Office Equipment and Furniture 5,053 Motor Vehicles 55,580 Net book value as at 31 December 2014 61,616 Net book value as at 31 December 2013 35,458
12.1.4 During the financial year, the Group has acquired Property, Plant and Equipment amounting to Rs. 46,346,148 (2013 - Rs.6,870,000).
12.1.5 The cost of fully depreciated Property, Plant & Equipment as of 31 December 2014 amounting to Rs. 56,795,374.
12.2 Company 12.2.1 Gross Carrying Amounts Balance Balance as at as at 01.01.2014 Additions Disposals 31.12.2014 Rs.'000 Rs.'000 Rs.'000 Rs.'000
At Cost Computer Equipment 568 120 - 688 Office Equipment and Furniture 414 229 - 643 Motor Vehicles - 12,491 - 12,491 Total Value of Depreciable Assets 982 12,840 - 13,822 156 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
12.2.2 Depreciation Balance Charge Balance as at for the as at 01.01.2014 Year Disposals 31.12.2014 Rs.'000 Rs.'000 Rs.'000 Rs.'000
At Cost Computer Equipment 85 133 - 218 Office Equipment and Furniture 193 68 - 261 Motor Vehicles - 1,600 - 1,600 Total Depreciation 278 1,801 - 2,079
12.2.3 Net Book Value Computer Equipment 470 Office Equipment and Furniture 382 Motor Vehicles 10,891 Net book value as at 31 December 2014 11,743 Net book value as at 31 December 2013 704
12.2.4 During the financial year, the Company has acquired Property, Plant and Equipment amounting to Rs. 12,839,904 (2013 - Rs. 558,000)
12.2.5 The cost of fully depreciated Property, Plant & Equipment as of 31 December 2014 amounting to Rs. 143,010
12.3 Group/Company The useful lives of the assets are estimated as follows; 2014 2013
Computer Equipment 5 Years 5 Years Office Equipment and Furniture 5 Years 5 Years Motor Vehicles 4 Years 4 Years
13 INVESTMENT IN SUBSIDIARIES 2014 2013 Year ended 31 December Percentage Percentage Holding Cost Holding Cost (%) Rs.`000 (%) Rs.`000
NDB Wealth Management Ltd 100 412,460 100 412,460 NDB Investment Bank Ltd 100 290,560 100 290,560 NDB Securities (Pvt) Ltd 100 292,060 100 292,060 995,080 995,080 157 | NDB Capital Holdings PLC | Annual Report 2014
14 INVESTMENT IN ASSOCIATE Holding Group Company 2014 2013 2014 2013 2014 2013 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Investment in Resus Energy PLC 32.40% - 729,390 - 729,390 -
Share of Profit after Tax attributable to the Equity Holders - - 59,166 - - - of the Parent Total Carrying Value of Investment in Associate - - 788,556 - 729,390 -
14.1 NDB Capital Holdings PLC has invested in 40.5Mn Ordinary Shares of Resus Energy PLC, formerly known as Hemas Power PLC, on 5 December 2014, constituting approximately 32.4% shareholding in the said Company.
15 DEFERRED TAX 15.1 DEFERRED TAX ASSET 2014 2013 Rs.'000 Rs.'000
Group Balance as at the beginning of the Year 8,532 721 Provision/(Release) made during the Year 19,348 7,811 Balance as at the end of the Year 27,880 8,532
Company Balance as at the beginning of the Year - - Provision/(Release) made during the Year 12,340 - Balance as at the end of the Year 12,340 -
15.2 DEFERRED TAX LIABILITY Group Balance as at the beginning of the Year 20,550 - Provision/(Release) made during the Year (2,215) 3,460 Deferred tax on Investments Available For Sale - 17,090 Balance as at the end of the Year 18,335 20,550 Net Deferred Tax (Asset) / Liability (9,545) 12,018
Company Balance as at the beginning of the Year 17,090 - Provision/(Release) made during the Year - 17,090 Balance as at the end of the Year 17,090 17,090 Net Deferred Tax Liability / (Asset) 4,750 17,090 158 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
15.3 DEFERRED TAX ASSETS, LIABILITIES AND INCOME TAX RELATES TO THE FOLLOWING Other Balance Income Comprehensive Sheet Statement Income 2014 2013 2014 2013 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Group Deferred Tax Liability Capital Allowance for Tax Purposes (1,245) (3,460) 1,477 3,461 - - Gain on Available For Sale Investments (17,090) (17,090) - - - 17,090 (18,335) (20,550) 1,477 3,461 - 17,090
Deferred Tax Assets Defined Benefit Plans 7,201 2,418 1,944 1,277 - - Tax Losses 20,679 6,114 (14,478) (2,466) - - 27,880 8,532 (12,534) (1,189) - - Deferred Tax Income/(Expenses) - - (11,057) 2,272 - 17,090 Net Deferred Tax Asset / (Liability) 9,545 (12,018) -
16 INTANGIBLE ASSETS Software Goodwill Total Year ended 31 December 2014 2013 2014 2013 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Group Cost/Carrying value At the beginning of the Year 63,784 61,017 - 4,342 63,784 65,359 Additions during the Year 29,894 2,767 - - 29,894 2,767 Write-off during the Year - - - (4,342) - (4,342) At the end of the Year 93,678 63,784 - - 93,678 63,784
Accumulated Amortisation At the beginning of the Year 28,303 16,143 - - 28,303 16,143 Amortisation during the Year 17,734 12,160 - - 17,734 12,160 At the end of the Year 46,037 28,303 - - 46,037 28,303
Net Carrying Value 47,641 35,481 - - 47,641 35,481 159 | NDB Capital Holdings PLC | Annual Report 2014
16 INTANGIBLE ASSETS Software Total 2014 2013 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Company Cost/Carrying value At the beginning of the Year 380 - 380 - Additions during the Year - 380 - 380 At the end of the Year 380 380 380 380
Accumulated Amortisation At the beginning of the Year 71 - 71 - Amortisation during the Year 26 71 26 71 At the end of the Year 97 71 97 71
Net Carrying Value 283 309 283 309
17 OTHER NON CURRENT FINANCIAL ASSETS Group Company 2014 2013 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Financial Investments Available For Sale - Non Quoted Securities (Note 17.1) 185,000 185,000 185,000 185,000 Financial Investments classified as Loans and Receivables (Note 17.2) - - - - Financial Investments Held to Maturity (Note 17.3) 1,226,362 888,342 803,207 595,615 Financial Investments Available For Sale - Quoted Securities (Note 17.4) 79,500 - 79,500 - Total 1,490,862 1,073,342 1,067,707 780,615 160 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
17.1 financial Investments Available For Sale - Non Quoted Equity Securities Group/Company Directors' Directors' Cost valuation Cost valuation 2014 2014 2013 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Pawan Danavi (Pvt) Ltd 125,000 125,000 95,400 125,000 Delmege Forsyth and Co. Ltd 3,172 3,172 3,172 3,172 Lanka Communication Services (Pvt) Ltd 60,000 60,000 28,565 60,000 Gross Carrying Value of Equity Securities 188,172 188,172 127,137 188,172 Provision for Unrecoverable Investments (3,172) (3,172) (3,172) (3,172) Net Carrying Value of Equity Securities 185,000 185,000 123,965 185,000
17.2 financial Investments classified as Loans and Receivables - Preference Shares Current Non Current Total Total 2014 2014 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Group/Company Kelani Valley Canneries PLC - 1,000 1,000 1,000 Gross Carrying Value of Preference Shares - 1,000 1,000 1,000 Provision for Unrecoverable Investments - (1,000) (1,000) (1,000) Net Carrying Value of Preference Shares - - - -
17.3 financial Investments Held to Maturity - Debentures Group Company non non Current Current Total Total Current Current Total Total 2014 2014 2014 2013 2014 2014 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Group/Company Bank of Ceylon - 103,811 103,811 100,108 - 103,811 103,811 100,108 Singer Finance Lanka PLC - 206,837 206,837 206,837 - 206,837 206,837 206,837 Softlogic Holdings PLC - 207,940 207,940 207,940 - 207,940 207,940 207,940 HDFC Bank PLC - 87,317 87,317 80,730 - 87,317 87,317 80,730 Richard Pieris - 98,139 98,139 - - 98,139 98,139 - Siyapatha Finance - 99,163 99,163 - - 99,163 99,163 - Others - 423,155 423,155 292,727 - - - - - 1,226,362 1,226,362 888,342 - 803,207 803,207 595,615 161 | NDB Capital Holdings PLC | Annual Report 2014
17.4 financial Investments Available For Sale - Quoted Equity Securities Group/Company Fair Fair Cost valuation Cost valuation 2014 2014 2013 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Alumex Limited 70,000 79,500 - - Carrying Value of Equity Securities 70,000 79,500 - -
18 PROVISION FOR NON PERFORMING INVESTMENTS 18.1 group/Company 2014 2013 Rs.'000 Rs.'000
18.1.1 Movement of the Provision for Non Performing Investments As at the beginning of the Year 4,172 21,311 Amounts Written Off - (17,139) As at the end of the Year 4,172 4,172
18.1.2 Provision for Non- Performing Investments is made up as follows: On Investment in Equity Securities (Note 17.1) 3,172 3,172 On Preference Shares (Note 17.2) 1,000 1,000 4,172 4,172
19 TRADE AND OTHER RECEIVABLES Group Company 2014 2013 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Trade and Other Receivables 661,534 804,100 113,570 13,305 162 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
20 OTHER FINANCIAL Investments CLASSIFIED AS LOANS AND RECEIVABLES Group Company 2014 2013 2014 2013 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Investments in Securitizations - 91,698 - 91,698 Investments in Reverse Repurchase Agreements - 7,604 - - Investment in Fixed Deposits 5,235 4,875 - - Investment in Debentures 381,048 854,943 381,048 763,819 386,283 959,120 381,048 855,517
21 FINANCIAL Investments AT FAIR VALUE THROUGH PROFIT OR LOSS Financial Investments Held For Trading Group Company 2014 2013 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Quoted Equities 713,868 332,628 713,868 332,628 Investments in Unit Trusts 2,529,412 3,137,159 2,113,290 2,746,778 3,243,280 3,469,787 2,827,158 3,079,406
22 CASH AND BANK BALANCES Cash at Bank 56,748 61,913 22,936 20,309 Short - Term Deposits 138,126 95,004 - - 194,874 156,917 22,936 20,309
22.1 CASH AND CASH EQUIVALENTS Total Cash and Bank Balances 194,874 156,917 22,936 20,309 Bank Overdrafts (1,867) (16,281) - - Cash and Cash Equivalents 193,007 140,636 22,936 20,309 163 | NDB Capital Holdings PLC | Annual Report 2014
23 STATED CAPITAL 2014 2013 Number Number
Ordinary Shares (Number) Fully Paid Ordinary Shares as of 1 January 32,904,933 43,855,007 Shares repurchased during the Year - (10,950,074) Fully Paid Ordinary Shares as of 31 December 32,904,933 32,904,933
2014 2013 Rs.'000 Rs.'000
Ordinary Shares (Amount) Fully Paid Ordinary Shares 1,328,880 1,328,880 1,328,880 1,328,880
24 EMPLOYEE BENEFIT LIABILITY 24.1 group 2014 2013 Rs.'000 Rs.'000
At the beginning of the Year 28,338 36,910 Recognized on Income Statement 5,578 2,648 Recognized on OCI 13,953 (10,212) 47,869 29,346 Payments / Payables during the Year (4,778) (1,008) At the end of the Year 43,091 28,338 164 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
31-Dec-14 31-Dec-13
- - 43,091 43,091 - 28,338 - 28,338 Employers by Employers by Contributions Contributions
OCI OCI Sub Total Sub Total included in included in
- - 13,953 13,953 Experience Experience Adjustments Adjustments Changes Changes Financial Financial Actuarial Actuarial Changes in Changes in Changes arising from arising from Assumptions Assumptions - - 13,953 13,953 - (11,095) 883 (10,212) - (11,095) 883 (10,212) Changes Changes Actuarial Actuarial Changes in Changes in Changes arising from arising from Assumptions Assumptions Demographic Demographic Demographic comprehensive income comprehensive income comprehensive
- - - - n n o o
n n r r u u t t e e amounts amounts expense) expense) expense) R R (excluding (excluding included in included in Remeasurement gains/(losses) in other gains/(losses) Remeasurement in other gains/(losses) Remeasurement net interest interest net interest net Plan Assets Plan Assets
Paid Paid Benefits Benefits
or Loss or Loss in Profit in Profit included included Sub-Total Sub-Total
Net Net Interest Interest
Cost Cost Service Service to profit or loss profit to or loss profit to charged Amounts charged Amounts
28,338 3,978 1,600 5,578 (4,778) 36,910 1,355 1,293 2,648 (1,008) 1-Jan-14 1-Jan-13 obligation benefit Defined 36,910 1,355 1,293 2,648 (1,008)
24.1.1 ended 31 December 2014 the Year For obligation benefit Defined 28,338 3,978 ended 31 December 2013 the Year For 1,600 5,578 (4,778) Associates, S Goonetilleke Piyal Messrs 31 December 2014 by out as at carried fund was of the gratuity An actuarial valuation Method", Unit Credit the fund is "Projected value the actuary used by to method The valuation actuary. a professional Benefits". LKAS 19 - "Employee by recommended
165 | NDB Capital Holdings PLC | Annual Report 2014
24 EMPLOYEE BENEFIT LIABILITY (CONTD.) Principal Assumptions in performing the Gratuity Formula are shown below: 2014 2013
Discount Rate 10% 11% - 12% Salary Increment Rate 8% - 11% 8% - 11% Staff Turnover Factor 15% - 18% 12% Retirement Age 55 Years 55 Years
24.2 Company 2014 2013 Rs.'000 Rs.'000
At the beginning of the Year 1,719 - Charge for the Year 1,195 1,719 At the end of the Year 2,914 1,719
Principal Assumptions in performing the Gratuity Formula are shown below: 2014 2013
Discount Rate 11% 10% Salary Increment Rate 10% 11% Staff Turnover Factor 15% 15% Retirement Age 55 Years 55 Years
25 OTHER PAYABLES Group Company 2014 2013 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Sundry Creditors Including Accrued Expenses 315,950 577,540 62,525 25,169 315,950 577,540 62,525 25,169 166 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
26 ASSETS PLEDGED The group has pledged 73 Mn units valued at Rs. 768.5 Mn as of 31 December 2014 for bank guarantee and overdraft facilities obtained from National Development Bank PLC.
27 COMMITMENTS AND CONTINGENCIES The company has a Guarantee and Overdraft facility for Rs. 500 Mn with National Development Bank PLC for the purpose of funding requirements in the event of investing in Debentures.
Other than the aforementioned facility, there are no significant commitments and contingencies as at the date of Statement of Financial Position.
28 FAIR VALUE OF FINANCIAL ASSETS Financial Assets Recorded at Fair Value The following is a description of how fair values are determined for financial instruments that are recorded at fair value using valuation techniques. These incorporate the company’s estimate of assumptions that a market participant would make when valuing the instruments.
Financial Assets Held for Trading Financial Assets held for trading consist of quoted equity securities and investments in unit trusts. Quoted equity securities are valued using market price published by Colombo Stock Exchange. Investments in unit trusts are valued at market rates published by the respective unit trusts.
Financial Assets Available For Sale Financial Assets Available for Sale solely consist of investments in private equities and quoted equities. 167 | NDB Capital Holdings PLC | Annual Report 2014
28.1 Determination of Fair Value and Fair Value Hierarchy The company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique.
Level 1 : quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2 : other techniques for which all inputs which have significant effect on the recorded fair value are observable, either directly or indirectly. Level 3 : techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
Group 31 December 2014 Level 1 Level 2 Level 3 Total Rs.'000 Rs.'000 Rs.'000 Rs.'000
Financial Assets Financial Investments Held for Trading Equity Securities 713,868 - - 713,868 Investment in Unit Trusts 2,529,412 - - 2,529,412
Financial Investments Available For Sale Quoted Equity Securities 79,500 - - 79,500 Total Financial Assets 3,322,780 - - 3,322,780
31 December 2013 Level 1 Level 2 Level 3 Total Rs.'000 Rs.'000 Rs.'000 Rs.'000
Financial Assets Financial Investments Held for Trading Equity Securities 332,628 - - 332,628 Investment in Unit Trusts 3,137,159 - - 3,137,159
Financial Investments Available For Sale Non Quoted Equity Securities (28.1.2) - - 185,000 185,000 Total Financial Assets 3,469,787 - 185,000 3,654,787 168 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
28.1 Determination of Fair Value and Fair Value Hierarchy (CONTD.) Company 31 December 2014 Level 1 Level 2 Level 3 Total Rs.'000 Rs.'000 Rs.'000 Rs.'000
Financial Assets Financial Investments Held for Trading Equity Securities 713,868 - - 713,868 Investment in Unit Trusts 2,113,290 - - 2,113,290
Financial Investments Available For Sale Quoted Equity Securities 79,500 - - 79,500 2,906,658 - - 2,906,658
31 December 2013 Level 1 Level 2 Level 3 Total Rs.'000 Rs.'000 Rs.'000 Rs.'000
Financial Assets Financial Investments Held for Trading Equity Securities 332,628 - - 332,628 Investment in Unit Trusts 2,746,778 - - 2,746,778
Financial Investments Available For Sale Non Quoted Equity Securities - - 185,000 185,000 3,079,406 - 185,000 3,264,406 169 | NDB Capital Holdings PLC | Annual Report 2014
28.1.2 Movements in Level 3 Financial Instruments measured at Fair Value Group 31 December 2013 Total Gains / Total Gains / At 1 (Losses ) (Losses ) At 31 January recorded in recorded in December 2013 Profit / Loss Equity 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Financial Investments Available For Sale Non Quoted Equity Securities 106,826 17,139 61,035 185,000 Total Financial Assets 106,826 17,139 61,035 185,000
Company 31 December 2013 Total Gains / Total Gains / At 1 (Losses ) (Losses ) At 31 January recorded in recorded in December 2013 Profit / Loss Equity 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Financial Investments Available For Sale Non Quoted Equity Securities 106,826 17,139 61,035 185,000 Total Financial Assets 106,826 17,139 61,035 185,000
28.2 Set out below is a comparison, by class, of the carrying amounts and fair values of the Company's financial instruments including the instruments that are not carried at fair value in the Financial Statements. This table does not include the fair values of non - financial assets and non - financial liabilities
Group 2014 2013 Carrying Fair Carrying Fair Amount value Amount value Level Rs.'000 Rs.'000 Rs.'000 Rs.'000
Financial Assets Cash and Cash Equivalents 2 194,874 194,874 156,917 156,917 Financial Investments Classified as Loans and Receivables 2 386,283 386,283 959,120 959,120 Financial Investments Held to Maturity 2 1,226,362 1,226,362 888,342 888,342 Total Financial Assets 1,807,519 1,807,519 2,004,379 2,004,379 170 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
Company 2014 2013 Carrying Fair Carrying Fair Amount value Amount value Level Rs.'000 Rs.'000 Rs.'000 Rs.'000
Financial Assets Cash and Cash Equivalents 2 22,936 22,936 20,309 20,309 Financial Investments classified as Loans and Receivables 2 381,048 381,048 855,517 855,517 Financial Investments Held to Maturity 2 803,207 803,207 595,615 595,615 Total Financial Assets 1,207,191 1,207,191 1,471,441 1,471,441
29 EVENTS OCCURRING AFTER THE Reporting DATE (a) NDB Capital Holdings PLC entered into a Shareholders agreement with Zephyr Management LP on 15 December 2014, to invest in 60% ordinary shares and 60% redeemable preference shares in NDB Zephyr partners Ltd, the Management Company based in Mauritius, managing Sri Lanka's largest country dedicated private equity fund. Accordingly the investment took place on 2 January 2015, amounting to Rs. 49.6 Mn.
(b) The Company has been officially de listed from the Colombo Stock Exchange on 26 January 2015 and accordingly the name of the Company has changed to NDB Capital Holdings Limited with effect from 2 March 2015.
(C) On 26 March 2015, the Board of Directors approved a payment of Rs. 27.50 per share as a final dividend for the year 2014. Accordingly, the total amount to be paid as dividend would amount to Rs. 904,885,657.50
Other than the aforementioned events, there have been no events subsequent to the end of the reporting period that require disclosure to the shareholders of the company. 171 | NDB Capital Holdings PLC | Annual Report 2014
30 RELATED PARTY DISCLOSURES Group / Company 30.1 Terms and Conditions The Company carries out transactions with Key Management and their related concerns and other related entities in the ordinary course of its business on an arms length basis at commercial rates.
30.2 TRANSACTIONS WITH THE RELATED ENTITIES Related Party Relationship Nature of Transactions 2014 2013 Rs.'000 Rs.'000
30.2.1 National Development Ultimate Parent Dividend Paid 275,766 659,136 Bank PLC Company Cash Balance 31 December 22,821 17,789 Interest Income on Short Term Investments - 148 Shares Repurchase - 5,944,873
30.2.2 NDB Wealth Management Ltd Subsidiary Dividend Received 10,000 5,000 Company Portfolio Administration Fees 12,537 411
30.2.3 NDB Securities (Pvt) Ltd Subsidiary Dividend Received 810 - Company Brokerage Paid - 1,638
30.2.4 NDB Investment Bank Ltd Subsidiary Dividend Received 18,977 15,078 Company Retainer Fee 228 - Advisory fee for Share Repurchase - 457
Further to the disclosures above, the Group has pledged 73 Mn units valued at RS. 768.5 Mn as of 31 December 2014 for Bank Guarantee and Overdraft facilities obtained from NDB.
The Company has a Guarantee and Overdraft facility for Rs. 500 Mn with NDB for the purpose of funding requirements in the event of investing in Debentures.
31 TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL OF THE COMPANY AND ITS PARENT COMPANY Related parties include key management personnel defined as persons having authority and responsibility for planning, directing and controlling the company and its subsidiaries.
Key management personnel include the members of the board of directors of the company and its parent and the key employees who meet the criteria mentioned above. 172 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
a) Key Management Personnel Compensation 2014 2013 Rs.'000 Rs.'000
Short Term Employee Benefits 27,896 27,699 Total Compensation paid to key management Personnel 27,896 27,699
The amounts disclosed above are the amounts recognized as an expense during the reporting period relating to key management personnel. In addition to the remuneration, the company provides non cash benefits such as vehicle, insurance for key management personnel in line with the approved benefit plan of the company.
Transactions involving entities which are controlled/significantly influenced by Key Management Personnel and their close family members.
2014 2013 Rs.’000 Rs.’000
Investment in Debentures 207,940 207,940 207,940 207,940
32 SEGMENTAL INFORMATION - GROUP NDB Capital Holdings LTD is a full service investment bank. The principal activities of the Company and its subsidiaries are fee-based and fund-based investment banking. The fund-based investment banking activities include private equity, proprietary trading, underwriting, and investments in listed equities, fixed income securities, hybrid securities and unit trusts. Fee-based activities of the Company are carried out through its subsidiaries.
NDB Investment Bank LTD offers fee based investment banking services. The product range includes debt and equity structuring and placement, corporate advisory services and facilitation of mergers and acquisitions.
NDB Wealth Management Limited offers comprehensive wealth management solutions in the form of discretionary portfolio management, private wealth management and mutual funds.
NDB Securities (Pvt) Limited a licensed stockbroker, is a full member of the Colombo Stock Exchange which provides a variety of investment research and advisory services and online trading facilities. Further, the firm provides margin loan facilities through National Development Bank PLC. 173 | NDB Capital Holdings PLC | Annual Report 2014
Fund Capital Investments Management Market Total 2014 2013 2014 2013 2014 2013 2014 2013 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000
Income 732,338 771,711 347,324 222,834 337,275 474,491 1,416,937 1,469,036
(a) Segment Results Profit from Operating Activities 610,533 684,455 191,222 106,799 97,948 240,260 899,703 1,031,514 Share of Associate Company’s Profit/ (Loss) 59,166 - - - - - 59,166 - Income Tax Expense 23,783 (21,916) (19,112) (17,421) 759 (60,123) 5,430 (99,460) Net Profit / (Loss) 693,482 662,639 172,110 89,378 98,707 180,137 964,299 932,054
(b) Segment Assets Segment Assets 5,268,048 4,746,634 571,757 404,675 1,086,448 1,391,428 6,926,253 6,542,737
(c) Segment Liabilities Segment Liabilities 110,646 69,553 48,284 42,068 235,440 579,387 394,370 691,008
33 RISK MANAGEMENT Overview NCAP Group is well aware of the need to have an effective risk management system and processes given the diversity of its operations in the capital markets. The Group is involved in diverse fund-based and fee-based business activities such as investing, investment banking, stock broking and wealth management. The investment portfolio of NCAP mainly consists of listed equity securities, private equity, fixed income securities and unit trusts.
Risk Management Structure The Company has exposure to the following risks from its use of financial instruments: - Market Risk - Credit Risk and - Liquidity Risk
An overview of market risk, credit risk and liquidity risk as given below; ▪ Market Risk - The risk of any of investments performing badly due to volatility of market prices. Applicable to quoted equity investments and fixed income investments classified as "Held for Trading". Such volatilities are driven by macroeconomic variables such as interest rates, exchange rates, inflation and certain industry specific factors together with systematic risks including credit risk. These volatilities can also be driven by investor sentiment.
▪ Credit Risk – The risk of financial loss if a debtor or counterparty to financial instruments fails to meet its contractual obligations. Credit risk is mainly arising from investments in fixed income securities. 174 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
The following table analyses the Investment Portfolio of debt securities by credit rating.
2014 2013
Credit Rating % of Debt Securities % of Debt Securities BBB Fitch 26% 0 A- Lanka 20% 0 AA- Lanka 17% 25% AA- Fitch 10% 13% BBB Lanka 8% 7% BBB+ Fitch 6% 18% A- Fitch 6% 17% A Lanka 4% 19% A+ Fitch 4% 3%
▪ Liquidity Risk - The risk of not maintaining adequate liquid funds to meet payment obligations as and when they become due. This risk is low given the debt free balance sheet of NCAP.
Risk Mitigation As a risk management strategy, all investments are subject to an asset allocation policy which provides for adequate level of diversification. The diversification is monitored and managed within each asset class as well. The asset allocation policy is regularly reviewed by the Audit, Risk and Compliance Committee, investment committee and the board of directors.
The investments are managed by a team of competent investment professionals who have specialized in specific areas. The specific investments that involve private equity and project financing are subject to a comprehensive investment appraisal and due diligence process. Further, such investments go through a tiered approval process with final approval being granted by the Investment Committee and the NCAP Board. The status of investments and the process are also reviewed regularly by the Investment Committee and the NCAP Board. 175 | NDB Capital Holdings PLC | Annual Report 2014
34 MATURITY ANALYSIS An analysis of the Assets and Liabilities based on the remaining period at the Balance Sheet date to the respective contractual maturity dates, is as follows:
Company within After 12 12 Months Months Total Rs.'000 Rs.'000 Rs.'000
Non Current Assets Property, Plant and Equipment - 11,743 11,743 Investment in Subsidiaries - 995,080 995,080 Investment in Associate - 729,390 729,390 Intangible Assets - 283 283 Deferred Tax Asset - 12,340 12,340
Other Non Current Financial Assets Available for Sale Financial Investments - Non Quoted Equity Securities - 185,000 185,000 Available for Sale Financial Investments - Quoted Equity Securities - 79,500 79,500 Held to Maturity Financial Investments 803,207 803,207
Trade and Other Receivables NBT Refund - 9,182 9,182 Other Receivables 104,389 - 104,389 Income Tax Receivable - 14,787 14,787
Other Financial Investments classified as Loans and Receivables Investment in Debentures 381,048 - 381,048
Financial Investments Held for Trading Quoted Equities 713,868 - 713,868 Investments in Unit Trusts 2,113,290 - 2,113,290
Cash and Bank Balances 22,936 - 22,936
Total Assets 3,335,531 2,840,512 6,176,042 176 | NDB Capital Holdings PLC | Annual Report 2014 Notes to the Financial Statements (Contd.)
34 MATURITY ANALYSIS (CONTD.) Company within After 12 12 Months Months Total Rs.’000 Rs.’000 Rs.’000
Equity Attributable to Equity Holders of the Parent Stated Capital - 1,328,880 1,328,880 Reserves - 343,170 343,170 Retained Earnings - 4,421,463 4,421,463 - 6,093,513 6,093,513
Liabilities Employee Benefit Liabilities - 2,914 2,914 Deferred Tax Liability - 17,090 17,090 Other Payables 62,525 - 62,525 62,525 20,004 82,529 Total Liabilities and Funds Employed as at 31 December 2014 62,525 6,113,517 6,176,042 177 | NDB Capital Holdings LTD | Annual Report 2014 Ten Year Summary - Income statement
Rs. Mn 2005* 2006 2007 2008 2009 * 2010 * 2011 * 2012 * 2013 * 2014*
Revenue 4,300 2,030 560 668 535 665 300 6,606 1,469 1,417 Benefits, Losses and Expenses (2,730) (4) ------
Operating income 1,570 2,026 560 668 535 665 300 6,606 1,469 1,417
Staff Costs (401) - - - (19) (47) (42) (146) (261) (266) Operating Expenses (291) - (5) (10) (16) (50) (53) (97) (145) (213) Selling Expenses (212) ------Depreciation (72) - - - (1) (4) (5) (31) (31) (38) Other Expenses (46) ------(Provision)/ Release for Non-performing Investments and loans - (5) 4 8 ------
Operating Profit before Intangible Items 548 2,021 559 666 499 564 200 6,332 1,032 900
Amortisation of Goodwill (29) ------
Profit from Operations after intangible items 519 2,021 559 666 499 564 200 6,332 1,032 900
Finance Cost (25) (9) ------Share of Associate Company Profit Before Tax 7 - - - 352 340 400 455 - 59
Profit Before Tax 501 2,012 559 666 851 904 600 6,787 1,032 959
Income Tax Expense (26) (50) (149) (207) (277) (265) (205) (203) (99) 5
Profit after Taxation 475 1,962 410 459 574 639 395 6,584 933 964
Non Controlling Interests (66) - - - (3) (35) (26) (22) - (0)
Profit Attributable to Group 409 1,962 410 459 571 604 369 6,562 933 964
Earnings per share 9.35 44.74 9.34 10.47 13.00 13.77 9.04 8.30 26.15 29.31 Dividends per share - paid 0.70 10.70 1.20 2.85 3.13 2.25 4.10 1.25 16.40 8.50
* Group ** Year 2010 , 2011 and 2012 figures are restated to comply with IFRS reporting requirments 178 | NDB Capital Holdings LTD | Annual Report 2014 Ten Year Summary - statement of Financial position
Rs. Mn 2005 * 2006 2007 2008 2009 * 2010 * 2011 * 2012 * 2013 * 2014*
Non-Current Assets Property, Plant and Equipment 296 - - - 12 12 10 47 35 62 Deferred Tax Asset ------9 28 Intangible Assets 998 - - - 5 8 43 49 35 48 Investments in Associates - 741 741 741 1,141 1,261 1,411 - - 788 Other Non Current Financial Assets 6,825 12 174 147 102 807 713 312 1073 1,491 Policy Loans 725 ------Other Fund Assets 368 ------9,212 753 915 888 1,260 2,088 2,177 408 1,152 2,417
Current Assets Other Receivables 1,002 26 160 177 100 130 91 378 804 661 Tax Recoverable 3 ------24 Financial Assets 3,062 2,456 2,589 2,914 3,366 3,080 2,854 10,788 4429 3,630 Cash and Bank Balances 598 - - 45 4 14 354 91 157 195 4,665 2,482 2,749 3,136 3,470 3,224 3,299 11,257 5,390 4,510 Total Assets 13,877 3,235 3,664 4,024 4,730 5,312 5,476 11,665 6,542 6,927
EQUITY AND LIABILITIES EQUITY Stated Capital 1,329 1,329 1,329 1,329 1,329 1,329 1,329 1,329 1,329 1,329 General Reserves 290 290 290 290 304 304 304 304 344 339 Accumulated Profits 660 1,598 1,956 2,289 2,976 3,482 3,672 9,923 4,179 4,864 Total Equity 2,279 3,217 3,575 3,908 4,609 5,115 5,305 11,556 5,852 6,532
Non Controlling Interest 187 - - - 63 95 116 - - (0)
Non-Current Liabilities Interest Bearing Loans and Borrowings 158 ------Debentures ------Long-term Insurance Fund 9,238 ------Non-Life insurance reserve 859 ------Other funds 368 ------Employee Benefit Liabilites - - - - 3 3 4 16 28 43 Deferred Tax Liability ------21 19 10,623 - - - 3 3 4 16 49 62
Current Liabilities Other Payables 612 18 89 116 55 99 51 93 577 316 Reinsurance creditors 125 ------Income Tax Payable ------48 15 Interest Bearing Loans and Borrowings 51 ------16 2 788 18 89 116 55 99 51 93 641 333 Total Equity and Liabilities 13,877 3,235 3,664 4,024 4,730 5,312 5,476 11,665 6,542 6,927
* Group ** Year 2011 and 2012 figures are restated to comply with IFRS reporting requirments 179 | NDB Capital Holdings LTD | Annual Report 2014 Shareholder and investor information
STOCK EXCHANGE LISTING NDB Capital Holdings Limited was delisted from the official list of the Colombo Stock Exchange (CSE) with effect from 26th January 2015.
SHAREHOLDERS The twenty largest shareholders as at 31st December 2014 are as follows: No Name No. of shares % 1. NATIONAL DEVELOPMENT BANK PLC 32,778,572 99.62 SHARE RESERVE ACCOUNT FOR THE EXIT OFFER MADE BY NATIONAL DEVELOPMENT 2. 89,612 0.27 BANK PLC 3. MR. H.W.M. WOODWARD 6,225 0.019 4. MRS. F.A.A. MACK 6,000 0.018 5. MISS. F.B. GHOUSE 2,523 0.008 6. MR. A. KULENTHIRAN 2,500 0.008 7. MR. D.P. NAVARATNAM 1,737 0.005 8. MR. M.C.S. PERERA 1,200 0.004 9. MR. T. RODRIGO 1,199 0.004 10. MR. D.S. DE SILVA 1,032 0.003 11. TARIKA INVESTMENTS PRIVATE LIMITED 1,019 0.003 12. MR. K.M.S.M. RAZEEK 1,000 0.003 13. DR. S. SHANMUGAKUMAR 1,000 0.003 14. MRS. U. SHANMUGAKUMAR 800 0.002 15. MR. J.A.G. JAYAKODI ARACHCHI 800 0.002 16. MISS. P.S. NADARAJAH 642 0.002 17. MR. S.M. MUBARAK 600 0.002 18 MR. C.R. NARANGODA 600 0.002 19. MR. M.A.T.J. FERNANDO 400 0.001 20 MR. K.P. JAYABANDU 300 0.001 180 | NDB Capital Holdings LTD | Annual Report 2014 Shareholder and investor information (Contd.)
ANALYSIS OF SHAREHOLDERS There were 198 shareholders as at 31st December 2014 distributed as follows: Shareholding Segment No. of shareholders No of Shares % 1-1,000 187 13,314 0.04 1,001- 10,000 9 23,435 0.07 10,001- 100,000 1 89,612 0.27 100,001- 1,000,000 0 0 0 Over 1,000,000 1 32,778,572 99.62 All Holdings 198 32,904,933 100.00
Shareholding Category No. of Shareholders No. of Shares % Institutional 8 32,869,435 99.66 Individual 190 35,498 0.34 All Holdings 198 32,904,933 100.00
Public holding as at 31.12.2014 – 0.38%
DIRECTOR’S Shareholding No. of Shares Name 31.12.2014 31.12.2013 A K Pathirage - - D S P Wikramanayake - - R Theagarajah - - A Rajakarier - - M Arsakularatne - - F Ozman N/A N/A C V Kulatilake - - I Wickramasinghe N/A -
SHARE VALUATION The closing price of an ordinary share on 20th June 2014 was Rs. 496.40 (last date of trading on the CSE).
The highest traded was at Rs. 550.00 per share on 07.03.2014 and the lowest price traded was at Rs. 460.00 per share on 11.06.2014. 181 | NDB Capital Holdings LTD | Annual Report 2014 list of tables, figures, charts and acronyms
Tables, Figures and Charts Page Financial Highlights 4 NCAP Group - Our Businesses 17 NCAP Organisation Chart 17 NCAP Consolidated Performance 19 Group Segmental Revenue 2014 19 NDBIB Performance 19 NDBWM Performance 19 NDBS Performance 20 Economic Growth 23 Macro -Economic Outlook for Sri Lanka 24 Real GDP Growth 24 Real GDP Growth (1977 - 2014) 25 Government Expenditure -2009 25 Government Expenditure -2014 25 Budget Deficit (% Of GDP) 26 Revenue and Expenditure (% Of GDP) 26 Government Debt to GDP 26 Composition of Public Debt 27 Interest Rates 27 Yield Curve - Treasury Bills and Bonds 27 Private Sector Credit Growth 27 Brent Crude Price (USD/BBL) 28 Global Composite Carbon Steel Price (USD/MT) 28 Average Annual Inflation (%) 28 Current Account Deficit (% Of Gdp) 29 Current Account in Flows - 2009 29 Current Account in Flows - 2014 29 Exchange Rate (Rs. USD) 30 Index Returns (2014) 30 Trailing P/E Ratios (31/12/2014) 30 Funds Raised through Debentures (Rs. Bn) 31 NDBIB-Crisil Index Returns (2014) 31 NCAP Strategy, Targets and Achievements Risks 32 Targets Vs. Actual 2014 33 182 | NDB Capital Holdings LTD | Annual Report 2014 list of tables, figures, charts and acronyms (Contd.)
Tables, Figures and Charts Page NCAP Operational Performance 34 NCAP Operational Highlights -2014 35 Key Performance Indicators - NCAP Group 35 Key Action 2015 38 NDBIB Product and Service Offering 39 NDBIB Operational Highlights - 2014 40 Key Performance Indicators 40 Funds Raised (Rs. Bn) 41 Revenue Contribution 2014 41 NDBIB Milestones 44 Recognition and Awards 45 NDBWM Product and Service Offerings 47 Mutual Funds - Risk Rated Funds 47 NDBWM Operational Highlights 2014 48 Key Performance Indicators 48 The Fund Management Process 50 Unit Trusts and Assets Under Management - 2010-2014 51 Recognition and Awards 52 NDBS Product and Services Offerings 53 NDBS Operational Highlights - 2014 54 Key Performance Indicators 54 Emerald Sri Lanka Fund 1 57 Eligibility Criteria For Investments 57 Financial Review 59 Company Performance 60 Company Revenue Composition - 2014 60 Consolidated Performance 60 Group Segmental Revenue 2014 61 Return on Equity 61 Identification of Key Stakeholders 63 Stakeholder Prioritisation 64 Key Stakeholder Engagement 64-66 183 | NDB Capital Holdings LTD | Annual Report 2014
Tables, Figures and Charts Page Sustainability Context Assessment 68-70 Materiality Assessment 71-72 Materiality Matrix 73 Materiality Defining Report Content 74 NCAP Group Sharing Value 75 Value Added Statement 76 Our Simple Environmental Initiatives 83 Cadre - Line of Business 84 Cadre – Employee Contract 84 Cadre – Employee Category 85 Cadre – Employee Gender 85 Cadre – Employee Ethnicity 85 Recruitment Analysis 85 Turnover Analysis 86 Performance Evaluations 87 Key Structured Training Programmes Summary – 2014 88 Our Business Ethics 90 Compliance – Internal Reporting Structure 91 Code of Conduct Broad Areas Covered 93 Compliance Monitoring 95 Risk Management Structure 98 Risk Dash-Boards Principal and Sub Risk Categories 99 Corporate Governance Rules Under the Listing Rules of the CSE 106-110 GRI Checklist - G4 121-126 Profits and Appropriations 128 Directors’ Interest in Contracts with the Company 131 Composition of the Board Audit, Risk and Compliance Committee 134 Ten Year Summary - Statement of Financial Position 178 Twenty Largest Shareholders 179 Analysis of Shareholders 180 Director’s Shareholding 180 184 | NDB Capital Holdings LTD | Annual Report 2014 list of tables, figures, charts and acronyms (Contd.)
Acronyms Full Form ASPI All Share Price Index AWDR Weighted Average Deposit Rate AWLR Weighted Average Lending Rate Bn Billion CAGR Compound Annual Growth Rate CCPI Colombo Consumer Price Index CEO Chief Executive Officer CSE Colombo Stock Exchange CSR Corporate Social Responsibility DEG Deutsche Investitions- und Entwicklungsgesellschaft mbH FMO Netherlands Development Finance Company GDP Gross Domestic Product GRI Global Reporting Initiative HR Human Resources IPO Initial Public Offering IFC International Finance Corporation KPIs Key Performance Indicators M&A Mergers and Acquisitions Mn Million NCAP NDB Capital Holdings Limited NDB National Development Bank PLC NDBIB NDB Investment Bank Limited NDBWB NDB Wealth Management Limited NDBS NDB Securities (Private) Limited NDBZ NDB Zephyr Partners PBV Price to Book Value PE Price Earnings Ratio Q Quarter SEC Securities & Exchange Commission of Sri Lanka SMEs Small and Medium Enterprises S&P SL20 Standard & Poor Sri Lanka 20 Index T-Bill Treasury Bill US/USA United States of America YOY Year on Year 185 | NDB Capital Holdings LTD | Annual Report 2014 notes
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...... 186 | NDB Capital Holdings LTD | Annual Report 2014 Notice of Meeting
Notice is hereby given that the Thirty First (31st ) Annual General Meeting of NDB Capital Holdings Limited (the Company) will be held at the Auditorium of the DHPL Building at No.42, Navam Mawatha, Colombo 2 on the 29th day of June Two Thousand and Fifteen (2015) at 10.00AM for the following purposes: 1. To lay before the Shareholders for consideration, the Annual Report for the year ended 31st December 2014. 2. To re-elect in terms of Article 30 of the Articles of Association Mr. Sarath Wikramanayake who retires in terms of the said Article 30. 3. To re-elect in terms of Article 30 of the Articles of Association Ms. Aruni Rajakarier who retires in terms of the said Article 30. 4. To re-appoint in terms of Article 29 (6) of the Articles of Association Mr. Faizan Ozman, who retires in terms of the said Article 29 (6). 5. To re-appoint Messrs Ernst & Young, Chartered Accountants, as Auditors of the Company as set out in section 154 of the Companies Act No. 7 of 2007 and to authorize the Directors to determine their remuneration. 6. To authorize the Board of Directors to determine donations for the financial year 2015 under the Companies Donations Act No. 26 of 1951.
By order of the Board
Ms. Mayomi Samarawickrama Secretary to the Board
Colombo 18th May 2015
Notes: 1. A shareholder entitled to attend and vote at the meeting is entitled to appoint a proxy holder to attend and vote in his/her stead. 2. A proxy holder need not be a shareholder of the Company. 3. The Form of Proxy is sent herewith. The completed Form of Proxy must be deposited at the Registered Office of the Company, at 40 Navam Mawatha, Colombo 2 not later than 48 hours prior to the time appointed for the holding of the meeting in accordance with the Article 23(4) of the Articles of Association of the Company. 4. Shareholders/proxy holders attending the meeting are requested to bring their National Identity Cards. 187 | NDB Capital Holdings LTD | Annual Report 2014 FORM OF PROXY
NDB Capital Holdings Limited
I/We ……….…………………………………………………………………………...…….. (NIC/s ………………………………………………………………………..…...... ………) of ………………………………………..…………………………….………………….. being a member/members of the above-named company hereby appoint ..……………………………………………………………………. holder of NIC No ………………………….....…………… of …………………………………………… or failing him/her
Mr. Ashok Pathirage (Chairman) of Colombo, or failing him Mr. Sarath Wikramanayake of Colombo, or failing him Mr. Rajendra Theagarajah of Colombo, or failing him Ms. Aruni Rajakarier of Colombo, or failing her Mr. Malinga Arsakularatne of Colombo, or failing him Mr. Faizan Ozman of Colombo, or failing him Mr. Vajira Kulatilake (CEO/Director) of Colombo. as my /our proxy to represent, vote and/or speak for me/us and on my/our behalf at the Thirty First Annual General Meeting of NDB Capital Holdings Limited to be held on 29th June 2015 and at any adjournment thereof and at every poll which may be taken in consequence thereof.
As witness I /We have set my / our hand/s hereunto this ………………………… day of …………………… Two Thousand and Fifteen (2015).
.………………………… Signature of the Member/Members. 188 | NDB Capital Holdings LTD | Annual Report 2014 FORM OF PROXY (Contd.)
Instructions for completion of the Form of Proxy
1. In order to appoint a proxy holder, this form duly completed, by the member must be deposited at the Registered Office of NDB Capital Holdings LTD (NCAP), at No 40 Navam Mawatha, Colombo 2, not less than 48 hours before the time fixed for the meeting. 2. In perfecting the Form of Proxy, please ensure that all details are legible, including the full name and registered address of the member appointing the proxy. 3. The proxy holder appointed need not to be a member of NDB Capital Holdings Limited. 4. In the case of a Corporate Member, the proxy must be executed under its common seal (if applicable) or by its authorized signatory or as prescribed by the Articles of Association of the corporate member. 5. The first joint holder shall have the power to sign the proxy without the concurrence of the other joint holder/s. 6. If the form of Proxy is signed by an Attorney, a certified copy of the relevant Power of Attorney should accompany it. Corporate information
GRI- G4 / G4 - 3 G4 - 5 G4 - 7
NAME REGISTERED OFFICE NDB Securities (Pvt) Ltd. NDB Capital Holdings Limited (The 40, Navam Mawatha, Colombo 2 5th Floor, No. 40, Company was registered under the Navam Mawatha, Companies Act No.17 of 1982 and Colombo 2. subsequently Re-registered under the AUDITORS Tel: +94 11 2314170 Companies Act of No 7 of 2007 on 26th Messers Ernst & Young Fax: +94 11 2314180 December 2007) Chartered Accountants 201, De Saram Place, Colombo 10 NDB Investment Bank Ltd. No. 40, LEGAL STATUS Navam Mawatha, Public Limited Liability Company (De-listed BANKERS Colombo 2. from the official list of the Colombo Stock National Development Bank PLC Tel: +94 11 2300385 Exchange on 26th January 2015) Fax: +94 11 2300393
MEMBERS OF THE BOARD COMMITTEES NDB Wealth Management Ltd. INCORPORATION AS AT 31ST DECEMBER 2014 No. 42, 12th October 1983 Investment Committee Navam Mawatha, Mr. Malinga Arsukularatne - Chairman Colombo 2. Ms. Aruni Rajakarier Tel: +94 11 2303232 REGISTERED NO Mr. Rajendra Theagarajah Fax: +94 11 2303237 PQ 110PB Human Resources and Remuneration NDB Zephyr Partners Ltd. Committee IFS Court, STATED CAPITAL Ms. Aruni Rajakarier – Chairperson TwentryEight, Cybercity Rs. 1,328,880,070 Mr. Ashok Pathirage Ebene, Mr. Malinga Arsukularatne Maurutius Tel: +230 467 3000 BOARD OF DIRECTORS Audit, Risk and Compliance Committee Fax: +230 467 4000 Mr. Ashok Pathirage (Chairman) Ms. Aruni Rajakarier – Chairperson Mr. Rajendra Theagarajah Mr. Malinga Arsukularatne NDB Zephyr Partners Lanka (Pvt) Ltd. Mr. Sarath Wikramanayake Mr. Sarath Wikramanayake No. 40, Mr. Vajira Kulatilaka (CEO) Navam Mawatha, Ms. Aruni Rajakarier Colombo 2. Mr. Malinga Arsukularatne CONTACT DETAILS Tel: +94 11 2300385 Mr. Faizan Ozman NDB Capital Holdings Ltd. Fax: +94 11 2300393 (Appointed w.e.f. 13/1/2015) No. 40, Mr. Indrajit Wickramasinghe Navam Mawatha, (Resigned w.e.f. 19/9/2014) Colombo 2. Tel: +94 11 2300385 Fax: +94 11 2300393 COMPANY SECRETARY Ms. Mayomi Samarawickrama (Attorney-at-Law)
Design & Concept by: Optima Designs (Pvt) Ltd. Printed by: Printel (Pvt) Ltd. NDB capital hol d i n ready gs LT D www.ndbch.com | a nn ual report 2014
NDB capital holdings lTD | annual report 2014