Annual Report 2007 Colombo Stock Exchange Annual Report 2007
www.cse.lk In 2007, the Colombo Corporate Information NAME BRANCHES Colombo Stock Exchange Matara Branch 38, Station Road, Matara Stock Exchange set twin LEGAL STATUS Tel: +94-41-2220094, +94-41-2220095 A company incorporated in Sri Lanka Fax: +94-41-4390546 Limited by guarantee Kandy Branch records, despite several SUBSIDIARY “Ceybank House”, 88, Dalada Veediya, Kandy Central Depository Systems (Pvt) Ltd. Tel: +94-81-4474407, +94-81-4474409 Fax: +94-81-4474475 REGISTERED OFFICE challenges, raising its 04-01 West Block, World Trade Centre Kurunegala Branch Echelon Square 1st Floor, Union Assurance Building Colombo 1, Sri Lanka. 6, Rajapihilla Road, Kurunegala Tel: +94-37-4691802, +94-37-4691804 highest ever capital of SECRETARIES Fax: +94-37-4691803 Secretarial Services Ltd. Negombo Branch AUDITORS 1st Floor, 142, Greens Road, Negombo KPMG Ford, Rhodes, Thornton & Co. Tel: +94-31-2227859 Fax: +94-31-2227860 BANKERS Sampath Bank Ltd.
COLOMBO STOCK EXCHANGE Tel: +94-11- 2356456 Fax: Clearing & Settlement: +94-11-2440396 Finance & Administration: +94-11-2448921 Information Technology: +94-11-2440162 Listings & Surveillance: +94-11-2448925 Business Development: +94-11-2445279 Legal: +94-11-2391128 E-Mail: [email protected] Website: www.cse.lk
44.6 billion
Designed & Produced by: Copyline (Pvt) Ltd
Rupees through Rights Issues by 21 listed companies as well as recording its highest ever Net Foreign Inflow of Rupees
11.2 billion The Colombo Stock Exchange has proved resilient despite challenges this past year. We are confident we will remain strong in the year ahead.
Annual Report 2007
Contents
Vision & Mission 3 Graphical Review 4 Introduction 7 Members of the CSE 9 Board of Directors 11 Board Committees 2007-08 12 Chairman’s Message to Stakeholders 13 Chief Executive Officer’s Review 15 Operational Review 19 Management Team 25 Human Resource Indicators 26 Financial Information 27 Report of the Audit Committee for the Year 2007 28 Statement of Directors’ Responsibilities 28 Auditor’s Report 29 Balance Sheet 30 Income Statement 31 Statement of Changes in Equity 32 Consolidated Cash Flow Statement 33 Notes to the Financial Statements 34 Key Financial Indicators 45 Notes 46 Corporate Information IBC
Annual Report 2007
The Colombo Stock Exchange shall contribute to the wealth of the nation by creating value through securities. Vision Mission &l Actively pursue strategies that & contribute to the growth of the Capital Market.
l Provide facilities to trade Equities, Debt, Derivatives and Commodities.
l Promote a corporate culture that encourages employee commitment, creativity and teamwork.
l Maintain a balanced and responsive regulatory framework that will enhance market integrity and investor confidence.
l Focus on customer orientation, strive for organisational excellence and promote professionalism within the industry.
Annual Report 2007 Graphical Review
Annual Report 2007
Annual Report 2007 Highest turnover for a day
Rs.} 6.7 Billion
Highest market capitalisation of
Rs. Billion
938.6Annual Report 2007 Introduction
Share trading in Sri Lanka commenced in The Securities and Exchange Commission The Exchange calculates two main Price the 19th century, when British Planters of Sri Lanka (SEC) was established under Indices, namely, the All Share Price Index needed funds to set up Tea Plantations the Securities Council Act No.36 of 1987 (ASPI) and the Milanka Price Index (MPI). in Sri Lanka. The Colombo Share Brokers (now amended as the Securities Council Price indices are calculated for each of the Association commenced trading of shares Act), to regulate the securities market in Sri 20 Business sectors. Total Return Indices in limited liability companies in 1896, Lanka, grant licenses to stock exchanges, (TRI) are also calculated to track the market involved in setting up plantations in the stockbrokers, stock dealers and unit trusts performance on a Total Returns basis. The country. who engage in the business of trading TRI exceeds the scope of existing price in securities. The CSE operates as a Self indices (ASPI, MPI) and incorporates returns The Colombo Share Market continued Regulatory Organisation (SRO) subject to from dividends into its computation. CSE operations for almost a century, the regulation and supervision of the SEC. publishes TRI based on the ASPI, MPI, and experiencing several vicissitudes due to Sri Lanka was one of the first countries in the 20 Sector Price Indices. political and economic factors during South Asia to establish a capital markets the period. A landmark event in the regulator. The CSE provides companies the history of share trading in Sri Lanka was opportunity to raise equity and debt capital the formalisation of the market with the The CSE was one of the first Exchanges required for their expansion through the establishment of the “Colombo Securities in the region to successfully automate primary and secondary markets while Exchange (GTE) Limited” in 1985, which its clearing and settlement functions in providing a mechanism for price discovery took over the operations of the stock 1991, with the installation of a Central in an active secondary market. The equity market from the Colombo Share Brokers’ Depository and an electronic clearing and and debt securities of a public company Association. It was renamed ‘Colombo settlement system for share transactions, can be listed on either the Main or Second Stock Exchange’ (CSE) in 1990. and an Automated Trading System (ATS) Board of the CSE; a Main Board for in 1997. This has notably enhanced the larger companies and a Second Board for The CSE is a company limited by guarantee, transparency and efficiency of the securities medium to small companies and for start established under the Companies Act market in Sri Lanka. up companies. No. 17 of 1982 and is licensed by the Securities & Exchange Commission of Sri In recognition of the technology, systems Foreign institutions and individuals, Lanka (SEC). The CSE is a mutual exchange and regulation, the CSE was admitted to including non-resident Sri Lankans are and has 15 full Members and 6 Trading the World Federation of Exchanges (WFE) permitted to buy and/or sell shares in Members licensed to trade both equity and in 1998, becoming the first South Asian a listed company up to 100% of the debt securities. All members are licensed member. It was also a founding member of issued capital except in the case of a few by the SEC to operate as stockbrokers. the South Asian Federation of Exchanges companies, where certain restrictions have All members are corporate entities and (SAFE) in 2000. been imposed. Investment in shares in Sri some are subsidiaries of large financial Lanka and repatriation of proceeds should institutions. At present the CSE offers advanced take place through a Share Investment facilities for the secondary trading of equity External Rupee Account (SIERA) opened The policy making body of the CSE is and debt instruments. The Debt Securities with a licensed commercial bank. Income the Board of Directors composed of nine Trading System (DEX) implemented in from investments such as interest, members. Five directors are elected by the 2003 enables the secondary trading of dividends and profit realised from such 15 member firms while the Minister of the Beneficial Interest in Government investments are not subject to Exchange Finance nominates four. Securities. DEX provides investors an Control Regulations. opportunity to diversify their portfolio and The CSE Board has five sub committees thereby reduce risk. Live market information is presently being appointed to administer the operations of disseminated through member firms, the CSE. The Exchange Secretariat, headed 235 companies are currently listed on the information vendors, CSE branches, print by the Chief Executive Officer is responsible CSE, representing twenty (20) business & electronic media and through a special for the operations of the Exchange, and is sectors with a market capitalisation of Rs. local TV broadcast. International financial accountable to the Board of Directors. 827.7 billion (approx. US $ 7.7 billion) as press such as Reuters and Bloomberg also at 31st March 2008. provide daily online trading information to investors worldwide.
Annual Report 2007
Introduction Contd.
The new CSE website, www.cse.lk, launched in October 2007, provides access to a comprehensive array of real time market information, order book information and includes charts and graphs of Market and Company performance to help existing and potential investors make informed investment decisions. The new website is designed to function as the primary communication channel of the CSE and most information on the website is downloadable in Excel, CSV and XTML formats. The CSE website also facilitates fast access to individual listed company profiles, as well as links to Online Trading platforms offered by stock broker firms. Other features such as My CSE and a Stock Market Game are scheduled to be launched in early 2008.
The CSE has set up branch offices with the objective of broad basing the stock market and providing wider access. The CSE presently operates four branches in the Southern (Matara), Central (Kandy), North Western (Kurunegala) and the Western (Negombo) provinces. The Branch office in Negombo was opened in August 2007.
The CSE has initiated activities to improve the market infrastructure and the regulatory framework to integrate and strengthen the securities market in Sri Lanka.
Annual Report 2007 Members of the CSE
Bartleet Mallory Stockbrokers (Pvt) Somerville Stockbrokers (Pvt) Ltd. Lanka Orix Securities (Pvt) Ltd. Ltd. 137, Vauxhall Street, Colombo 2. 42, Sir Mohamed Macan Markar Mawatha Level “G”, “Bartleet House” Tel: 2329201-5, 2332827, 2338292-3 Colombo 3. 65, Braybrooke Place, Colombo 2. Fax: 2338291 Tel: 5-335225, Tel: 5220200 E-Mail: [email protected] Fax: 5-365725 Fax: 2434985 Ms. Shalini Dias E-mail: [email protected] E-mail: [email protected] Director Mr. Tushan Wickremasinghe Website: www.bartleetstock.com Managing Director Mr. R. Muralidaran J B Securities (Pvt) Ltd. Managing Director 150, St. Joseph Street, Colombo 14. S C Securities (Pvt) Ltd. Tel: 2490900, 077-2490900, 077-2490901 2nd Floor, 55 D.R. Wijewardena Mawatha DFCC Stockbrokers (Pvt) Ltd. Fax: 2430070, 2446085, 2447875 Colombo 10. 3rd Floor E-mail: [email protected] Tel: 4711000 73, W.A.D. Ramanayake Mawatha Mr. Murtaza Jafferjee Fax: 2394405 Colombo 2. Chairman & Managing Director E-mail: [email protected] Tel: 2446021-2, 2446031-4 Website: www.sampathsecurities.lk Fax: 2437149 Lanka Securities (Pvt) Ltd. Mr. Harsha Fernando E-mail: [email protected] 5th Floor, 86, Galle Road, Colombo 3. Director Mr. Ray Abeywardena Tel: 5576757, 2431138 Chief Executive Officer Fax: 5576767 CT Smith Stockbrokers (Pvt) Ltd. E-mail: [email protected] 4-14, Majestic City, 10, Station Road John Keells Stockbrokers (Pvt) Ltd. Website: www.lsl.lk Colombo 4. 130, Glennie Street, Colombo 2. Mr. Kosala Gamage Tel: 2552290 - 4 Tel: 2326003, 2338066/7, 2342066/7, Chief Operating Officer Fax: 2552289 2446694/5, 2439047/8, 4-710721-4 E-mail: [email protected] Fax: 2342068, 2326863 Asia Securities (Pvt) Ltd. Website: www.ctsmith.lk E-mail: [email protected] Level 21, West Tower, World Trade Centre Mrs. Cecilia Muttukumaru Website: www.jksb.keells.lk Echelon Square, Colombo 1. Managing Director Mr. Tivanka Ratnayake Tel: 2423905, 5320000 Chief Executive Officer Fax: 2336018 HNB Stockbrokers (Pvt) Ltd. E-mail: [email protected] Level 7, HNB Towers Asha Phillip Securities Ltd. Website: www.asiacapital.lk 479, T.B. Jayah Mawatha, Colombo 10. Level 4, “Millennium House” Mr. Dushyanth Wijayasinghe Tel: 2663663 (Hotline) 46/58, Navam Mawatha, Colombo 2. Director Fax: 2663698, 2663699 Tel: 2429100 E-mail: [email protected] Fax: 2429199 Ceylinco Stockbrokers (Pvt) Ltd. Website: www.hnbstock.com E-mail: [email protected] Ceylinco House, Level 9 Mr. Deva Ellepola Mr. Dimuthu Abeysekera 69, Janadhipathi Mawatha, Colombo 1. General Manager/CEO Director/CEO Tel: 4-714300, 4-714388, 4-714389, 0777-891871, 0777-896064 NDB Stockbrokers (Pvt) Ltd. DP Global Securities (Pvt) Ltd. Fax: 2387228 5th Floor, NDB Building 3rd Floor, Forbes & Walker Bldg. E-mail: [email protected] 40, Navam Mawatha, Colombo 2. 46/38, Navam Mawatha, Colombo 2. Website: www.ecsbl.com Tel: 2314170 to 2314178 Tel: 4700111, 2307366 Mr. Sriyan Gurusinghe Fax: 2314180 Fax: 2307365, 4700112 Director/General Manager E-mail: [email protected] E-mail: [email protected] Mrs. Prasansini Mendis Mr. Travis Waas Acting Chief Executive Officer Managing Director
Annual Report 2007 10
Members of the CSE Contd.
TRADING MEMBERS - DEBT & Amana Securities Ltd. EQUITY 532/4F, Sirikotha Lane, Galle Road Colombo 3. Capital Alliance Securities (Pvt) Ltd. Tel: 2372561-4 Level 5, “Millennium House” Fax: 2372565 46/58, Navam Mawatha, Colombo 2. E-mail: [email protected] Tel: 2317777 Website: www.asl.lk Fax: 2317788 Mr. Ishrat Rauff E-mail: [email protected] Chief Executive Officer Website: www.capitalalliance.lk Mr. Ajith Fernando SKM Lanka Holdings (Pvt) Ltd Managing Director/CEO 377/3, Galle Road, Colombo 3. Tel: 2372415-6 SMB Securities (Pvt) Ltd. Fax: 5371139 Landmark Bldg, 385 Galle Road E-mail: [email protected] Colombo 3. Mr. Khalil Masood Tel: 5539593 Chairman/CEO Fax: 5510750 E-mail: [email protected] Website: www.smblk.com Mr. Nandun Jayatillake Chief Executive Officer
First Guardian Equities (Pvt) Ltd. 32nd Floor, East Tower World Trade Centre, Echelon Square Colombo 1. Tel: 5884400 Fax: 5884401 E-mail: [email protected] Mr. Rohan Goonewardene Managing Director/CEO
Taprobane Securities (Pvt) Ltd. 10, Gothami Road, Colombo 08. Tel: 5328100 Fax: 5328109 E-mail: [email protected], [email protected] Mr. Ashan Dassanayake Chief Executive Officer
Annual Report 2007 11 Board of
Directors (As at 31st March 2008)
Mr. A.N. Fonseka (Chairman) Mr. Anthony A. Page - resigned w.e.f. 3rd December 2007 Mr. M.M. Udeshi Mr. J.H. Paul Ratnayeke Mr. Murtaza Jafferjee Mr. Krishan Balendra - appointed w.e.f. 7th March 2008 Mr. Ashroff Omar Mr. Dhakshitha T.W. Thalgodapitiya Mr. Gomin Dayasri - resigned w.e.f. 28th February 2008 Prof. Malik Ranasinghe 12 Board Committees 2007-08 1. 2. 3. Rules Committee Audit Committee Arbitration & Disciplinary Committee
The Rules and By Laws Committee of the The Board set up an Audit Committee The Arbitration & Disciplinary Committee of CSE approves rules and regulations of the comprising four non-executive Directors, the CSE is set up to carry out investigations CSE, which have wide implications on the which will assist the Board in discharging and recommend appropriate disciplinary conduct of the listed companies, member its responsibility in ensuring that all the action against member firms which firms and investors. The Committee ensures systems and procedures adopted at fail to comply with the Exchange rules that such rules will strike a sound balance the CSE provide reliable and accurate and regulations for member firms, thus between the market development and information as to the state of affairs of ensuring that the member firms adhere to regulatory role of the CSE by ensuring a the stock market and the internal control good business practices and follow justice reasonably effective investor protection systems of the Exchange are sound and and fair principles of trade in the conduct regime without imposing excessive well administered. of business, at all times. regulatory burdens on the market. Mr. D. Thalgodapitiya - Chairman Mr. A.Omar - Chairman Mr. A.N. Fonseka - Chairman Mr. M.M. Udeshi Mr. A.N. Fonseka Mr. J.H.P. Ratnayeke Mr. J.H.P. Ratnayeke Mr. G. Dayasri (Resigned w.e.f.28.2.08) Mr. M. Jafferjee Mr. M. Jafferjee Mr. M.M. Udeshi Mr. D. Thalgodapitiya 2 Representatives from the Colombo Stockbrokers Association 4. Dispute Resolution Committee
The Dispute Resolution Committee of the CSE is set up to resolve disputes arising between investors and member firms as well as any disputes among member firms, in order to maintain the professionalism of the member firms that, in turn, will reinforce the investor confidence and the integrity of the market-place as a whole.
Mr. G. Dayasri - Chairman (Resigned w.e.f.28.2.08) Mr. A.N. Fonseka Mr. M.M. Udeshi Prof. M. Ranasinghe
Annual Report 2007 13 Chairman’s Message to Stakeholders
Annual Report 2007 14
The Chief Executive Officer’s Report as the sole basis for investor protection in actively traded issues and the resultant provides detailed information on the the current state of development of the low level of liquidity (c) long settlement performance of the Colombo Stock Sri Lanka market. Incidents and events cycle and related broker risk (d) insufficient Exchange (CSE) in 2007, a performance that could lead to any widespread loss of attention to good principles of corporate best described as mixed. investor confidence arising from unsuitable governance especially by some closely issuers being permitted to raise public held family owned issuers (e) insufficient After several years of significant funds through the CSE will be extremely variety of traded instruments (f) high appreciation in the indices, the All Share detrimental to the future of the CSE and transaction costs (f) low level of awareness Price Index registered a drop of 6.7% but the capital markets as a whole. of capital markets among the potential on a rolling 5 year horizon still recorded investor pool, and (g) relatively low level an average compounded growth of 27% I thank my colleagues on the Board for of analytical information on equities and p.a. outstripping the return on fixed their valuable contributions and support an under developed fund management income securities during the same period and am particularly appreciative of industry. In the past year, the only tangible by a comfortable margin. The turnover the enthusiasm with which they have improvement was the reduction of broker was practically unchanged but net foreign embraced the need to take the CSE to risk through the adoption of a uniform inflow of Rs 11,254 million was more the next level. Messrs Anthony Page T + 3 settlement cycle abandoning the than double that of the previous year. For and Gomin Dayasiri relinquished office unique two tier settlement cycle that was the first time in many years there were as Directors and I thank them for their previously practiced by the CSE. Some no new listings of equity although on the valuable contributions. I am sure that the improvement to the level of disclosure other hand, listed entities raised an all time wide ranging exposure to capital markets relating to corporate governance among record amount of Rs. 44.6 billion as new and youthful energy of Messrs Murtaza listed entities should be apparent in capital from rights issues during the year. Jafferjee and Krishan Balendra who have 2008 consequent to the coming into joined the Board will enable them to operation of the comply or explain phase The CSE operated profitably although its participate with vigour in the CSE’s future of mandatory corporate governance profit after tax of Rs 142 million was 30% endeavours. Ms Surekha Sellahewa, the requirements stipulated in the listing rules. lower than in the previous year. This was CEO provided able leadership and has I wish to assure our stakeholders that mainly because of the absence of one off embarked on enhancing the skill base action has been initiated to deal with most income of Rs 125 million earned by the and expanding the human and technical of the other outstanding issues, some CSE in the previous year from entry fees capacity of the CSE to take on the of which are quite complex. Our efforts paid by 5 new trading members. challenges ahead. should come to fruition within the next few years. Another area that is being examined The reasons for the mixed performance I also sincerely thank the Chairman and is whether our present indices reflect were external as well as internal. The the Senior Executives of the SEC and the the true state of the market in the light external local macro environment of Ministry of Finance who have remained of developments that have taken place high interest rates resulted in investors committed to the development of the after the indices were designed. External preferring fixed income investments and capital markets. I also wish to record professionals are currently studying the securities. Investor sentiment was also my sincere appreciation of the efforts various options to enable the CSE to take dampened by concerns relating to the and contributions made by the issuers informed decisions. future profitability of some local industry of securities, broker firms, other market sectors arising from high oil prices and intermediaries and the investors all of The CSE is frequently criticized for not high inflation. Internally, the CSE continued whom are key stakeholders of the CSE. being able to increase the number to be affected by several factors that I of issuers because of stringent listing referred to last year. requirements for entry as well as for continued listing. While the Board has In the last Annual Report, I identified directed management to give priority to several issues and shortcomings that have Nihal Fonseka increase the number of listed equity issues, to be addressed and resolved to enable Chairman the relaxation of criteria must not leave the CSE to ascend to its rightful place in 23 June 2008 room for small investors to be unduly Sri Lanka’s capital markets space. These exploited or unfairly treated. While the CSE were (a) the ownership structure and works on a disclosure based regulatory legal constitution (b) small number of regime, caveat emptor cannot be adopted
Annual Report 2007 15 Chief Executive Officer’s Review
Annual Report 2007 16
A notable achievement for the CSE in recording a decline of 6.7% for the year. market capitalisation as at the end of 2007 the year 2007 was the raising of Rs. 44.6 of Rs. 820.7 billion was 1.7% lower than billion by 21 listed companies through The Milanka Price Index (MPI) reached its the year’s opening. Rights Issues, which is the highest amount highest point of 4,214.8 on 26th February recorded in the history of the CSE. The 2007 but declined during the year to close Interest Rates vs. Market largest ever net foreign inflow of Rs. 11.2 at 3,291.9, recording a decrease of 11.3% Performance billion was also recorded during the year for the year 2007. The negative correlation between interest 2007. rates & share market return was clearly Turnover demonstrated in 2007. As reflected in Price Indices Despite the decline in the Price Indices, Figure 2, during the period 2001 to 2006, High interest rates, high inflation and the market activity in 2007 was comparable while the ASPI return was 35.2% on current security situation, however, had a with that of 2006. The average daily average, the interest rates in the country negative impact on the performance of the turnover for 2007 was Rs. 435.6 million, were between 7%-13%. The high rates price indices during the year 2007. 0.2% below the average daily turnover of interest during the year 2007 and the of Rs. 436 million recorded in 2006. security situation in the country attributed After a continuous Bullish trend since The average daily turnover at the end of to the negative return of the ASPI during 2001, the CSE recorded a negative growth February 2007 was Rs. 789.4 million, the the same period. in both Price Indices for the first time in highest recorded, and remained above Rs. 2007. The All Share Price Index (ASPI), 500 million during the first half of the year. Foreign Investment which opened the year at 2,722.4 points, A Net Foreign Flow of Rs. 11.2 billion continued on an upward trend for the first Market Capitalisation was recorded for the year 2007, being two months and reached an all-time high Market capitalisation of the Colombo the highest ever foreign inflow in history, of 3,016.4 points on 13th February. The Bourse has seen a significant growth surpassing its previous record of Rs. downward movement of the ASPI, which over the past few years. The highest ever 6.2 billion, in 2005. Foreign investors commenced in March 2007, continued market capitalisation of Rs. 938.6 billion accounted for 44.6% of the total purchases through the year, to close at 2,541, was recorded on 13th February 2007. The for 2007, in comparison to 35.3% in
Figure 1: Annual Trading Statistics (Equity): 2001 to 2007 2007 2006 2005 2004 2003 2002 2001
ASPI 2,541.0 ,722.4 ,922.2 ,506.9 ,062.1 815.1 621.0 % Change (6.7) 41.6 7.5 41.9 30.3 31.2 38.7 MPI 3,291.9 3,711.8 ,451.1 ,073.7 ,897.8 ,374.6 ,031.0 % Change (11.3) 51.4 8.1 9.3 38.0 33.3 47.6 Annual Turnover (Rs Mn) 104,985 05,154 4,599 59,052 73,657 30,183 3,905 Foreign Purchases (Rs Mn) 46,797 37,167 7,712 ,278 3,944 7,478 ,112 Foreign Sales (Rs Mn) 35,543 31,789 ,568 0,172 3,735 5,036 3,137 Net Inflow (Rs. Mn.) 11,254.3 5,377.3 6,144.5 ,106.3 09.3 ,441.5 (1,024.8) Daily Average Turnover (Rs Mn) 436 436 482 46 307 7 58 Shares Traded (No Mn) 2,887 3,912 5,128 ,752 ,255 ,220 747 Trades (No) 876,928 952,382 ,100,451 645,083 481,269 80,681 58,627 Market Cap (Rs Bn) 820.7 834.8 584.0 382.1 62.8 62.6 4.0 Market PER Year End (Times) 11.6 4.0 . 0.8 . .1 7.5 Turnover to Average Market Cap (%) 12.7 4.8 3.7 8.2 34.6 .0 3.1 Dividend Yield 2.5 . .7 3.2 3.1 4.3 6.8 Price to Book Value (Times) 1.8 .0 .7 .3 .1 0.9 0.8 Source: Colombo Stock Exchange
Annual Report 2007 17
2006 and 24.2% in 2005, reflecting an Figure 2: Interest Rates and the ASPI Growth: 2001 to 2007 increasing interest in the local market 2007 2006 2005 2004 2003 2002 2001 (Figure 3). ASPI Annual Growth (%) (6.66) 41.63 7.56 41.88 30.30 31.26 38.74 The total purchases made by foreign Average Weighted Fixed investors during 2007 amounted to Rs. Deposit Rate (%) 5.49 .5 9.25 7.67 7. 0.17 3.47 46.8 billion, while the total sales made by 364-day Treasury foreign investors was Rs. 35.5 billion. The Bill Rate (%) 9.96 .96 0.37 7.65 7.24 9.9 3.74 largest foreign investments were made Source: Colombo Stock Exchange and Central Bank of Sri Lanka in the Diversified Holdings and Banks, Finance & Insurance sectors, recording net inflows of Rs. 5.5 billion and Rs. 5.2 billion, Figure 3: Contribution to Purchases and Sales: 2001 to 2007 respectively. The largest foreign outflows 2007 2006 2005 2004 2003 2002 2001 were in the Telecommunications and Beverage, Food & Tobacco sectors. PURCHASES (%) Capital Formation Foreign Companies 40.3 28.0 17.4 13.5 14.7 15.7 13.9 There were no new listings during the Foreign Individuals 4.3 7.3 6.8 5.5 4.2 8.8 1.1 year 2007. However, the 21 Rights Issues Total Foreign 44.6 35.3 4.2 9.0 8.9 4.5 5.0 by listed companies during the year Local Individuals 28.7 32.4 41.9 47.1 36.8 34.3 37.8 2007 raised more capital through the Local Companies 26.7 32.2 33.9 33.9 44.4 41.2 47.2 stock market than both the primary and Total Local 55.4 64.7 75.8 81.0 81.1 75.5 85.0 secondary market issues raised in the history of the CSE (Figure 4). SALES (%) Foreign Companies 27.3 24.7 13.1 12.3 14.1 15.2 21.0 CSE Contribution to Government Foreign Individuals 6.6 5.6 5.6 4.9 4.5 1.3 1.4 Revenue Total Foreign 33.9 30.2 8.8 7.2 8.6 6.5 .3 The Share Transaction levy of 0.20%, Local Individuals 34.9 37.7 44.8 48.8 35.5 37.3 30.4 imposed in January 2005, is charged on Local Companies 31.3 32.1 36.4 34.0 45.9 46.2 47.3 all equity transactions (purchases and Total Local 66.1 69.8 81.2 82.8 81.4 83.5 77.7 sales) executed on the CSE. This tax is Source: Colombo Stock Exchange recovered at the time of settlement of the transactions and sent directly to the settlement cycle. Moving to a single tiered The reduction in the settlement for sellers Department of Inland Revenue by the CSE, settlement will facilitate the introduction from T +4 to T + 3 shortened the asset ensuring 100% collection of the tax. It of a Delivery vs Payment (DVP) system to commitment period by one day and is noteworthy that Rs.419.9 million was the CSE. In the present system sellers face eliminated the settlement lag of one day collected in 2007. Since the introduction an Asset Commitment Risk (ACR), i.e that between buyers and sellers. Accordingly of the Share Transaction Levy, a sum of they lose control of the securities at the this has a positive impact on ACR. Rs. 1.29 billion has been collected and point of execution of the trade on Trade remitted to the government as taxes. day (T) whereas the funds are received by New Branch Opened them only on T +3. In contrast the buyer The CSE opened a branch in Negombo in This revenue excludes the 0.09% charged does not face any ACR. The buyer is better August 2007 with the objective of broad on every equity transaction by the off since the buyer receives the securities basing the market to the region. Ten Securities & Exchange Commission (SEC). on Trade day (T) but has 3 market days Stockbroker Firms operate at this branch within which to make payment. DVP is and it has generated a turnover of Rs. Introduction of a Single Tier a system that envisages the delivery of 765.4 million during the four months of Settlement Cycle shares only when the buyer pays for it on operation in 2007. The CSE made a far reaching change in the the settlement date. Hence under a DVP equity settlement with the introduction system the buyer will receive shares only on Future Initiatives of a single tiered settlement for equities the settlement date. The CSE has identified the urgent need with effect from 10th December 2007. to reduce systemic risk, increase market Since inception the CSE had a two tiered liquidity and offer new products to investors.
Annual Report 2007 18
Chief Executive Officer’s Review Contd.
Figure 4: Capital Formation: 2001 to 2007 2007 2006 2005 2004 2003 2002 2001
Voting Ordinary Share Issues No. Of Offers for Subscription - 1 3 4 3 - Amount Raised (Rs. Mn.) - 500 9,698 3,878.3 1,045.8 79.7 - No. Of Offers for Sale - - - - 2 - Amount Raised (Rs. Mn.) - - - - 3,373.7 - No. of Introductions - 1 3 3 3 4 1 Total No. Of New Listings - Equity - 2 6 5 9 7 1
Non-voting Ordinary Share Issues - 1 1 1 2 - - Amount Raised (Rs. Mn.) - 00 75 1.7 1,127 - - Preference Share Issues - - - - 1 - 1 Amount Raised (Rs. Mn.) - - - - 1,000 - 906
Right Issues No. of Rights issues (No.) 5 18 5 18 9 5 Amount Raised (Rs. Mn.) 44,622.2 4,705.5 3,501.1 5,263.6 6,425.3 964. 3
Total Amount Raised through Equity Market (Rs. Mn.) 44,622 5,305 3,274 9,144 ,97 ,044 ,119
Bonus Issues No. of Bonus issues (No.) 28 5 14 8 9 Source: Colombo Stock Exchange
Introducing a Delivery Versus Payment has to concentrate on a more structured Appreciation system and a clearing corporation (to investor education programme in order I wish to express my appreciation to eliminate counter party risk) are two to increase the critical mass of investors the Chairman and Board of Directors of key issues that are being considered for in the nation. Different mechanisms such the CSE for their invaluable advice and implementation to reduce the systemic as classroom method, TV programmes, guidance at all times. risk in the market and increase investor distance learning and computer-based confidence. learning would be introduced to cater to To the Chairman, Director General, Deputy the needs of the diverse potential investors Director General and staff of the Securities In an effort to improve market liquidity, in the economy. & Exchange Commission, the Member price efficiency and transparency, the CSE and Trading Member Firms and the listed is considering amendments to the current Considering the importance of developing companies, thank you very much for Automated Trading System (ATS) which the knowledge and professionalism of supporting the CSE in all our endeavours. was implemented in 1997, in consultation the Investment Advisors of Stockbroker with industry participants. Firms dealing with clients, the CSE has Last but not least, a very sincere thank you commenced a series of Professional to the CSE Management and team for your Development of new products such as Development programmes. The untiring efforts. financial and commodities derivatives and programmes scheduled for 2008 will Exchange Traded Funds are also a key focus include the New Companies Act, Financial of the CSE to improve the breadth of the & Equity Analysis, Portfolio Management, market. Ethics and Technical Analysis. Surekha Sellahewa As trading is highly concentrated amongst Chief Executive Officer a limited number of investors, the CSE
Annual Report 2007 19 Operational Review
Annual Report 2007 20
Business Development Figure 1: Branch Contribution to Market Turnover: 2007 Branch Network of the CSE Ave. Daily Turnover as a % Contribution to The CSE commenced operations of a No. of New Turnover % of Total Market Local Individual branch office in Negombo in August Accounts opened (Rs. Mn) Turnover Turnover 2007. The largest of the CSE Branches, the Negombo Branch houses representatives of Matara 913 8.1 1.9 5.9 10 Member Firms. Kandy 1,226 8.0 1.8 5.9 The CSE branch network has been successful in attracting a significant Kurunegala 815 4.3 1.0 3.1 number of retail investors into the market. In 2007, 3,399 new CDS accounts were Negombo 445 7.4 1.8 2.3 opened through the four branches operating in Matara, Kandy, Kurunegala and Negombo. This accounts for 23% of a timely and accurate manner. The user conducted 151 focused seminars for 5,400 the total CDS accounts opened during the friendly design captures and displays a participants. The Branches conducted two year, a notable 5% increase compared to comprehensive array of real time market ‘Investor Day’ programmes in Galle and 2006. A total of 3,124 deposits (excluding statistics which will help existing & Anuradhapura, attracting approximately Direct Deposits) were made through the 4 potential investors make well informed 800 participants. The CSE also conducted branches of which approximately 51% was investment decisions. a successful Investor Day in Negombo, from the Kandy Branch. attracting over 500 participants, as Investor Relations publicity for the opening of a CSE Branch The contribution of CSE Branches to total Investor Education in Negombo. Local Individual turnover of the market has The CSE continued its awareness increased gradually since 1999. In 2007, programmes throughout the year 2007, The CSE continued to organise special the total contribution to the total Local through the Colombo office and the educational seminars for schools during Individual market turnover by branches is branch network. A total of 15 workshops the year. Although the number of student 17.23% (Figure 1). and 43 public seminars were conducted in visits to the CSE Public Gallery in Colombo Colombo, which included special training continued its decline throughout 2007 due CSE Website & seminars for Media personnel and listed to security reasons, 44 such programmes The changing needs of existing and company Directors. were conducted in Colombo while the potential investors prompted the CSE to branch offices conducted a total of 68 develop a new website which would act as Branches conducted 31 public seminars, educational programmes for over 6,000 a portal for the capital market industry and reaching over 2,500 people, while Ordinary and Advanced Level students. also as the primary communication channel Regional Market Educators at Branches for the CSE.
Figure 2: Turnovers generated in 2007 through Seminars conducted by CSE from 2005 The development, implementation, & to 2007 maintenance of the new web site was 2007 2006 2005 awarded to E-Futures (Pvt) Ltd, based on Rs. Mn Rs. Mn Rs. Mn the Technical & Commercial proposals, and the agreement for the development of the Colombo 415.32 ,334.22 ,516.43 site was initiated in May 2007. Matara 49.69 274.97 160.41 Kandy 249.33 115.40 118.33 The new web site, which was launched Kurunegala 32.20 183.04 91.46 on 31st October 2007, uses state-of- Negombo 13.80 the-art hardware & networking solutions Total 760.34 1,907.63 1,886.63 to disseminate all stock market related information, both static & dynamic, in
Annual Report 2007 21
The Marketing Effectiveness Measurement Information Dissemination During the year 2007, the CSE commenced System (MEMS)1, introduced to measure The launch of the new CSE website has two English medium batches with a total the impact of CSE events on turnover simplified the process of obtaining stock of 116 registrations for the first batch and generated, evaluates the effectiveness market related information, on a real-time 90 for the second. 22 students successfully of programmes conducted by the CSE. basis. Existing and potential investors completed the first batch, and 86.4% of Given in Figure 2 is a summary of turnover have access to real time and static data them were public participants, i.e. non generated in 2007 by new and inactive pertaining to the stock market. A section broker students. investors who had not traded on the CSE titled ‘Getting Started‘ with animated for a considerable period before attending and text data has been developed for the Broker Training CSE seminars in Colombo and branches. benefit of new investors. The CSE conducts continuous training programmes to enhance the knowledge As evident in Figure 2, participants The CSE continued the transmission of a and technical skills of the staff of Member of seminars conducted during 2007 data Ticker of share prices and CSE price Firms. In 2007, the CSE conducted 10 accounted for a turnover of Rs. 760.3 indices on ITN every trading day from 9.30 training programmes in Colombo and million. We also note that participants of a.m. to 2.30 p.m. Share price information the four CSE Branches. These included seminars conducted in 2005 and 2006 is thereby available islandwide and free of training on the Salient Features of the new have continued to invest in the market as cost, and is most valuable to those who are Companies Act, understanding Financial a result of these awareness programmes. unable to access live market information Statements, Know Your Customer norms Participants of seminars conducted in 2005 through a broker office, the Internet or and CDS Procedures. and 2006 generated turnovers of Rs. 1.88 other means. billion and Rs.1.9 billion, respectively, in The CSE intends to further enhance 2007. The CSE commenced a stock market the training programmes, especially for update on Yes FM from 1st November Investment Advisors at the CSE Branches. CSE Publications 2007. The update includes a snapshot Handbook of Listed Companies is a of the market at 11.55 a.m. and a daily Issuer Relations publication that provides information market round-up at 5.55 p.m. The CSE also The Issuer Relations unit was set up in the regarding Listed Company Financials. conducted weekly 5 minute interviews with latter part of 2006 with the objective of Information provided in the publication Derana TV. creating awareness and assisting unlisted was enhanced in 2007 to include an companies to consider the option of raising unabridged Profit & Loss account, Balance The CSE also published educational articles capital by listing on the Stock Exchange. Sheet and Cashflow statement, due to high in selected Magazines and Newspapers. demand for this information. Stock Market information was published A team of CSE officials conducted visits daily in the English Newspapers. to 26 companies during 2007 to create The Investor magazine, a monthly awareness among chief officers and newsletter introduced in 2004 with the Broker Relations decision-makers of such companies intention of circulating among active Investment Advisor Certification about the benefits of listing and listing investors, was converted to a subscription- The Investment Advisor Certification is a procedures etc. based publication in 2007. The magazine mandatory requirement by the SEC for has become the most popular CSE Investment Advisors of Member firms The CSE also conducted a workshop titled publication due to its snippets and timely dealing with clients. Though the course is a ‘Family Businesses Going Public - What’s articles and currently has a subscriber base requirement only for Investment Advisors, needed to make it work’, in association of over 800. Advertising space in the form it has also attracted the interest of the with the Ceylon Chamber of Commerce, of a strip has been allocated exclusively for general public. for decision-makers of unquoted family- Stockbroker firms. owned companies, in November 2007. This interactive workshop was conducted
1 NIC numbers of participants at CSE events or seminars are collected and entered into the MEMS and the turnover generated by such seminar participants is measured. However, all seminar participants do not submit their NIC details. Hence, what is measured in the MEMS is the minimum turnover generated and the exact turnover may be much higher than stated in the reports.
Annual Report 2007 22
Operational Review Contd.
by Mr. Albert Jan Thomassen, Associate of ‘Fit and Proper’ Rules Inspection of Stockbroker Firms The Family Business Consulting Group Inc. Based on a directive issued by the SEC, ‘Fit The systems review process was revised Netherlands, and dealt with the issues of & Proper’ rules were introduced whereby with special focus on risk-based issues. attracting and retaining talent, selection of Stockbroker Firms should not directly or Areas such as the extension of credit to non executive directors, working with non indirectly obtain the services of any person Clients, Maintenance of the minimum Net family executives and the changing role of to deal with clients, if such person has Capital Requirement, Internal Controls and the family in the business and developing been: Business Practices were introduced to the effective family business governance. a) charged in a court of law with the Systems Review questionnaire. Approximately 80 key decision-makers of commission of offences of insider companies attended the seminar. dealing, market manipulation and/or Listing involving fraud or deception, until such The CSE introduced rules on Corporate The CSE also published a booklet named person is discharged from liability by a Governance in March 2007 to the ‘Unlocking Value’ which provides detailed court of competent jurisdiction on the Listing Rules to improve the Governance information on benefits of listing and the charges brought against him; accountability of listed companies to its Listing process. stakeholders. The Corporate Governance or rules were drafted by the committee set up Product Development b) convicted by a court of law with the by the SEC. The following provisions were Introduction of Derivatives commission of any offence involving incorporated into the rules: In setting the ground work necessary for fraud and/or dishonesty and/or the introduction of Derivatives trading in identified as an offence under the 1. Non-executive Directors & Independent Sri Lanka, the CSE continued its efforts SEC Act (as amended) or Rules or Directors of building awareness among market Regulations made thereunder; participants and market intermediaries on 2. Remuneration committee - Derivatives. or Composition, functions & disclosure in c) against whom an offence is the Annual Report. A two-day workshop on ‘Market compounded in terms of the SEC Act Micro Structures & Derivatives’ was (as amended), for a period of three 3. Audit committee - Composition, conducted by the CSE in October 2007, years from the date of compounding, functions & disclosure in the Annual for potential market participants and unless the CSE, in consultation with or Report. market intermediaries. The workshop upon a directive from the SEC, varies was conducted by Dr. Susan Thomas and the duration of such period. The Listing Rules were also amended Dr. Ajay Shah, professionals who were to clearly specify what action the CSE instrumental in introducing Derivatives to Settlement of funds would take against Companies that are the Indian Stock Markets. Pursuant to the introduction of a single transferred to the Default Board for non- tier settlement of T+3 with effect from compliance with the Listing Rules. If a Regulatory Affairs 10th December 2007, the Buyer is required company is on the Default Board in excess Regulation of Member Firms to ensure that cleared funds are made of one month, the CSE has the right to Amendments to the Member available to the Buyer’s Broker on T+3 and issue a press notice informing the public Regulations the Seller’s Broker shall make cleared funds of the nature of the violation and if such The following amendments were made to available to the Seller on T+3. “Cleared company is on the Default Board for more the Member Regulations of the CSE during Funds” mean funds that are realised and than 3 months, the CSE may refer the the year 2007: available for drawing in the payee’s bank matter to the SEC for necessary action. account. Credit rules Companies on the Default Board Pursuant to a directive issued by the Net Capital In terms of the Listing Rules, the CSE SEC, new rules were incorporated to The minimum net capital requirement referred eight companies to the SEC, which the Member Regulations to regulate the of Broker Firms was increased from Rs. were on the Default Board for a period of granting of credit by Brokers to their 25 million to Rs. 35 million from 31st more than one year due to non-compliance clients, since some Stockbroker Firms were December 2007. with Listing Rules. over-extending credit to clients.
Annual Report 2007 23
Central Depository System (CDS)
Figure 3: Operational Activities of the CDS from 2001 to 2007 2007 2006 2005 2004 2003 2002 2001
Operational Highlights New Accounts (No.) 15,020 4,823 56,465 ,348 ,440 ,016 5,067 Deposits (No.) 106,080 71,154 00,836 04,870 95,878 62,010 4,718 Withdrawals (No.) 208 05 315 471 447 404 Transfers (No.) 16,981 8,535 7,872 ,877 5,349 4,110 ,201 Trades (No.) 877,292 953,887 ,103,092 647,831 484,091 83,926 60,094 Market Days (No.) 241 41 38 42 38 38 40 Listed Companies (No.) 235 37 39 42 44 38 38 Participants (No.) 36 37 35 34 32 32 32
Registration Status of Securities Accounts (as at 31st December) Local Individuals (No.) 353,287 343,697 334,085 90,340 3,215,482 60,260 52,742 Foreign Individuals (No.) 2,577 ,487 ,377 ,044 0,181 ,593 ,482 Local Companies (No.) 4,908 4,755 4,529 3,720 37,376 ,950 ,769 Foreign Companies (No.) 3,468 3,305 3,174 3,047 34,595 ,817 ,671
(The above break-up excludes the number of multiple registrations sought by the same client through different participants) Total Number of Registrations 466,369 451,349 436,526 380,050 4,169,241 337,273 326,257
Value of Securities Held (as at 31st December) By Domestic Clients (Rs. Mn) 260,455 48,693 79,78 40,380 ,055,643 66,474 50,924 By Foreign Clients (Rs. Mn) 157,633 ,383 79,999 54,652 375,035 9,470 ,243 Total Market Value of Securities held (Rs. Mn) 418,088 370,076 59,780 95,03 ,430,678 85,944 63,166 Market Capitalisation (Equities) - (Rs. Mn) 820,652 834,763 584,040 382,665 ,897,722 62,588 4,045 Percentage Value held by the CDS 51% 44% 44% 51% 49% 53% 51%
Number of Shares in Custody (as at 31st December) By Domestic Clients (No. Mn) 7,680 6,746 5,854 4,043 9,564 ,165 ,879 By Foreign Clients (No. Mn) 3,564 ,738 ,527 749 8,160 633 514 Total (No. Mn) 11,244 8,484 7,381 4,792 37,724 ,799 ,393 Source: Central Depository Systems
Compliance with Financial l Awareness programmes were Single Tiered Settlement introduced Transactions Reporting Act (FTRA) conducted by the CDS for the 20 On a directive issued by the SEC, a single l An internal control guideline for Broker Firms on the Compliance tier settlement for Equity transactions of account openings and reporting of requirements under section 14 of the Trade Day + 3 (T+3) was introduced with suspicious transactions was introduced FTRA. effect from 10th December 2007. by the CDS, in compliance with section 14 of the Financial Transaction l The CDS commenced recommending Accordingly, the settlement for Buyers, Reporting Act (FTRA) No. 6 of 2006. applications for the opening of CDS Sellers and Inter Participants will take place Accounts from regional and global on T+3. Previously, the settlement for l The Assistant Manager CDS was also Funds to the SEC. Equity transactions was two tiered with appointed as the Compliance Officer to T+3 for Buyers and T+4 for Sellers and for ensure that the CDS complies with the the Inter Participatory settlement. FTRA.
Annual Report 2007 24
Operational Review Contd.
Information Technology CDS Forms and Reports The Automated Trading System (ATS) The CDS is currently working on a client uptime was 100% in 2007, with no system server Oracle environment. The CSE is breakdowns during the year. The CSE also in the process of upgrading the CDS launched an initiative to introduce a new application to a browser-based system, Surveillance system to be better equipped enabling users to access the CDS via to identify common market malpractices. a browser. This would improve the application security of the CDS. Oracle has ATS Version 4 moved from client server to application Version 4 of the ATS has been very stable server technology where software and system uptime has further improved developed in Oracle is accessed through a from 99.85% in the previous year (2006) browser. to 100% this year. The Wide Area Networks had a general failure resulting in an outage Disaster Recovery Site of the remote brokers for 10 minutes in CSE carried out two mock trading cycles August 2007. from the Disaster Recovery (DR) site to ensure that on a site disaster the member Access to Custodian Banks firms could operate from their offices by CSE implemented a special Wide Area connecting their Local Area Networks to Network for the Custodian Banks to the DR site. The DR site has a scaled-down provide access to the Central Depository server configuration that could handle the System. A new application was developed volumes of trades recorded by the CSE. for the Custodian Banks providing A test system, which is identical to the information on client details and production system, is also available at the balances of the custodian clients, market DR site so that in a long term contingency, information, statistics and trade details. the test system could be easily converted to be the production system. Improved Physical Security in the IT Division The physical security of the IT Division and the Server Room were enhanced by the implementation of a biometrics access control system. The system restricts access to the IT Division as well as the CPU room and logs all access information to an Oracle database. The system has been further enhanced to interface with the HR System such that the IT staff has the ability to mark their attendance through the system.
New Telephone System The ten year old telephone system was replaced with a modern IP telephone system with enhanced facilities. An E1 connection having 30 channels was also implemented easing contactability by dialling the pilot number with the extension.
Annual Report 2007 25 Management Team
Chief Executive Officer - Ms. Surekha Sellahewa
Assistant General Manager, Clearing & Settlement - Mr. Rajeeva Bandaranaike Assistant General Manager, Information Technology - Mr. Lalin Paranavitana Assistant General Manager, Regulatory Affairs - Mr. Renuke Wijayawardhane Senior Manager, Human Resource - Ms. Nilanthi Jayatillake Senior Manager, Security Administration - Mr. Charita Dumbukola Manager, Business Development - Mr. Tushara Jayaratne Manager, Finance & Administration - Mr. Kusal Nissanka Manager, Legal - Ms. Renu Ranatunge Manager, Systems Operation - Mr. Chatura Kulatilaka
Annual Report 2007 26 Human Resource Indicators
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Senior Mgmt 7 8 8 7 7 7 7 7 6 7 Management 6 8 6 5 5 9 0 0 0 Executives 20 4 9 6 30 32 53 52 56 58 Clerical 19 5 0 9 8 8 9 0 0 0 Other 9 9 8 8 8 9 8 8 9 0
Annual Report 2007 27 Financial Information
Annual Report 2007 28
Report of the Audit Committee for the Year 2007
The Audit Committee of the Colombo Stock Exchange (CSE) comprises 3 elected directors and 1 appointed director. All 4 members of the Audit Committee are Non-Executive Directors. The Manager Finance & Administration attends the meetings of the Audit Committee on invitation.
The Committee is empowered to examine matters relating to the financial affairs of the CSE and its subsidiary Central Depository Systems (Private) Limited (CDS). Its duties include detailed reviews of the financial statements, internal control procedures, accounting policies, compliance with accounting standards and emerging accounting issues, and such other related functions as the Board may delegate to the Committee.
The financial statements for the year ended 31st December 2007 were discussed and approved by the Committee at the Audit Committee meeting held on 28th February 2008 for submission to the Board. The Committee reviewed & approved the draft letter of representation to be given to the External Auditors for the year 2007. The Committee recommended the inclusion of the Statement of Director’s Responsibilities in the 2007 Annual Report.
Dhakshitha Thalgodapitiya Chairman - Audit Committee
17th March 2008
Statement of Directors’ Responsibilities
The Directors confirm that the Financial Statements of the Colombo Stock Exchange (CSE) and its subsidiary Central Depository Systems (Private) Limited (CDS) for the year ended 31st December 2007 presented in this report have been prepared in accordance with the Sri Lanka Accounting Standards and the Companies Act No: 07 of 2007. In preparing the Financial Statements, the Directors have selected the appropriate accounting policies and have applied them consistently. Any material deviations have been disclosed and explained in the Financial Statements.
The Directors have adopted the going concern basis in preparing the Financial Statements.The Directors are of the view that the CSE & CDS have adequate resources to continue in operation.
The Directors have taken reasonable steps to safeguard the assets of the CSE and its subsidiary CDS.
The Directors have provided the Auditors with every opportunity to carry out any reviews and tests that were considered appropriate and necessary for providing the audit opinion on the Financial Statements.
By order of the Board,
Secretarial Services Limited Secretaries Colombo
17th March 2008
Annual Report 2007 29
Auditor’s Report
INDEPENDENT AUDITOR’S REPORT Scope of Audit and Basis of Opinion financial statements give a true and fair TO THE MEMBERS OF COLOMBO Our responsibility is to express an opinion view of the Company’s state of affairs STOCK EXCHANGE on these financial statements based as at December 31, 2007 and its profit on our audit. We conducted our audit and cash flows for the year then ended Report on the Financial Statements in accordance with Sri Lanka Auditing in accordance with Sri Lanka Accounting We have audited the accompanying Standards. Those standards require Standards. financial statements of Colombo Stock that we plan and perform the audit to Exchange the consolidated financial obtain reasonable assurance whether the In our opinion consolidated financial statements of the Company and its financial statements are free from material statements give a true and fair view of the subsidiary as at that date which comprise misstatement. state of affairs as at December 31, 2007 the balance sheet as at December and the profit and cash flows for the year 31, 2007, and the income statement, An audit includes examining, on a test then ended, in accordance with Sri Lanka statement of changes in equity and cash basis, evidence supporting the amounts Accounting Standards, of the Company flow statement for the year then ended, and disclosures in the financial statements. and its subsidiary dealt with thereby, so far and a summary of significant accounting An audit also includes assessing the as concerns the members of the Company. policies and other explanatory notes. accounting principles used and significant estimates made by management, as well as Report on Other Legal and Management’s Responsibility for the evaluating the overall financial statement Regulatory Requirements Financial Statements presentation. These financial statements also comply Management is responsible for the with the requirements of Section 153(2) preparation and fair presentation of We have obtained all the information and Sections 153(7) of the Companies Act these financial statements in accordance and explanations which to the best of No. 07 of 2007. with Sri Lanka Accounting Standards. our knowledge and belief were necessary This responsibility includes: designing, for the purposes of our audit. We implementing and maintaining internal therefore believe that our audit provides a control relevant to the preparation and reasonable basis for our opinion. fair presentation of financial statements CHARTERED ACCOUNTANTS that are free from material misstatement, Opinion Colombo. whether due to fraud or error; selecting In our opinion so far as appears from our 17th March 2008. and applying appropriate accounting examination, the Company maintained policies; and making accounting estimates proper accounting records for the year that are reasonable in the circumstances. ended December 31, 2007 and the
Annual Report 2007 30
Balance Sheet
Consolidated CSE As at 31st December 2007 2007 2006 2007 2006 Note Rs. Rs. Rs. Rs.
ASSETS Non Current Assets Property and Equipment 3 98,493,182 80,370,358 98,493,138 80,370,314 Intangible Assets 4 38,886,489 8,012,776 38,886,489 8,012,776 Capital Work in Progress 5 - ,662,613 - ,662,613 Development Cost 6 1 1 1 1 Investments in Subsidiary 7 - - 50,025,000 50,025,000 Investments in Treasury Bonds 59,196,689 - 59,196,689 - Investments in LFSB 8 ,000,000 - - - Total Non Current Assets 98,576,36 01,045,748 46,601,317 51,070,704
Current Assets Inventories 4,484,196 5,165,242 4,429,083 5,113,640 Investments in Treasury Bills and Repos 850,942,049 ,061,756,490 850,942,049 ,061,756,490 Investments in Fixed Deposits 51,830,601 - 51,830,601 - Other Receivables 9 56,434,642 46,416,818 50,178,550 41,402,813 Income Tax Recoverable 3,617,431 - - - Cash and Cash Equivalents 10 6,441,099 7,477,526 6,190,7 7,312,675 Total Current Assets 993,750,018 ,130,816,076 983,571,005 ,125,585,618
Total Assets ,192,326,379 ,231,861,824 ,230,172,3 ,276,656,322
EQUITY AND LIABILITIES Accumulated Fund 889,761,598 759,328,349 889,761,598 759,328,349 Revenue Reserve of CDS 46,735,261 45,128,417 - - Capital Reserve 11 49,975,000 49,975,000 - - Capital Redemption Reserve 11 40,000,000 30,000,000 - - Conference Fund Account 11 558,713 558,713 558,713 558,713 Total Capital and Reserves ,027,030,572 884,990,479 890,320,311 759,887,062
Non Current Liabilities Brokers’ Deposits in lieu of Bank Guarantee 12 51,939,970 32,439,970 51,939,970 32,439,970 Employee Retirement Benefits 13 7,511,897 ,699,944 7,511,897 ,699,944 Deferred Grants 14 ,603, ,244,555 ,603, ,244,555 Deferred Tax Liabilities 15 9,249,506 ,803,323 9,249,506 ,803,323 Total Non Current Liabilities 80,304,485 50,187,792 80,304,485 50,187,792
Current Liabilities Brokers’ Deposits in lieu of Bank Guarantee 30,645,000 07,720,000 4,250,000 01,500,000 Income Tax Payable 3,021,294 54,121,555 3,021,294 49,701,051 Other Payables 16 8,583,73 3,460,344 09,534,936 03,998,763 Tsunami Fund Payable 6,754,470 6,118,863 6,754,470 6,118,863 Bank Overdraft 10 5,986,826 5,262,791 5,986,826 5,262,791 Total Current Liabilities 84,991,3 96,683,553 59,547,526 466,581,468
Total Equity and Liabilities ,192,326,379 ,231,861,824 ,230,172,3 ,276,656,322
The accounting policies & notes as set out in page 34 to 44 form an integral part of the Financial Statements.
These Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007.
Manager Finance & Administration
These Financial Statements were approved by the Board of Directors on 17th March 2008.
A.N. Fonseka Ashroff Omar Chairman Directors
17th March 2008. Colombo.
Annual Report 2007 31
Income Statement
Consolidated CSE For the Year Ended 31st December Note 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
Revenue 17 327,794,908 449,598,974 47,817,758 368,133,999 Other Income 18 79,423,429 84,101,657 79,168,348 83,188,560 507,218,337 533,700,631 426,986,106 451,322,559
Personnel Cost 19 (84,761,887) (73,167,894) (74,094,013) (60,277,279) Depreciation and Amortisation (42,257,935) (37,738,693) (42,257,935) (37,738,693) Other Operating Expenses 20 (171,970,166) (122,836,196) (121,400,682) (90,613,288) Profit before taxation 08,228,349 99,957,848 89,233,476 62,693,299 Taxation 21 (66,188,256) (96,438,928) (58,800,227) (83,016,768)
Net profit for the year 42,040,093 03,518,920 30,433,249 79,676,531
The accounting policies & notes as set out in page 34 to 44 form an integral part of the Financial Statements.
Annual Report 2007 32
Statement of Changes in Equity
For the Year Ended 31st December 2007 Accumulated Revenue Capital Capital Conference Total Fund Reserve Reserve Redemption Fund of CDS Reserve Account Rs. Rs. Rs. Rs. Rs. Rs.
CONSOLIDATED Balance as at 1st January 2006 579,651,818 31,286,028 49,975,000 0,000,000 558,713 681,471,559 Net Profit for the year 203,518,920 - - - - 03,518,920 Transferred to/(from) during the year - (10,000,000) - 0,000,000 - - Revenue Profit of CDS for the year (23,842,389) 3,842,389 - - - - Balance as at 31st December 2006 759,328,349 45,128,417 49,975,000 30,000,000 558,713 884,990,479 Net Profit for the year 142,040,093 - - - - 42,040,093 Transferred to/(from) during the year - (10,000,000) - 0,000,000 - - Revenue Profit of CDS for the year (11,606,844) ,606,844 - - - - Balance as at 31st December 2007 889,761,598 46,735,261 49,975,000 40,000,000 558,713 ,027,030,572
Accumulated Conference Total Fund Fund Account Rs. Rs. Rs.
CSE Balance as at 1st January 2006 579,651,818 558,713 580,210,531 Net Profit for the year 79,676,531 - 79,676,531 Balance as at 31st December 2006 759,328,349 558,713 759,887,062 Net Profit for the year 30,433,249 - 30,433,249 Balance as at 31st December 2007 889,761,598 558,713 890,320,311
The accounting policies & notes as set out in page 34 to 44 form an integral part of the Financial Statements.
Annual Report 2007 33
Consolidated Cash Flow Statement
Consolidated CSE For the Year Ended 31st December 2007 2006 2007 2006 Note Rs. Rs. Rs. Rs.
Cash Flows from Operating Activities Net Profit before Taxation 08,228,349 99,957,848 89,233,476 62,693,299
Adjustments For: Depreciation / Amortisation 3/4 42,257,936 37,438,452 42,257,936 37,438,452 Interest Income 18 (153,733,433) (78,244,488) (153,733,433) (78,244,488) Amortisation of Deferred Grant 14 (2,814,776) (1,134,514) (2,814,776) (1,134,514) Amortisation of Development Cost 6 - 300,241 - 300,241 (Profit) / Loss on Sale of Property & Equipment (7,709,508) (60,839) (7,709,508) (60,839) Property & Equipment / Intangible Assets Written Off ,624,239 - ,624,239 - Gratuity Provision 13 5,722,675 4,909,061 4,796,591 4,420,808 Provision for Bad Debts 60,785 ,402 55,655 09,512 Operating Profit before Working Capital Changes 94,636,267 63,277,163 74,710,180 5,522,471
(Increase) / Decrease in Inventories 681,046 (917,662) 684,557 (913,480) (Increase) / Decrease in Other Receivables 9 (10,078,609) (11,758,956) (8,831,392) (12,045,471) Increase / (Decrease) in Other Payables 16 5,758,996 6,506,598 7,097,864 32,519,537 Increase / (Decrease) in Broker Deposits (157,575,000) 07,100,000 (157,750,000) 01,000,000 Cash Generated from Operations (66,577,300) 364,207,143 (84,088,791) 346,083,057 Income Tax Paid (89,269,481) (55,769,909) (73,843,516) (37,821,965) Gratuity Paid 13 (910,722) (2,241,490) (910,722) (2,241,490) Net Cash Flow from Operating Activities (156,757,503) 306,195,744 (158,843,029) 306,019,602
Cash Flow from Investing Activities Interest Income 3,630,782 57,428,624 3,630,782 57,428,624 Purchase of Property & Equipment and Intangible Assets (81,593,537) (27,837,324) (81,593,537) (27,837,324) Proceeds from Sale of Property & Equipments 8,086,946 09,774 8,086,946 09,774 (Increase) / Decrease in Deposits & Treasury Bills & Bonds 4,699,517 (337,017,874) 4,699,517 (337,017,874) Investment in LFSB (2,000,000) - - - Net Cash Flow from Investing Activities 62,823,708 (307,316,800) 64,823,708 (307,316,800)
Cash Flow from Financing Activities Grants Received 14 ,173,333 ,880,000 ,173,333 ,880,000 ,173,333 ,880,000 ,173,333 ,880,000 Net Increase in Cash and Cash Equivalents 8,239,538 ,758,944 8,154,0 ,582,802 Cash and Cash Equivalents at beginning of the Year ,214,735 0,455,79 ,049,884 0,467,082 Net Cash and Cash Equivalents at end of the Year 0 0,454,273 ,214,735 0,203,896 ,049,884
Cash in hand 70,000 70,000 65,000 65,000 Cash at bank 6,940,172 671,456 6,721,075 539,045 RTGS Account 26,280 27,440 - - Short term investment - overnight repo 9,304,647 6,608,630 9,304,647 6,608,630 Cash & Cash Equivalents 6,441,099 7,477,526 6,190,7 7,312,675
Bank Overdraft (5,986,826) (5,262,791) (5,986,826) (5,262,791) Net Cash & Cash Equivalents 0,454,273 ,214,735 0,203,896 ,049,884
The accounting policies & notes as set out in page 34 to 44 form an integral part of the Financial Statements.
Annual Report 2007 34
Notes to the Financial Statements
1 CORPORATE INFORMATION with those used in the previous year. intra-group transactions, are eliminated (A) Domicile and Legal Form The company balance sheet represents in preparing the consolidated financial Colombo Stock Exchange is a Company the assets, liabilities and reserves. The statements. Limited by Guarantee incorporated & consolidated balance sheet includes the domiciled in Sri Lanka. The registered office assets and liabilities of the company and (D) Foreign Currency of the Company is located at 4 - 01, West its subsidiary Central Depository Systems Transactions in foreign currencies are Block, World Trade Center, Echelon Square, (Private) Limited. The statement of income translated to Rupees at the foreign Colombo 1, and the principal place of of the company comprises of commission exchange rate ruling at the date of the business is also situated at the same place. on brokerage, listing fees, quotation fees, transaction. Monetary assets and liabilities broker fees, trading member fees, charges denominated in foreign currencies at the (B) Principal Activities and Nature of for remote data link and charges for balance sheet date are translated to Rupees Operations computer information. The consolidated at the foreign exchange rate ruling at that The principal activity of the Company statement of income includes listed date. Foreign exchange differences arising is the operation of a Stock Exchange. company fees and custodian fees in on translation are recognised in the income The subsidiary operates a clearing and addition to the above. statement. settlement of securities traded in the Colombo Stock Exchange and act as a The accounting policies have been (E) Property and Equipment depository for such securities. applied consistently by the company Items of property and equipment and its subsidiary. The preparation of are stated at cost less accumulated (C) Number of Employees the financial statements inconformity depreciation. The number of employees at the end of the with SLAS require management to make year was 92 (87 in 2006). judgments, estimates and assumptions (i) Depreciation that affect the application of policies and Depreciation is charged to the income reported amounts of assets and liabilities, statement on a straight-line basis over 2 SIGNIFICANT ACCOUNTING income and expenses. The estimates and the estimated useful lives of items of POLICIES associated assumptions are based on property and equipment. Depreciation is The consolidated financial statements historical experience and various other provided on a pro-rata basis on the assets of the company for the year ended 31st factors that are believed to be reasonable purchased/constructed/disposed during December 2007 comprise the Central under the circumstances, the results the year. Depository Systems (Private) Limited, a of which form the basis of making the wholly owned subsidiary of the Colombo judgments about the carrying value of The estimated useful lives are as follows: Stock Exchange which was incorporated assets and liabilities that are not readily Furniture & Fittings 6-7 years on 2nd September 1991. The financial apparent from other sources. Actual results Computers & statements were authorised for issue by the may differ from these estimates. Office Equipment 5 years Directors on 17th March 2008. Motor Vehicles 5 years (C) Basis of consolidation Telephones 4 years (A) Statement of Compliance (i) Subsidiary The consolidated financial statements Subsidiary, is an enterprise that is The depreciation rate of motor vehicles have been prepared in accordance with controlled by the company. Control exists has been changed from 25% to 20% with the Accounting Standards issued by the when the company has the power, directly effect from the 1st January 2007. Institute of Chartered Accountants of Sri or indirectly, to govern the financial and Lanka (ICASL) and the requirements of the operating policies of an entity so as to (ii) Subsequent expenditure Companies Act No. 7 of 2007. obtain benefits from its activities. The Subsequent expenditure on property and financial statements of the subsidiary are equipment is capitalised only when it (B) Basis of preparation included in the consolidated financial increases the future economic benefits The consolidated financial statements are statement. embodied in the specific assets to which it presented in Sri Lankan rupees rounded relates. All other expenditure is expensed to the nearest rupee and prepared on the (ii) Transactions eliminated on as incurred. historical cost basis. consolidation Intra-group balances and transactions, and The accounting policies are consistent any unrealised gains/losses arising from
Annual Report 2007 35
(F) Intangible Assets (J) Cash and cash equivalents (N) Grants An Intangible Asset is recognized if it is Cash and cash equivalents comprises Grants that compensate the Group for probable that future economic benefits cash balances and Treasury Bill over-night expenses incurred are recognised as that are attributable to the asset will flow repos. For the purpose of the statement revenue in the income statement on a to the enterprise and the cost of the asset of cash flows, cash and cash equivalents systematic basis in the same periods in can be measured reliably in accordance are presented net of bank overdrafts. which the expenses are incurred. Grants with the Sri Lanka Accounting Standard The consolidated cash flow statement that compensate the Group for the cost No. 37 on Intangible Assets. Accordingly, is prepared using the indirect method of an asset are recognised in the income these assets are stated in the Balance Sheet prescribed in the Sri Lanka Accounting statement as other operating income on a at cost less accumulated amortization. Standard No. 9, cash flow statement. systematic basis over the useful life of the asset. (i) Amortisation (K) Employee benefits Intangible Assets are amortised on (i) Defined contribution plans - (O) Revenue a straight-line basis to the Income Employees’ Provident Fund and Revenue is principally recognised on an Statement, from the date when the asset is Trust Fund accrual basis. available for use, over the best estimated of All employees of the company are its useful economic life. members of the Employee’s Provident (P) Expenses Fund and Employees’ Trust Fund, to which Expenses incurred are charged to income The estimated useful lives are as follows: the employer contributes 12% and 3% and expenditure account in the year in Computer Software 5 years respectively of such employees’ basic salary, which it is incurred. cost of living and other similar allowances (ii) Subsequent expenditure under the Provident Fund Act No. 15 of (Q) Provision for Taxation Subsequent Expenditure on Intangible 1958 as amended and Trust Fund Act No. (i) Income tax Assets is capitalized only when it increase 46 of 1980. The company contribution is The provision for income tax is based on the future economic benefits embodied recognized as an expense in the income the elements of income and expenditure in these assets. All other expenditure is statement as incurred. as reported in the financial statements expensed as incurred. and computed in accordance with the (ii) Defined benefits plans provisions of the Inland Revenue Act No. (G) Development Costs Provision has been made for retiring 10 of 2006 and amendments thereto. Expenditure on development activities, gratuities from the first year of service for whereby a plan or design for the all the employees in conformity with SLAS (ii) Deferred Taxation production of new or substantially 16 (Revised). However, under the payment Deferred Tax is provided using the liability improved processes is capitalised if the of gratuity Act No. 12 of 1983, the method on temporary differences as at the process is commercially feasible and liability of an employee arises only on the balance sheet date between the tax bases the group has sufficient resources to completion of 5 years of continued service. of assets and liabilities and their carrying complete the development. Capitalised amounts for financial reporting purposes. development expenditure is stated at cost Provision is not externally funded. less accumulated amortisation over the five (R) Comparative information year period. (L) Provisions When necessary comparative figures have A provision is recognized in the balance been reclassified to confirm to the current (H) Investments sheet when the Group has a present legal year’s presentation. Investment in subsidiary is held at cost. or constructive obligation as a result of Treasury Bills, Bonds and Fixed Deposits are a past event, and it is probable that an stated at their cost plus accrued interest outflow of economic benefits will be component. required to settle the obligation.
(I) Inventories (M) Trade and other payables Inventories include stationeries, stamps and Trade and other payables are stated at their data wall spares. Realizable values of such cost. items can be considered as cost.
Annual Report 2007 36
Notes to the Financial Statements Contd.
Furniture & Computers & Motor Total Total Fittings Office Vehicles Telephones 31.12.07 31.12.06 Equipment Rs. Rs. Rs. Rs. Rs. Rs.
3. PROPERTY & EQUIPMENT - CONSOLIDATED Cost as at 01.01.07 47,173,27 58,680,223 3,077,523 4,925,539 3,856,556 9,994,476 Additions 15,405,5 ,279,024 8,927,950 5,641,633 62,254,129 3,336,984 Assets Written Off (4,484,245) (186,200) - (7,500) (4,677,945) - Disposals / Transfers (124,170) (1,675,433) (9,181,521) (142,123) (11,123,247) (29,474,904) Cost as at 31.12.07 57,970,378 79,097,614 ,823,95 0,417,549 70,309,493 3,856,556
Accumulated Depreciation as at 01.01.07 29,502,811 97,904,308 ,967,103 4,111,976 43,486,198 42,876,676 Charge for the year 4,614,425 31,453,541 3,839,73 ,221,930 41,129,628 9,947,989 Assets Written Off (1,904,305) (142,213) - (7,188) (2,053,706) - Disposals/Transfers (40,522) (1,387,567) (9,181,519) (136,201) (10,745,809) (29,338,467) Accumulated Depreciation as at 31.12.07 32,172,409 7,828,069 6,625,316 5,190,517 71,816,3 43,486,198
Written Down Value as at 31.12.07 5,797,969 51,269,545 6,198,636 5,227,032 98,493,182 Written Down Value as at 31.12.06 7,670,460 60,775,915 ,110,420 813,563 80,370,358
PROPERTY & EQUIPMENT - CSE Cost as at 01.01.07 46,781,954 55,683,067 3,077,523 4,864,689 0,407,233 6,545,153 Additions 15,405,5 ,279,024 8,927,950 5,641,633 62,254,129 3,336,984 Assets Written Off (4,484,245) (186,200) - (7,500) (4,677,945) - Disposals / Transfers (124,170) (1,675,433) (9,181,521) (142,123) (11,123,247) (29,474,904) Cost as at 31.12.07 57,579,06 76,100,458 ,823,95 0,356,699 66,860,170 0,407,233
Accumulated Depreciation as at 01.01.07 29,111,517 94,907,17 ,967,103 4,051,128 40,036,919 39,427,397 Charge for the year 4,614,425 31,453,541 3,839,73 ,221,930 41,129,628 9,947,989 Assets Written Off (1,904,305) (142,213) - (7,188) (2,053,706) - Disposals/Transfers (40,522) (1,387,567) (9,181,519) (136,201) (10,745,809) (29,338,467) Accumulated Depreciation as at 31.12.07 31,781,115 4,830,932 6,625,316 5,129,669 68,367,03 40,036,919
Written Down Value as at 31.12.07 5,797,946 51,269,526 6,198,636 5,227,030 98,493,138 Written Down Value as at 31.12.06 7,670,437 60,775,896 ,110,420 813,561 80,370,314
Depreciation on Motor Vehicles has reduced by Rs 1,052,467 due to the change in the rate of depreciation.
Annual Report 2007 37
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
4 INTANGIBLE ASSETS Cost As at 1.1.07 82,017,663 77,905,960 82,017,663 77,905,960 Acquired/Incurred ,002,021 4,111,703 ,002,021 4,111,703 As at 31.12.07 04,019,684 82,017,663 04,019,684 82,017,663
Amortisation Amortisation as at 1.1.07 64,004,887 56,514,424 64,004,887 56,514,424 Provision for the year ,128,308 7,490,463 ,128,308 7,490,463 Amortised as at 31.12.07 65,133,195 64,004,887 65,133,195 64,004,887
Net Book Value 38,886,489 8,012,776 38,886,489 8,012,776
Intangible assets are the application software used in the trading, clearing, settlement, accounting, mail system and the website of the Colombo Stock Exchange.
Computers & Intangible Total Total Office Equipment Assets 31.12.07 31.12.06 Rs. Rs. Rs. Rs.
5 CAPITAL WORK IN PROGRESS Cost as at 01.01.07 ,364,40 ,298, ,662,613 ,141,976 Incurred during the year - - - 4,288,888 Transfers (1,364,401) (1,298,212) (2,662,613) (3,768,251) Cost as at 31.12.07 - - - ,662,613
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
6 DEVELOPMENT COST Development Cost 1 300,242 1 300,242 Charged during the Year - (300,241) - (300,241) 1 1 300,242 1
This relates to the cost incurred in promoting the Debt Trading System (DEX) of the CSE with the participation of all its member firms.
7 INVESTMENTS IN SUBSIDIARY Central Depository Systems (Pvt) Ltd. 5,000,000 Ordinary Shares - - 25,000 25,000 5,000,000 Redeemable Preference Shares - - 50,000,000 50,000,000 - - 50,025,000 50,025,000
Annual Report 2007 38
Notes to the Financial Statements Contd.
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
8 INVESTMENT IN LFSB Capital Contribution ,000,000.00 - - - ,000,000.00 - - -
The Above amount represents the capital contribution made to the formation of Lanka Financial Services Bureau Limited. (LFSB)
9 OTHER RECEIVABLES Trade Debtors ,577,612 9,755,561 6,567,227 5,282,798 Provision for Doubtful Debts (787,636) (726,851) (725,611) (669,956) Commission on Brokerage Receivable 5,561,347 ,518,448 4,264,204 ,920,311 Prepayments 0,099,620 5,481,475 0,099,620 5,481,475 Advance Payments 707,891 395,713 707,891 395,713 Refundable Deposits 9,241,264 9,208,509 9,241,264 9,208,509 Sundry Debtors ,694,128 ,843,998 ,694,128 ,843,998 Other Receivable ,070,086 ,994,9 ,059,497 ,994,912 Staff Loans 5,270,330 5,945,053 5,270,330 5,945,053 56,434,642 46,416,818 50,178,550 41,402,813
10 CASH AND CASH EQUIVALENTS Treasury Bill Overnight Repos 9,304,647 6,608,630 9,304,647 6,608,630 Cash at Bank 6,940,172 671,456 6,721,075 539,045 RTGS Account 26,280 27,440 - - Cash in Hand 70,000 70,000 65,000 65,000 Cash & Cash Equivalents 6,441,099 7,477,526 6,190,7 7,312,675 Bank Overdraft (5,986,826) (5,262,791) (5,986,826) (5,262,791) Net Cash & Cash Equivalents 0,454,273 ,214,735 0,203,896 ,049,884
11 RESERVES & FUND Capital Reserve This represents 4,997,500 Ordinary Shares issued by CDS on capitalisation of its Revenue Reserves.
Capital Redemption Reserve This represents the fund created in order to redeem the preference shares of CDS within a period of 5 years.
Conference Fund Account This represents the excess of Revenue over Expenditure on account of the Institutional Fund Managers Conference held in October 1999 after netting off the excess of expenditure over Revenue on account of the Annual Assembly & Conference of the South Asian Federation of Stock Exchanges held in January 2001.
Annual Report 2007 39
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
12 BROKER DEPOSITS IN LIEU OF BANK GUARANTEE Broker Deposits (Note 12.1) 51,000,000 31,500,000 51,000,000 31,500,000 Deposits for Computer Facility ,670 ,670 ,670 ,670 Entrance Deposits 640,000 640,000 640,000 640,000 Deposits for Telephones 88,300 88,300 88,300 88,300 51,939,970 32,439,970 51,939,970 32,439,970
12.1 This is the minimum cash deposit that the brokers are required to maintain.
13 EMPLOYEE RETIREMENT BENEFITS Balance b/f as at 1/1/2007 ,699,944 0,032,373 ,699,944 0,032,373 Provision during the year 5,722,675 4,909,061 4,796,591 4,420,808 Transfer To CDS - - 926,084 488,253 Payments made during the year (910,722) (2,241,490) (910,722) (2,241,490) Balance c/f as at 31/12/2007 7,511,897 ,699,944 7,511,897 ,699,944
13.1 The Gratuity liability is not externally funded. Sri Lanka Accounting Standard 16 requires the cost of providing retirement benefit to be determined on an Accrued Benefit/Projected benefit valuation method . The directors are of the view that charges on either basis will not be significantly different to what has been charged to the income and expenditure account, and have used the extention granted by the Accounting Standards Committee for the basis of computation of the liability.
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
14 DEFERRED GRANTS Grant Received from USAID for Capital Market Development Received In 1992 9,100,113 9,100,113 9,100,113 9,100,113 Received In 1995 38,176,645 38,176,645 38,176,645 38,176,645 Received In 1996 81,880 81,880 81,880 81,880 Received In 1997 340,000 340,000 340,000 340,000
Grant Received from Brokers Received in 1992 340,384 340,384 340,384 340,384
Computers from MIT (Note 14.1) Received in 1998 ,980,000 ,980,000 ,980,000 ,980,000
Annual Report 2007 40
Notes to the Financial Statements Contd.
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
14 DEFERRED GRANTS Contd. Grant Received from SEC for Trade Automation Received in 1996 0,000,000 0,000,000 0,000,000 0,000,000 Received in 1997 ,862,590 ,862,590 ,862,590 ,862,590 Received in 1999 ,602,39 ,602,39 ,602,39 ,602,392
Grant Received from SEC for Trade Automation Audit Received in 2000 967,347 967,347 967,347 967,347
Grant Received from SEC for Video Documentary Received in 2004 400,000 400,000 400,000 400,000
Grant Received from SEC for Matara Branch Received in 2002 ,061,59 ,061,59 ,061,59 ,061,591
Grant Received from SEC for Kandy Branch Received in 2005 ,000,000 ,000,000 ,000,000 ,000,000
Grant Received from SEC for Australia & New Zealand Road Show Received in 2005 3,500,000 3,500,000 3,500,000 3,500,000
Grant Received from SEC for Kurunegala Branch Received in 2006 ,880,000 ,880,000 ,880,000 ,880,000
Grant Received from SEC for ITN Data Ticker Received in 2007 ,173,333 - ,173,333 - 08,466,275 06,292,94 08,466,275 06,292,942
Amortisation of Deferred Grant Balance brought forward (104,048,387) (102,913,873) (104,048,387) (102,913,873) Write back during the year (2,814,776) (1,134,514) (2,814,776) (1,134,514) (106,863,163) (104,048,387) (106,863,163) (104,048,387) Balance carried forward ,603, ,244,555 ,603, ,244,555
14.1 Five Servers were provided by the Vendor (MIT) to operationalise the CSE’s Backup site as part of the Trade Automation Contract.
Annual Report 2007 41
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
15 DEFERRED TAX LIABILITIES Recognised deferred tax liabilities Deferred Tax Liabilities are attributable to following item: Property & Equipment 4,503,075 6,613,306 4,503,075 6,613,306 Employee Retirement Benefit (5,253,569) (3,809,983) (5,253,569) (3,809,983) 9,249,506 ,803,323 9,249,506 ,803,323
16 OTHER PAYABLES Interest Payable to Brokers ,275,889 ,656,795 ,275,889 ,656,795 Current Account with CDS (Pvt) Ltd. - - 81,124,398 80,808,730 Payments Received in Advance 376,539 421,388 376,539 421,388 Sundry Creditors & Accrued Expenses 6,931,304 0,382,16 6,758,110 0,111,850 8,583,73 3,460,344 09,534,936 03,998,763
17 REVENUE Commission on Brokerage 78,994,4 80,137,323 5,159,40 5,940,143 Listing Fees 4,808,750 4,606,250 4,808,750 4,606,250 Quotation Fees ,726,48 ,412,70 ,726,48 ,412,701 Brokers Fees 3,438,000 8,673,500 3,438,000 8,673,500 Trading Member Fees - 5,000,000 - 5,000,000 Charges for Remote Data Link 720,000 561,000 720,000 561,000 Charges for Computer Information ,965,125 ,940,405 ,965,125 ,940,405 Listed Company Fees 3,156,080 4,290,545 - - Custodian Bank Fees ,986,050 ,977,250 - - 327,794,908 449,598,974 47,817,758 368,133,999
18 OTHER INCOME Interest Income 53,733,433 78,244,488 53,733,433 78,244,488 Amortization of Deferred Grant ,814,776 ,134,514 ,814,776 ,134,514 Profit/(Loss) on Disposal of Property & Equipment 7,709,508 60,839 7,709,508 60,839 Miscellaneous Income 5,165,712 4,661,816 4,910,631 3,748,719 79,423,429 84,101,657 79,168,348 83,188,560
19 PERSONNEL COST Salaries 60,109,461 49,542,709 52,929,732 40,590,658 Ex Gratia Payment ,348,6 ,934,494 9,956,272 9,468,985 Terminal Benefits (Gratuity) 5,861,588 4,982,299 4,796,591 4,420,808 Staff Welfare 3,196,036 3,221,637 ,666,153 ,678,134 Medical Expenses ,414,953 ,516,855 ,113,688 ,260,955 Transport & Traveling ,831,228 ,969,900 ,631,577 ,857,739 84,761,887 73,167,894 74,094,013 60,277,279
Annual Report 2007 42
Notes to the Financial Statements Contd.
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
20 OTHER OPERATING EXPENSES Administration Expenses 45,417,040 7,705,349 5,880,69 8,561,823 Rent 9,464,80 3,667,63 4,568,316 9,501,822 Stationery 5,703,682 8,153,008 ,917,925 ,978,492 Maintenance Costs 37,442,627 30,844,079 4,732,528 4,120,580 Local Training ,467,08 ,156,5 ,221,399 961,411 Foreign Training / Foreign Traveling 5,107,714 ,295,490 4,537,54 ,856,572 Directors Fees 70,000 30,000 70,000 30,000 Auditors Remuneration 300,000 60,000 75,000 50,000 Marketing Expenses 0,151,586 0,382,730 5,973,266 8,064,256 Professional Charges & Subscription ,711, 0,287,505 7,781,729 0,092,050 Rebate on Internet Trading ,270,027 7,866,757 ,695,172 5,121,151 Stamp Duty 79,461 75,723 67,220 65,619 Write Off / Provision for Bad Debts 60,785 ,402 55,655 09,512 Property & Equipment Written Off ,624,239 - ,624,239 - 71,970,166 ,836,196 ,400,682 90,613,288
21 TAXATION Current Tax Expenses: Current year 57,654,150 93,542,217 50,421,774 80,363,122 Under/(Over) Provision in prior years ,087,923 ,939,988 ,932,270 ,696,923 59,742,073 95,482,205 52,354,044 82,060,045 Deferred Tax Expenses: Origination & Reversal of Temporary differences 6,446,183 956,723 6,446,183 956,723
Total Income Tax Expense in Income Statement 66,188,256 96,438,928 58,800,227 83,016,768
Reconciliation of Effective Tax Rates Accounting Profit 08,228,349 99,957,848 89,233,476 62,693,299 Tax at the domestic rate (21.1) 63,418,248 91,850,582 56,770,043 78,807,990
Tax effect of expenses that are not deductible for tax purposes ,503,67 ,918,053 ,503,67 ,918,053 Effect of Tax on Capital Allowances (19,307,615) (11,722,017) (19,307,615) (11,722,017) Disallowed Provisions ,039,845 ,495,599 ,455,674 ,359,096 Tax on profits for the period 57,654,150 93,542,217 50,421,774 80,363,122 Effective Tax Rate (%) 28 31 27 31
21.1 Tax has been provided at the rate of 30% in respect of CSE (as per the Inland Revenue ruling) & at the rate of 35% in respect of CDS.
Notional Credit for WHT on Government Securities on Secondary Market Transactions As per the Inland Revenue Act No.38 of 2000 any person who derived income from the secondary market transactions in Government securities issued after or outstanding at 1st April 2002 would be entitled to a notional credit in relation to tax payable by such person. Accordingly, the net interest earned by the CSE for the year, has been grossed up in the Financial Statements and the resulting notional credit is Rs. 15,190,283/- ( Rs. 7,824,449/- in 2006)
Annual Report 2007 43
22 CONTINGENCIES & COMMITMENTS Action has been filed in the Labour tribunal by a former employee of the CSE claiming reinstatement. The CSE is contesting the action. The delivery of the order was fixed for 26th February 2008 and however, as the President who heard the matteer has retired, the order was not delivered on the 26th. The president has been specially appointed to deliver the Order on 22nd April 2008.
Case bearing No. 37623/MR has been filed in the District Court of Colombo against the Colombo Stock Exchange by a member firm. Damages have been prayed for against the CSE and the matter is being contested. The Trial commenced on 21st October 2005. Further hearing has been fixed for 28th March 2008.
Case bearing No. 58365/MR has been filed in the District Court of Colombo against the CSE by Mr. Iqbal Bin Issac, a shareholder pertainnig to his shareholding of Touchwood Investment Ltd. Answer of the CSE is as due on 22nd April 2008.
23 CAPITAL COMMITMENTS There are no capital commitments as at the balance sheet date other than those disclosed under Note. 5 -Capital work in progress.
24 KEY MANAGEMENT PERSONNEL INFORMATION & RELATED PARTY TRANSACTIONS 24.1. KEY MANAGEMENT PERSONNEL INFORMATION Key management personnel include all the members of the Board of Directors of the Company & the CEO, AGMs and Senior Managers having authority and responsibility for planning, directing and controlling the activities of the Company as well as the subsidiary, directly or indirectly.
CSE Paid Rs. 170,000/- during the year as Directors’ Fees (Rs. 30,000/- in 2006)
The Company has incurred following costs for the CEO, AGMs and Senior Managers during the year. 2007 2006 Rs. Rs.
Short term employee benefits 21,457,24 ,142,410 Long term employee benefits 8,186,500 5,896,500
Name of the Related party Name of Director Position Relationship Nature of Transaction
Bartleet Finance Ltd Mr. Eraj Wijesinghe Chairman Director CSE Paid Rs.1,564,639/- during the (Resigned w.e.f 3rd August 2007) year on account of Rent & Electricity of the Matara Branch Premises.
Cargills (Ceylon) Ltd Mr.Anthony A Page Chairman Director CSE Paid Rs. 65,674/- on account of pantry (Resigned w.e.f 3rd December 2007) provisions during the year.
Kalamazoo Systems Ltd Mr.Anthony A Page Director Director CSE Paid Rs. 1,148,390/- on account of (Resigned w.e.f 3rd December 2007) printing CSE Publications.
Directories Lanka (Pvt) Ltd Mr.Anthony A Page Director Director CSE Paid Rs. 164,571/- on account of (Resigned w.e.f 3rd December 2007) listings in Yellow Pages during the year.
- Mr. Gomin Dayasiri - Director CSE Paid Rs. 75,900/- on account of professional services during the year.
Also refer note No. 24.2 to the financial statements.
Annual Report 2007 44
Notes to the Financial Statements Contd.
24.2. RELATED PARTY TRANSACTIONS Central Depository Systems (Pvt) Ltd is a fully owned subsidiary of the Colombo Stock Exchange. CSE apportioned Rs. 52,038,019/- to Central Depository Systems (Pvt) Ltd as expenses during the year.
Also refer note No. 24.1 to the financial statements.
25 SUBSEQUENT EVENTS No circumstances have arisen since Balance Sheet date which would require adjustments to or disclosure in the financial statements.
26 DIRECTORS RESPONSIBILITY STATEMENT The directors are responsible for the preparation and presentation of financial statements in accordance with Sri Lanka Accounting Standards.
Annual Report 2007 45
Key Financial Indicators
2007 % 2006 %
Value Added Gross Income 507,218,337 533,700,631 Less: Cost of Providing Services (171,970,166) (122,836,196) 335,248,171 410,864,435
Distribution of Value Added To Employees 84,761,887 25.3 73,167,894 17.8
To Government Taxation 66,188,256 19.7 96,438,928 23.5
Retained in the Organisation Retained Profits 42,040,093 42.4 03,518,920 49.5 Depreciation 42,257,935 12.6 37,738,693 9.2 335,248,171 100 410,864,435 100
Annual Report 2007 46
Notes
Annual Report 2007 47
Notes
Annual Report 2007 48
Notes
Annual Report 2007 In 2007, the Colombo Corporate Information NAME BRANCHES Colombo Stock Exchange Matara Branch 38, Station Road, Matara Stock Exchange set twin LEGAL STATUS Tel: +94-41-2220094, +94-41-2220095 A company incorporated in Sri Lanka Fax: +94-41-4390546 Limited by guarantee Kandy Branch records, despite several SUBSIDIARY “Ceybank House”, 88, Dalada Veediya, Kandy Central Depository Systems (Pvt) Ltd. Tel: +94-81-4474407, +94-81-4474409 Fax: +94-81-4474475 REGISTERED OFFICE challenges, raising its 04-01 West Block, World Trade Centre Kurunegala Branch Echelon Square 1st Floor, Union Assurance Building Colombo 1, Sri Lanka. 6, Rajapihilla Road, Kurunegala Tel: +94-37-4691802, +94-37-4691804 highest ever capital of SECRETARIES Fax: +94-37-4691803 Secretarial Services Ltd. Negombo Branch AUDITORS 1st Floor, 142, Greens Road, Negombo KPMG Ford, Rhodes, Thornton & Co. Tel: +94-31-2227859 Fax: +94-31-2227860 BANKERS Sampath Bank Ltd.
COLOMBO STOCK EXCHANGE Tel: +94-11- 2356456 Fax: Clearing & Settlement: +94-11-2440396 Finance & Administration: +94-11-2448921 Information Technology: +94-11-2440162 Listings & Surveillance: +94-11-2448925 Business Development: +94-11-2445279 Legal: +94-11-2391128 E-Mail: [email protected] Website: www.cse.lk
44.6 billion
Designed & Produced by: Copyline (Pvt) Ltd Annual Report 2007 Colombo Stock Exchange Annual Report 2007
www.cse.lk