TOWARDS A VIBRANT FUTURE
COLOMBO STOCK EXCHANGE ANNUAL REPORT 2020
TOWARDS A VIBRANT FUTURE
The year under review not only tested our mettle but also helped us reassess our long term goals. While COVID-19 did impact the market, there was a strong recovery on all fronts from the impact.
As an organisation we focused on bringing innovation to our strategy with digitalisation as a key focus in strengthening our functions. We also broad based the investor base while we commenced work on several new instruments that will help to diversify the product suite.
We worked closely with our stakeholders in building trust and confidence and also ensured that we are always accessible and effective within the new parameters enforced by this global pandemic. As we re-merge from the challenges of the new decade with innovation and digitalisation as the primary drivers we look forward to a vibrant future. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 2
About the Report GRI 102 - 12, 45, 46, 48, 49, 50, 51, 52, 53, 54, 56
Reporting Frameworks and Principles Applied The Colombo Stock Exchange (CSE) Statutory Standards and Acts presents its third integrated Annual • Sri Lanka Financial Reporting Standards. report with a comprehensive account of • Sri Lanka Auditing Standards. our value creation to stakeholders. The • Companies Act No. 7 of 2007. cover design of the report conveys the forward-looking strategy of the CSE to • SEC Ac. No. 36 of 1987 as amended by Act No. 26 of 1991, deliver a high-performance organisation Act No. 18 of 2003 and Act No. 47 of 2009. powered by innovation, technology and strategic alliances. Voluntarily Adopted Reporting Guidelines • Integrated Reporting Framework of the International Reporting Council (IIRC). • Global Reporting Initiative - GRI standards (Core option). • International Organisation of Securities Commissions (IOSCO) Principles for Financial Benchmarks. • Sustainable Development Goals (SDGs) - The UN initiative with 17 aspirational “Global Goals” • Code of Best practice on corporate governance issued by the Institute of Chartered Accountants of Sri Lanka.
Source of Information • Audited financial statements. • Management discussions. • Management information systems. • Publicly available industry information.
Assurance The financial statements that form part of this report have been The report covers the activities of audited by external auditors, Messrs KPMG. Colombo Stock Exchange (CSE) and its fully owned Subsidiary Central Statement by the Board Depository Systems (Pvt) Ltd (CDS) for Management of the Colombo Stock Exchange has prepared and the financial period 01st January 2020 reviewed the contents of all reports and recommended the report to the to 31st December 2020. There were no Group’s Board Audit Committee and Board for their approval. restatements of information nor changes to our reporting period during the year. The Board acknowledges its responsibility to ensure that the Annual The date of the most recent report was Integrated Report provides a balanced view of its performance in 2020. 31st December 2019. The report was unanimously approved by the Board on 22nd March 2021 For any queries on the report, please contact and is signed on its behalf by: Mr. Kusal Nissanka Head of Finance & Administration 4-1, West Block, World Trade Center, Colombo 01; Mr. Dumith Fernando Mr. Arjuna Herath Mr. Rajeeva Bandaranaike Tel: +94 11 2356456. Chairman Risk and Audit Chief Executive Officer E-mail: [email protected] Committee Chairman
This annual report is also available in the following format:
Online 3
Navigating Our Report
Strategic Report Pg. 21 Creating Value Pg. 35
Digital Capital Pg. 54
Social and Relationship Capital Pg. 56
Human Capital Pg. 59
Intellectual Capital Pg. 66
Financial Capital Natural Capital Pg. 72 Pg. 69 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 4
Contents
About Us 5 Sustaining Our Value Creation How we support the economy 7 Corporate Governance 73 Focus on Sustainability 8 Managing Risks 82 Our Journey to 2020 10 Market Performance in 2020 12 Financial Statements The Environment We Operate In 16 Annual Report of the Board of Delivering Value-Market Performance 19 Directors on the Affairs of the Company 88 Directors’ Responsibility Strategic Report for Financial Reporting 91 Chairman’s Message 22 Risk and Audit Committee Report 92 Chief Executive Officer’s Message 25 Independent Auditor’s Report 94 Board of Directors 30 Statement of Profit or Loss Management Team 33 and Other Comprehensive Income 96 Statement of Financial Position 97 Creating Value Statement of Changes in Equity 98 Engaging with Stakeholders 36 Statement of Cash Flows 99 Material Matters 38 Notes to the Financial Statements 100 How We Create Value 40 Corporate Strategy 42 Supplementary Information 10 Year Summary 135 Accountability Regional Branch Offices 136 Business Line Reviews 43 Member Firms 137 Listing 44 GRI Index 139 Trading 46 Notice of Meeting 143 Market Data 49 Corporate Representation 144 Depository Services 51 Corporate Information Inner Back Cover Digital Capital 54 Social and Relationship Capital 56 Human Capital 59 Intellectual Capital 66 Financial Capital 69 Natural Capital 72 5
About Us GRI-102-1,13,16
The Colombo Stock Exchange Established in 1985, the Colombo Stock Exchange (CSE) was formed by seven founding Stock Broker Firms. Today functioning as a mutual Exchange with 15 Member Firms and 15 Trading Member Firms providing Stock Broker services for Debt and Equity, the CSE provides a range of exchange related services including Pre Trade, Trade and Post Trade infrastructure and services to stakeholders. Our products and services facilitate capital raising across diverse sectors and create investment opportunities by enabling investors to transact in debt and equity Our Key Stakeholders products within a regulated environment. We are a trusted brand and adopt a deep-rooted sustainability culture to protect the trust and confidence of our stakeholders. The CSE celebrated its 35th anniversary in 2020 in a fitting manner with market 647,584 performance reaching the Third highest in history recording very high volumes of secondary trading. Investors 637,069 Local 10,515 Foreign Our Vision To be the preferred choice for the creation of wealth and value
Our Mission • Increase the number of active investors. 283 • Encourage issuers to raise capital through the CSE. Issuers • Provide facilities to trade diversified products. • Ensure balanced regulation to maintain market integrity and investor confidence.
Our Values 30 • Integrity • Passion • Care Members/ Trading Members • Teamwork • Professionalism
Our Affiliations
148 Employees COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 6
About Us GRI 102-2, 6
Primary Markets Platform for companies of any size and scale to raise capital efficiently. We build investor confidence by monitoring activities in the capital market to Four Listing Boards ensure a fair and orderly market. Market capitalisation of Rs. 2,961 Bn Trading Operations & Market Surveillance Secondary Markets Corporate Affairs Facilitate trading by maintaining a robust and up to date Automated trading platform for Listing investors. Central Depository Systems Broker Supervision Daily Market Turnover Rs. 1,899 Mn Legal 4 product offering Equity, Corporate Debt, Closed-end Regulatory Policy & Compliance funds and REITs. Marketing Two price indices We engage with issuers and investors through ASPI and S&P SL 20. various platforms including awareness sessions Market capitalisation of Rs. 2,961 Bn both locally and abroad.
Market Data Supporting informed decision making by investors by providing real-time data through various digital channels. OUR BUSINESS DIVISIONS
140,352 followers OUR PRODUCTS & SERVICES Other Business divisions of the CSE MyCSE Finance and Administration Research and Strategy Depository Services Information Technology We act as a custodian of investor accounts in addition to providing other value-added services Human Resources to corporates. Enterprise Risk Management & Post Trade Internal Audit 97% Equity and 100% Corporate Debt DEMAT accounts 7
How We Support the Economy
Exchanges play a key role in fostering economic growth by facilitating capital mobilisation and maintaining strong governance and risk management practices to ensure market integrity. Our purpose is to create wealth and value in a manner that has a positive impact on society at large.
Support corporates to raise capital Rs. 2,961 Bn Market capitalisation 283 corporates
Provide opportunities for wealth creation Rs. 397 Bn Market turnover Rs. 53 Bn Foreign Capital inflows 647,584 Investors 626,343 local retail investors.
Foster economic growth and stability Support the Government in managing forex risks through foreign purchases of Rs. 53 Bn. Promote a sustainability culture with responsible and transparent businesses • Host events such as the Ring the bell for gender equality. • Review and recognise corporates with best reporting practices. • Enhance awareness of sustainability through workshops on corporate transparency and Protect stakeholder trust by sustainability practices. ensuring strict compliance to the regulatory regime and Governance standards During 2020, the CSE succeeded in reducing the number of customer complaints by 70% compared to last year. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 8
About Us
Focus on Sustainability As the national stock exchange in the country, we impact and influence several entities through the promulgation of voluntary benchmarks for best practice and mandatory rules to create a vibrant and inclusive capital market. It has been estimated that collectively, the market capitalisation of these entities is over 20% of the country’s GDP. With a broad range of economic sectors ranging from banks and diversified conglomerates, manufacturing entities to plantation companies, we pursue our vision for shared sustainable growth for all stakeholders. Aligning strategy with the UN Sustainable Development Goals, our contribution to the 169 Targets of the 17 goals are graphically summarised below.
• ASPI increased by 10.5% in 2020 • Rs. 61 Bn capital raised by listed companies in 2020
• The joint initiative with SEC to digitalise all stakeholder touchpoints in the Stock Market, enabling end-to-end connectivity electronically Promoting Sustainability Reporting through • Issue of Sustainability Reporting Guidelines • Workshops and research with GRI • Sponsorship of Corporate Reporting Awards • Workshops for Retail Investors • Dissemination of price-sensitive information
Promote sound corporate governance through • Issuance of Continuous Listing Requirements Rules in line with international best practice • Conduct education workshops with London Stock Exchange • Review of Financial statements of Listed Companies for compliance and necessary action in case of deviations
• Ring the bell for gender equality • The joint publication of Women on Boards of Companies Listed on the Colombo Stock Exchange with International Finance Corporation • Moving towards 30% women on Boards voluntary target
• The Digitisation of CSE processes and initiatives towards a paperless office
• MoUs with 6 regional exchanges • Partner with the global sustainability initiatives such as Sustainable stock exchange initiatives since 2015 9
396,856 318,191 MILLION RUPEES MILLION RUPEES TOTAL TURNOVER DOMESTIC TURNOVER
2,961 21 3 BILLION RUPEES BILLION MILLION MARKET NUMBER OF TOTAL NUMBER CAPITALISATION SHARES TRADED OF TRADES
283 277 NUMBER OF NUMBER OF COMPANIES LISTED COMPANIES TRADED COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 10
Our Journey to 2020
How We Operate We are a mutual exchange with fifteen members and fifteen trading members who are licensed stockbroking companies equity and debt. The Board of directors consists of nine members of whom five are elected by the members and four are appointed by the Government on the recommendation of the Securities Exchange Commission (SEC), the market regulator. The stockbrokers are the customer touchpoints and the CSE has 26 licensed stockbrokers for equity and debt and four licensed stockbrokers for debt at the close of 2020.
Central Securities Central Depository depositary based clearing Systems (Pvt) Ltd (CSD), settlement, custody (CDS) 100% services and corporate Colombo Stock actions and services. Exchange (CSE)
1985 • The Colombo Securities Exchange (Guarantee) Ltd is incorporated as a Guarantee Company by seven (7) subscribing Stock Broker Companies and takes over the operations of the Stock Market in Sri Lanka from the Colombo Broker Association (CSBA).
1995 • Upgrade of the CDS • Relocation of the Exchange to the World Trade Centre (WTC)
2005 • The 3rd Regional Office opened in Kurunegala. • CSE introduces a new Triaxial Ribbon on its new logo
2015 • Joins United Nations Sustainable Stock Exchanges (SSE) Initiative • Adopts Global Industry Classification Standard (GICS) for classification of Listed Companies • The CDS launches Custody Services for listed companies
2016 • CDS celebrates 25 years in the Sri Lankan capital market • The S&P/CSE Sector and Industry Group Indices jointly launched • CSE implements new Broker BackOffice and Order Management Systems • Opens branch office in Ambalantota • CDS launches e-Connect online account management portal • The launch of the CSE Education Portal Memories in 35 years journey 11
2017 • Implementation of Risk-Based Capital Adequacy Requirement (CAR) for Member Firms • CSE introduces a step-up fee structure for Share Transaction Fees • Value of non-voting shares was included in market cap and index calculations
2018 • CSE launches the Empower Board and Multi Currency Board • CSE launches an Advanced Diploma in Financial Markets • CDS diversifies to launch Corporate Action Services and Registrar Services • CSE launches its first sustainability guide: ‘Communicating Sustainability: Six recommendations for Listed Companies’ • CSE awarded ISO 9001:2015 Certification for Quality Management in HR
APAC delegates gather in Colombo for largest gathering of Depositories and Clearing organizations in Sri Lanka history in 2018
2019 • New CSE Mobile app launched to offer investors greater access to market information • The South Pacific Stock Exchange (SPSE) and the Colombo Stock Exchange (CSE) entered into a Memorandum of Understanding (MoU) to enhance collaboration. • The Colombo Stock Exchange (CSE) and the Dhaka Stock Exchange (DSE) entered into a Memorandum of Understanding (MoU) to formalize collaborative efforts directed at mutual development. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 12
Market Performance in 2020
Market Performance in 2020
132% 167% HIGHER THAN 2019 HIGHER THAN 2019 MARKET TURNOVER DAILY AVERAGE TURNOVER Highest reached since 2011.
70% 192% INCREASE INCREASE INVESTOR DEPOSITORY INVESTOR ACCOUNTS SENTIMENTS Increase in CDS account openings Increase in the trading activity compared to last year. of local investors.
INVESTOR PERFORMANCE DIVERSITY OF PRICE INDEX ACTIVE PARTICIPATION OF BUDDING CSE ASPI WAS CLASSIFIED AS THE BEST INVESTORS IN THE CAPITAL MARKET PERFORMING INDEX IN THE WORLD DURING SEPTEMBER 2020 13
Key Milestones to Celebrate our 35th Anniversary
Digitalisation of the capital market Innovation Awards and Recognition • End to end digital onborading 1. Launched the Real estate Recognised as Honouree at of investors investment trusts (REITs) UNCTAD - ISAR honours 2020 • CDS e-statements 2. Broadened listing criteria to for Sustainability Reporting by Listed Companies. • E-dividends accommodate Sri Lanka’s rapidly developing commercial landscape • Digitalisation of settlements • Complete remote functioning of the exchange and stock broker firms
Growth of active retail investor base by creating enabling Re-rate CSE valuations conditions. to peer market level.
Strategy for 2021 Improved trust with New listings that key stakeholders - can significantly Issuers, Investors and increase liquidity the Public. and investment options.
Path to operating profitability for CSE and sustainable stock exchange. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 14
Market Performance in 2020 GRI 201-1 The CSE in Numbers
2018 2019 2020 Value-added (Rs. Mn) Members 26 23 23 Employees 327 337 414 Economic Value Added Government 46 46 69 Communities 0.5 0.07 0 Re-invested in CSE 136 167 535 Financial Performance (Rs. Mn) Revenue Listing fee 106 104 99 Financial Capital Trading fee 292 260 616 Market data 24 26 28 Depository 139 133 262 Profit before tax (9) (39) 458 Profit after tax 5 (54) 392 Financial Position Assets Property, plant and equipment 382 500 587 Investments 2,523 2,491 3,100 Other assets 397 396 456 Liabilities Long-term 55 159 114 Short-term 238 273 680 Accumulated fund 3,009 2,956 3348 Number of employees (Nos) 149 154 145 Gender diversity Male (%) 57 58 58 Human Capital Female (%) 43 42 42 Training and development (Rs. Mn) 6 6 0.6 Number of promotions (Nos) 11 10 20 Employee turnover rate (%) 12 11 8 Net book value of IT assets (Rs. Mn) 232 200 336 Capital expenditure (Rs. Mn) 41 23 189
Digital Capital Depreciation (Rs. Mn) 55 55 53 System uptime (%) 100 100 100 System reliability - cyber attacks (Rs. Mn) 0 0 0 15
2018 2019 2020
Diverse product portfolio (Nos) Number of listing boards 4 4 4 Main indicies 2 2 2 Intellectual Capital Number of rule amendments/policy changes 7 9 9 Number of companies on the watchlist 61 22 29 Innovation Launch of new Boards 2 0 0 Number of Investors (Nos) Local 617,307 624,226 637,069 Foreign 10,149 10,351 10,515 Social and Relationship New CDS accounts 10,426 10,340 17,591 Capital Issuers Number of public listed companies 297 289 283 Number of industries 20 20 20 Trading Members Investments (Rs. Mn) 26 23 23 Regional Exchanges - MoUs (Nos) 1 3 - Cross border trainings 1 - - Communities (Rs. Mn) Investments 6 4 Awareness programs (Nos) 473 345 188 Paper consumption (Kg) 327 2,125 1,380
Natural Capital COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 16
The Environment We Operate In
The pandemic had a strong economic impact across the world with global economic growth deteriorating by 4.9% in 2020. Exchanges being a key part of the financial infrastructure in an economy worked extensively in serving investors and rebuilding their confidence by ensuring stability and continuity of business operations despite the lockdowns and other self-quarantine measures during the year.
However, global Market capitalisation dropped by 2.1% to USD 95 Mn by the third quarter of 2020 as overall investor confidence was impacted by the crisis, uncertain government policies and declining economic performance. Value of share trading and investment flows too declined by 13.7% and 24.7% during the year.
Market capitalisation (% change as at Oct 2020) Q3 2020 Global 9.8% EMEA 7.4% America 5.8% Asia Pacific 14.3% Value of equity trades (% change as at Oct 2020) Global 10.16% EMEA 6.1% America 18.3% Asia Pacific 27.6%
The Performance of the Colombo Stock Exchange (CSE) Movement in global price indices Year on Year 31st Dec 2020 Global Indices % Index Value 20 3,000
15 2,500 10 2,000 5 0 1,500
(5) 1,000 (10) 500 (15) (20) 0 US-S&P UK-FTSE Japan - India - NIFty Sri Lanka 31-Dec-18 31-Dec-19 31-Dec-20 500 100 Nikkei 225 50 - All share MSCI emerging markets MSCI frontier markets MSCI world index price index
The market turnover of the CSE significantly improved during 2020, growing by 132% to the highest level since 2011 of Rs. 397Bn. Daily market turnover increased by 167% to Rs. 1,899 Mn. The active participation of local retail investors increased market activity during the year.
The CSE took several steps to navigate the challenges triggered by the COVID-19 pandemic while successfully while optimising opportunities such as declining interest rates. Awareness sessions, expanding digital presence and investments in innovation, attracted several retail investors to the capital market. 17
Decelerating Economic Growth Quarterly Economic Growth % The pandemic dampened consumer confidence and business activities leading to a 5 contraction in economic performance. The second quarter of the year was the worst hit as it followed the first wave of the pandemic. The third quarter showed some 0 recovery stimulated by the policy stimulus measures of the Government. However, the (5) rebound was short term as the economic performance continued to slide during the fourth quarter following the second wave of the pandemic. The Central Bank of (10) Sri Lanka expects an economic contraction of 3.9% during 2020. (15)
Low Inflation (20) Inflation maintained at low single levels of 4.6% compared to 6.2% last year. 1Q19 1Q20 2Q19 2Q20 3Q19 3Q20
Money Supply and Domestic Credit Money Supply With favourably lending rates, domestic credit expanded by 13% to Rs. 81 Bn of Rs. Bn which credit to the private sector increased by 5% and credit to the public sector 12,000 increased by 27% over the first nine months of the year. 10,000
8,000 Declining Interest Rates 6,000 Given the weak macro-economic conditions and subdued performance of the external market, the Central Bank continued to maintain a low interest rate 4,000 environment during 2020 to foster economic growth. Both deposit and lending rates 2,000 remained low throughout the year. 0 Jul Jul Mar Mar Sep Sep Nov May External Sector and Volatilities in the Exchange Rates May 2020 Jan • The increase in worker remittances led to a substantial improvement in trade 2019 Jan balances. Trade deficits reduced to Rs. 104.8 Bn by December 2020 from Broad Money Domestic Credit Rs.104.8 Bn at the beginning of the year. Overall, the trade deficit contracted significantly by US dollars 2.0 billion in 2020 compared to 2019. Declining Interest Rates • Despite the increasing volatility of exchange rates during the second quarter of the % year, the impact was short term and the exchange rate depreciation eased during 14 the subsequent quarters ending the year at Rs. 186.41 per USD compared to 12 Rs. 181.63 in December 2019. 10 8 Key macro variables influencing market 6 4 performance and investor confidence 2 0 during the year 2017 2018 2019 2020 AWDR AWPR
Exchange Rate Volatility - LKR/USD % 12 10 8 6 4 2 0 (2) Jul Jan Apr Oct Feb Jun Nov Dec Mar Aug Sep May COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 18
The Environment We Operate In Response to COVID-19
Being a critical part of the financial infrastructure of the economy, the CSE, worked together with customers, regulators, industries, and communities to ensure the stability of the exchange and deliver our commitments during the pandemic - COVID-19.
We supported our stakeholders while We ensured the safety and ensuring building investor confidence well being of our employee’s
Listed Companies • Despite unfavourable macro conditions, the CSE ensured all • Extended timelines for the submission of financial statements staff members received remuneration in full. and enforcement actions. • Introduced a systematic roster system to ensure only a • Mandated all listed companies to make a disclosure of the minimum percentage of employees report to work at any impact of COVID-19, their responses and the expectation given time, in line with the guidelines issued by the health of the potential impact on the financial condition of the authorities. business. A corporate disclosure guidance note was • Encouraged employees to use private transport and costs prepared together with CA Sri Lanka to guide entities in such as fuel and parking were reimbursed. preparing the disclosure. • Communication channels were in place for employees to • Guidance notes on hosting Annual general meetings inform HR on any instances of being in close contact with an covering the various methods of hosting the AGM including infected person. virtual and hybrid. • All employees were provided face masks and sanitisers. • The CSE allowed listed entities to submit corporate • COVID-19 prevention techniques such as social distancing disclosures and financial statements via the CSE and advice on best practices were shared with employees. announcement portal or email. • The CSE also introduced a series of online yoga sessions once a week to enhance the wellbeing of employees. Stockbroker Firms • Extended timelines for the submission of monthly Financial Statements and Compliance Officer’s Report of Stockbroker Firms. • Facilitated the Firms by enabling submission of perioding reporting to the Colombo Stock Exchange via the Online Reporting System of the CSE. We ensured the stability of market operations. • Stockbroker Rules of the CSE were amended by enabling • Immediate measures taken to facilitate remote working Stockbroker Firms to dispatch both the Statement of across the organisation. Accounts and Contract Notes to clients via electronic means. • Expanded digital presence by introducing the CSE mobile app. • Stockbroker Rules of the CSE were amended by enabling • Digitised processes such as account openings and corporate Stockbroker Firms to carry out multiple client verification action such as dividend payments. methods at the time of account opening with a client. • The inspections carried out on Stockbroker Firms were of ‘off-site’ nature due to social distancing. • Deadline for reporting of daily Capital Adequacy Requirements was extended till 11.00 A.M. • Extensions were granted to the Stockbroker Firms to reactivate, of which the business operations were voluntarily inactivated. 19
Delivering Value Market Performance
During the year 2020, the CSE market performance reached Rs. 397 Bn in market turnover, the highest since 2011.
Data as of 31 Dec 2020 2020* 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009
Equity
Turnover (Rs. Mn) 396,856.52 171,099.96 200,068.80 220,591.20 176,935.40 253,251.00 340,917.10 200,467.80 213,827.20 546,255.80 570,326.80 142,462.60
Domestic (Rs. Mn) 318,191.57 108,815.89 111,378.00 117,135.20 102,544.20 166,151.50 246,796.80 128,227.60 160,543.30 486,959.40 464,733.60 99,010.80
Foreign (Rs. Mn) 78,664.95 62,284.07 88,690.80 103,456.00 74,391.30 87,099.50 94,120.30 72,240.20 53,283.90 59,296.40 105,593.20 43,451.80
Shares Traded (No. Mn) 21,348.73 9,837.37 6,000.70 8,468.30 7,195.80 9,414.70 16,721.50 9,054.20 9,691.20 24,543.70 18,489.20 4,762.70
Domestic (No. Mn) 19,806.69 7,081.27 4,820.80 6,528.80 5,776.20 7,693.20 14,726.20 7,861.60 8,289.60 23,151.60 16,684.50 3,784.20
Foreign (No. Mn) 1,542.04 2,756.10 1,179.90 1,939.50 1,419.60 1,721.50 1,995.40 1,192.60 1,401.70 1,392.10 1,804.70 978.4
Trades (No.) 3,081,720 1,195,193 885,657 981,977 1,056,849 1,506,790 1,982,709 1,421,303 1,857,384 4,579,352 3,355,126 1,266,299
Domestic (No.) 2,968,289 1,148,555 838,784 928,276 1,002,476 1,431,750 1,899,569 1,355,380 1,796,868 4,463,404 3,225,041 1,190,822
Foreign (No.) 113,431 46,638 46,873 53,701 54,373 75,040 83,140 65,923 60,516 115,948 130,085 75,477
Daily Average Turnover 1,898.84 710.0 833.6 915.3 737.2 1,059.60 1,414.60 828.4 883.6 2,285.60 2,396.30 593.6 (Rs. Mn)
Market Capitalisation 2,960.70 2,851.30 2,839.50 2,899.30 2,745.40 2,938.00 3,104.90 2,459.90 2,167.60 2,213.90 2,210.50 1,092.10 (Rs. Bn)
Turnover to Market 15.80 6.00 7.00 7.80 6.20 8.40 12.30 8.70 9.80 24.70 34.50 18.00 Capitalisation (%)
Market Capitalisation as 19.70 21.50 21.40 24.50 23.20 26.80 30.00 25.60 24.80 30.70 34.50 22.60 a % of GDP* (%)
*Based on latest available revised GDP, at current market prices for each year
Data as of 31 Dec 2020 2020* 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009
Contribution to Total Market Turnover
Foreign Companies 19.13% 35.39% 42.30% 45.10% 41.00% 32.80% 26.00% 34.30% 23.50% 8.30% 15.30% 26.80%
Foreign Individuals 0.77% 1.01% 2.00% 1.80% 1.00% 1.60% 1.60% 1.80% 1.40% 2.60% 3.20% 3.70%
Total Foreign Investor 19.90% 36.40% 44.30% 46.90% 42.00% 34.40% 27.60% 36.10% 24.90% 10.90% 18.50% 30.50% Contribution
Local Companies 32.11% 33.66% 34.00% 28.20% 30.90% 30.40% 34.70% 30.40% 41.00% 34.50% 37.50% 33.90%
Local Individuals 47.99% 29.93% 21.70% 24.90% 27.10% 35.20% 37.70% 33.50% 34.10% 54.60% 44.00% 35.60%
Total Local Investor 80.10% 63.60% 55.70% 53.10% 58.00% 65.60% 72.40% 63.90% 75.10% 89.10% 81.50% 69.50% Contribution
Foreign Trading Activities Secondary Market - Equity
Purchases (Rs.Mn) 53,144.40 56,395.14 77,067.10 112,284.80 74,583.00 84,414.60 104,689.80 83,607.00 72,614.20 49,776.80 92,425.50 43,057.30
Sales (Rs.Mn) 104,185.50 68,173.00 100,314.50 94,627.30 74,199.50 89,784.40 83,550.80 60,873.30 33,953.60 68,816.00 118,760.90 43,846.30
Net Foreign Flow (Rs.Mn) (51,041.10) (11,777.87) (23,247.40) 17,657.50 383.50 (5,369.80) 21,139.00 22,733.70 38,660.60 (19,039.20) (26,335.40) (789.00)
New Listings/Issues
Equity IPOs (No.) 1 0 2 2 3 2 5 1 6 13 8 2
Equity Introductions (No.) 1 2 1 1 1 - 1 1 11 16 2 0
Debt IPOs (No.) 8 11 11 5 17 25 20 28 3 1 2 1 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 20
Delivering Value Market Performance
Data as of 31 Dec 2020 2020* 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 Returns, Yields and Valuation Multiples All Share Price Index 6,774.22 6,129.21 6,052.37 6369.26 6,228.26 6,894.50 7,298.95 5,912.78 5,643.00 6,074.42 6,635.87 3,385.55 Change (%) 10.52 1.27 (4.98) 2.30 (9.70) (5.50) 23.40 4.80 (7.10) (8.50) 96.00 125.30 S&P SL20 2,638.10 2,936.96 3,135.18 3671.72 3496.44 3,625.69 4,089.14 3,263.87 3,085.33 - - - Change (%) (10.18) (6.32) (14.61) 5.00 (3.60) (11.30) 25.30 5.80 8.4* - - - Market PER (Times) 11.25 10.83 9.65 10.6 12.4 18 19.7 15.9 15.9 15.8 25.2 16.6 Price to Book Value 1.13 1.14 1.18 1.3 1.4 2 2.2 2 2.1 2 3 1.7 (Times) Dividend Yield (%) 2.66 3.17 3.10 3.20 2.80 2.20 2.10 2.90 2.40 1.80 1.20 3.00 * Launched on 27th June 2012
Data as of 31 Dec 2020 2020* 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009
Capital Raised
Equity IPOs (Rs.Mn) - - 1,953.30 960 1,822.50 329.6 2,693.80 494.4 1,739.40 19,155.70 4,347.50 681.8
Debt IPOs (Rs.Mn) 21,939.82 50,588.70 55,917.60 20,000.00 77,994.90 83,414.40 54,234.90 68,262.30 12,500.00 1,000.00 15,000.00 630.6
Rights Issues (Rs.Mn) 29,893.40 26,025.40 42,216.80 50,604 2,531.10 16,105.30 8,099.00 25,539.00 11,128.00 28,019.70 24,321.70 5,235.40
Conversion of Warrents - - - - 3,193.80 7,972.80 - 0.5 1,954.80 2,675.00 - - (Rs.Mn)
Private Placement (Rs.Mn) 9,215.77 560.10 4,624.20 2,012.70 - 1,517.70 12,755.20 - 2,266.20 4,500.00 433 1,100.00
Debt Trading Statistics
Corporate Debt
Turnover (Rs.000) 5,855,001 5,677,756 4,405,617 3,592,905 2,932,154 4,714,012 7,139,730 2,229,221 75,717 2,690,664 72,288 136,765
Trades (No.) 243 236 293 529 290 220 401 173 39 62 92 42
Debentures Traded 54,230 55,650 44,024 35,696 28,317 42,201 56,909 19,999 740 25,861 693 1,020 (No.000)
Closed End Fund
Turnover (Rs.000) 97,751.00 5,640.58 23,650.50 28,887.90 113,300.30 55,316.50 131,872.50 44,160.00 21,865.50 137,848.10 621,264.60 4,615.60
Trades (No.) 411 284 327 552 925 765 940 883 767 2,898 8,302 228
Units Traded (No.000) 7,695 292 350 4,123 1,976 818 1,680 640 339 1,642 8,222 87
Funds Listed 1 1 2 2 2 2 1 1 1 1 1 1
Additional Data
Companies Listed (No.) 283 289 297 296 295 294 294 289 287 272 241 231
Companies Traded (No.) 277 265 279 279 278 278 284 278 280 264 238 231
Delistings (No.) 7 9 2 2 2 3 3 1 2 0 1 6
Market Days (No.) 209 241 240 241 240 239 241 242 242 239 238 240 21
We continue to engage with our stakeholders offering them more ways in which they can expand their opportunities, while stabilising the foundations of their confidence in us. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 22
Chairman’s Message
It was time to craft the re-emergence of the CSE to be everything it can be; more accessible to a broader population of investors who could invest in sound investments generating wealth and prosperity and more impactful to the economy in channelling capital to power economic growth. 23
Dear Stakeholders, execution - executing the plans and delivering positive operating profitability by establishing The Colombo Stock Exchange navigated tangible results. A like-minded Securities an innovative and execution focused culture a year of extraordinary volatility to emerge and Exchange Commission of Sri Lanka that will lead to introduction of new exchange resilient, recording a 10.5% gain by its close (SEC) has been proactive, working together and depositary service products which maybe as the All Share Price Index reached to 6,774. with the CSE to move the needle as they uncorrelated to equity market turnover. This The financial performance of the exchange cleared backlogs of changes and approvals will enable broadening of revenue streams also improved significantly recording a profit that were pending. This enabled us to taking to make CSE a successful, independent, of Rs.392 Mn for the year 2020 at the daily steps towards moving the market closer to a demutualized exchange with the capacity average turnover of 1,899 Mn achieved modern day and vibrant market. to continue to invest for regional market for 2020. On a consolidated basis, the leadership. CSE achieved operating profitability for the Envisioning Our Re-emergence first time since 2011. Other highlights for In December 2020, the CSE celebrated Making it Happen the year included record numbers of new marked its 35th anniversary making it an Execution and collaboration are going to investor accounts being opened by a tech opportune time to take stock of progress matter in delivering our goals for the savvy demographic, broadening the retail made, reflect on what we could do better re-emergence of the CSE. We feel that investor base and the launch of a new set and reimagine fulfilling our purpose. In the the stars are aligned for delivery with a of major strategic initiatives to take the CSE recent past, changes to broaden the market collaborative and proactive regulator and in an ambitious direction to become a truly have been slow in terms of investment government focus on development of capital world-class multi-product exchange while products and investors. It was time to craft markets, with a State Minister responsible developing more solutions for both issuers the re-emergence of the CSE to be everything for the subject of Capital Markets for the first and investors. Given the challenges faced it can be; more accessible to a broader time in the history of the stock exchange. The during the year, these achievements are population of investors who could invest detail has been worked through to formulate indeed commendable although we also in sound instruments (prioritizing but not 30 action items and almost 66 individual understand that it is a time to focus on limited to equity products) generating wealth projects which address the systems, adjusting to a new norm rather than resting on and prosperity and more impactful to the processes and behavioural changes that need our laurels. economy in better channeling capital to power to be managed to drive success. These were economic growth. It was clear that we could mostly established in the second half of 2020 The COVID-19 pandemic proved to be a also do more to rebuild trust in the stock and we are evolving and changing to a new tail event, dislocating markets globally in a market for all stakeholders as that underpins norm of delivery-focused management which more contagious manner than the global our entire value proposition. provides a solid start to reinvent the stock financial crisis. The nose-dive in our stock exchange and drive its re-emergence. market in February was in line with other We identified 5 strategic focus areas (and markets around the world, particularly 9 strategic goals) that would engineer Demutualization of the stock exchange in those in emerging markets which witnessed this outcome. The first is to technically inherently linked to our re-emergence and will an exodus of foreign capital. The market re-rate CSE valuations and drive market enable repositioning of the stock exchange closure for seven weeks following the onset capitalization to reach 60% of GDP over the as an important part of the national financial of the pandemic, which resulted from the next 5 years. To achieve this, we need to infrastructure. The separation of economic lockdown measures implemented by the maintain daily turnover at Rs.2 bn or more and governance interests in the exchange will government, was unfortunate and highlighted which is achievable in a conducive economic be the first step in creating an independent several challenges that were resolved prior environment which includes a favourable private entity which will have broader strategic to the second wave. This led to end-to-end interest rate. The second goal is to increase imperatives including financial performance digitalization of investor related processes the number of companies with equity or along with serving the public interest and seamlessly integrated with digitalized market debt listed on the CSE to around 500 in five avoid being complacent as a monopolistic platforms, setting the stage in readiness for a years, from the current base of just under stock market. It will provide the impetus and market rebound. 300 and we are working with the State urgency of evolving beyond a monopolistic Minister of Capital Markets and the SEC to stock exchange to look at solutions to Moving the Needle drive this agenda. The third is to establish financial problems that arise across the Stepping into my new role soon after a more active retail investor base of around economy through the CSE, and thereby emerging from the lockdown, the Board and 50,000 by end 2021 by creating enabling evolve as a more mature market. REITs Senior Management focused on drafting a conditions supported by digitalization of the (Real Estate Investment Trust) have already plan on how we want to reposition the CSE in CSE so that anyone anywhere in the country been introduced and we are assessing the terms of purpose and strategic focus areas. can access our services. Establishing trust feasibility of a number of other products Importantly, we did not have to reinvent the and confidence across all stakeholders in that will not just provide investment options wheel as many development ideas were the stock market is key to building an active but also meet the issuer’s requirements for already in previous plans which enabled us to investor base and this is the fourth goal which innovative solutions that support capital or risk use the strategic analysis, prioritize and reuse is important as it underpins everything else. management needs. the ideas given the low ebb in the market at CSE and the SEC are collaborating in this the time. However, we complemented these regard, addressing our learnings from the We understand that the demutualization ideas with several new growth ideas to set a past to rebuild a future founded on trust. process is underway.Once the SEC Act is course for our future. Our efforts focused on The fifth goal is to build a path to sustainable approved by parliament it will give the SEC COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 24
Chairman’s Message
powers to regulate a demutualized exchange. in a fair and effective manner and to facilitate by giving the right direction and focus to We exepect the Demutualization Bill will be fair, stable and efficient markets by managing the management team. On behalf of the presented thereafter, allowing us to witness potential risks in the system. Managing risk Board, I would especially like to recognize progress in 2021. will be a priority in sustaining an active market with appreciation the efforts of Mr. Ray and we will enhance our efforts on investor Abeywardena who stepped down as Perspectives & Potential awareness in this regard. Chairman of the Board in June 2020 following Reflecting on why we had an active and completion of this 3-year tenure. We are upward CSE is a good starting point to We expect to see several new issuers with fortunate that he remains a Board member discuss the prospects for 2021 and beyond. the revival of the stock market. This will thereby continuing to share his insights and Prior to the pandemic, we had challenging help absorb new funds coming into the wisdom. conditions for a vibrant equity market as market which in turn will mitigate the risk of interest rates were extraordinarily high. During investor funds chasing the limited number of Earlier this year, we were extremely saddened 2020, we also saw around Rs.51 bn of foreign existing stocks. to learn of the loss of our fellow Director funds exiting the market, which was not Mr.CJP Siriwardena. His wise counsel and typical for the region, but it is possible that It is also encouraging that a new demographic advice on Board matters, which was based market closures contributed to lower foreign of tech savvy and knowledgeable investors on many decades of deep experience investor confidence. The current low interest have been entering the market recently. in financial markets and regulation, was rate regime reduced the cost of capital A significant proportion of current investing invaluable and so well appreciated. We will leading to better earnings for issuers while low activity is being driven by high-net-worth miss his presence dearly. returns on fixed income and a lower hurdle individuals who behave in a similar way to rate for margin trading made the stock market institutional and foreign investors. We have I acknowledge and appreciate the collaborative more attractive to investors. also seen reasonable levels of activity from stance of our regulator the SEC which has local funds and equity-based unit trusts are been a partner every step of the way. We In 2021, it is likely that interest rates will showing good results after many years. We consider ourselves very fortunate to work with stay low and that benefits will continue to expect these funds to grow. We believe that an extremely forward-looking and proactive accrue to equity markets. It is noteworthy the combination of younger investor profiles, Chairman Mr. Viraj Dayaratne, PC, Commission that while valuation of companies listed on renewed interest by institutional investors members and Officials of the SEC. the CSE are well above where they were in and an increase in the number of issuers will mid-2020, we are well below the regional strengthen market confidence with The CSE management and staff led by the averages and historical peaks. Many issuers well-supported valuations. We will also much respected Mr. Rajeeva Bandaranaike also have strong earnings stories supporting seek to engage with the GOSL to explore rose to the occasion admirably and I must gains in market capitalization as economic how the CSE can further customize financing appreciate their unwavering commitment , policy changes and the pandemic opened up solutions for state-owned enterprises through dedication and all the hard work done during new opportunities. I also believe that most the exchange. the year to operate and revive our market macroeconomic risks on the horizon can during the most difficult of times. Their be managed.The main challenges will be a Sustainability of market valuations is critical to support will be essential to delivering our potential rapid increase in interest rates and a enhancing market confidence which has also ambitious growth agenda for the CSE. significant resurgence of the pandemic – both been supported by the extensive digitalization of which seem to be low probability events undertaken in 2020. The risk of business A market cannot sustain and develop now. Foreign investors will keep a close eye closure is practically eliminated as we have without the active contribution by market on Sovereign risk and debt repayment and we operated the market 100% remotely since intermediaries and I wish to convey the expect that the government will disseminate the initial closure with the CSE and some sincere appreciation of the Board and myself the reality and address the concerns of intermediaries operating 100% remotely. to the Stockbroking community for their active rating agencies in time to come. I believe collaboration. that the global environment is conducive to Appreciations attracting foreign investors and we need to I am deeply appreciative of the sustained I conclude by thanking investors for placing be responsive to their concerns, creating the efforts and resilience of the people who their confidence in the market and our issuers conditions under which they will come back. are critical to our mission. They overcame for continuing to access the capital market unparalleled challenges including the recovery for their funding needs and all other market We want to ensure rationality in what happens from market closures during the year, to drive participants for their renewed activity and in the market and facilitate sustainable change and adapt to a new norm. The launch interest. growth. It is also necessary to reflect on of the digitalization was a major achievement the role of the CSE in this regard. Our job requiring collaboration and teamwork across is to ensure that investors have access a wide segment of stakeholders who were to education and information to support committed to delivering the change. informed decision-making in managing their Dumith Fernando investment portfolios. It is not our job to set I am thankful to my colleagues on the Chairman prices but to make sure investors have the Board who adapted to the unprecedented requisite education, knowledge and access, challenges last year and worked in unison 22 March 2021 to ensure that market regulation is conducted to steer the CSE through uncertain waters 25
Chief Executive Officer’s Message GRI 102-14
Year 2020 was a stellar year for CSE as we recorded 96% increase in revenues and stable other income to deliver Rs.1.04 Bn in Total Operating Income. A cost-conscious culture nurtured over the past few years supported a decline of 13% in other operating expenses. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 26
Chief Executive Officer’s Message
Dear Stakeholders, • The Colombo Stock Exchange emerged as one of the highest performing stock exchanges globally as the ASPI recorded an increase of 10.5% in 2020 and maintained its upward trajectory throughout January and February 2021 This trend is in keeping with equity markets globally which saw record-high levels of value traded (53.7%) and volumes (56%) compared with the previous year. After reaching a peak in March, higher value-traded and volumes became the new normal in most markets persisting through the year. High activity levels supported by strong revenue growth helped in recording an Operating profit of Rs. 417 Mn in 2020 to deliver the third best organisational performance in the history of the CSE. It was also a year of innovating, accelerating digitalisation, revising rules and updating processes to formulate holistic responses to impacts of the COVID-19 pandemic and addressing stakeholder concerns While there is little doubt that the low interest environment and liquidity among high-net-worth individuals supported the growth in domestic investor interest, it has also been supported by a range of initiatives to address key stakeholder concerns that have sustained interest in the market.
Investor Interests provided timely information to investors increased by 132% to Rs.397 Bn over Investors are the main beneficiaries of in a holistic manner. Rs.171 Bn in 2019. It is noteworthy the progress made in digitalisation of that local investors contributed 74% CSE. Facilitating continuous trading It is significant that the emergence of of trading volumes reflecting positive became the number one priority as the heightened activity and record volumes market sentiment that has underpinned country went into a lockdown overnight at the CSE in 2020 is almost wholly the emergence of the CSE in 2020. in March which resulted in a prolonged attributable to Retail Investors as foreign market halt being imposed on the CSE. investors withdrew from the market For Issuers Since then, CSE has implemented with the terror attacks in April 2019 and The CSE stepped in early to assist several initiatives to ensure that this does the pandemic of 2020. Interest from issuers in managing their statutory not recur by enabling remote functionality institutional investors has been at a low compliance obligations amidst the by stockbroker firms. During the second ebb although we are seeing increased lockdown and social distancing lockdown the market was able to open activity from them as well. However, measures in place. Timelines for and operate uninterrupted. The process there has been significant interest from submission of Annual Reports and of onboarding Sri Lankan investors was high net worth investors who have Quarterly financial statements were also digitalised end to end which has identified the potential in the current extended by two months and one supported greater penetration among market. Other conditions underlying the month respectively in addition to the a tech savvy and youthful investor stock market include attractive valuations number of days of market closure. demographic, auguring well for the and the accommodative stance adopted Guidance was provided on hosting of sustainability of the market. Digitalisation by the Central Bank of Sri Lanka which Annual General Meeting (AGM) during of settlements was also key to enabling resulted in a sharp decline of interest the pandemic enabling listed entities to remote operations and to overall rates. Besides these, there were also conduct Virtual and Hybrid meetings, customer experience. E-statements have listed companies who benefited from specifying the measures to be taken by been mandated through rules in order to the opportunities provided by the crisis them. Consequently, a number of issuers support investors with their information which showed strong growth which also held virtual and hybrid AGMs which had requirements. contributed to the interest in the market. encouraging levels of participation. The number of active investors have The CSE was also quick to respond doubled with the monthly applications for Increasing the number of issuers is a to the information needs of investors account openings tripling in December key priority and the CSE has launched a in the aftermath of the pandemic, 2020, and in January and February of holistic action plan to make the market requiring issuers to disclose the impact 2021 reflecting the sustained interest in more attractive to issuers in 2020, of COVID-19 pandemic on the business/ the market. working with the market regulator, the operations of the Listed Company, Securities & Exchange Commission their response and the future impact The value created to investors through having engaged with potential issuers of COVID-19 on the company’s future these innovations in 2020 is significant, over the years to address their concerns. operations and the financial condition. enabling the increase in the Market First among these is simplifying the The CSE with the CA Sri Lanka task capitalisation from Rs.2,045 Bn in May listing process enhancing its efficiency force on COVID-19 issued a corporate 2020 to Rs.2,961 Bn at the close of thereby better serving the funding disclosure guidance note to Listed the year, an increase of Rs.916 Bn requirements of companies belonging companies setting out how the Listed post COVID-19. Daily average turnover to both state and private sectors. Companies should make the disclosure doubled to Rs.1,899 Bn compared to Measures have already been taken to regarding the impact of COVID-19 which Rs.710 Bn in 2019 while market turnover change listing criteria by offering a wider 27
2020 Highlights • ASPI moved 6,108 in January to close the year at 6,774 • Market capitalisation increased by Rs. 109 Bn to Rs. 2,961 Bn in 2020 • Opening of over 17,591 accounts in 2020 • Daily average turnover Rs. 1,899 Mn
choice of listing options for companies. deal flows. Introduction of Real Estate demutualisation of the CSE. The SEC Listing rules have also been amended Investment Trusts (REITs) is a product is a key partner in our journey and to simplify the process and the internal that will broaden the opportunities for our work together in 2020 has been infrastructure of the CSE has been these intermediaries who play a key productive as we achieved progress changed to ensure a smoother process role in the market response to product on a number of regulatory matters in workflow. We have also set up a ‘Single innovations of the CSE. REITs offer a relatively short time. These include Window’ customer relationship unit investors the opportunity to diversify their the launch of REITs, amendments to within the CSE to identify potential listing asset portfolios by investing in real estate the listing rules, simplification of listing candidate companies, work with such ventures while enabling issuers to raise processes, strengthening of market companies and assist them through capital for real estate ventures. review mechanisms and the leadership the listing process. We have worked and support given for the end-to-end with SEC to have the review for listing Stockbrokers have played a key role digitalisation of investor onboarding redelegated to CSE easing up the in the emergence of the CSE in 2020 processes. challenges associated with the dual as they aligned their systems with CSE approval process. systems to support the end-to-end Public Interest digitalisation of investor onboarding The CSE was recognised as an The CSE has also changed the Listing processes and complied with the honouree in the national category at the Rules to increase flexibility to issuers for requirements to Know Your Customer recently held International Standards of rights issues where price movements (KYC). The welcome increase in trading Accounting and Reporting awards (ISAR) can impact planned prices and we has also been accompanied by an influx 2020 in recognition of the progress have amended rules to offer flexibility of applications for opening accounts made in ESG reporting in the country. to amend price even after approval. which has exerted pressure on lean The CSE signed an agreement with GRI Additional flexibility has been provided systems in place due to lower levels of in 2018 to foster effective sustainability around the 15% thresholds in place for activity in the previous years. performance and communication non-voting shares for justifiable reasons. among Listed Companies which has The CSE is also formulating new criteria Working with the Government & supported the strong growth and for listing state-owned enterprises for the Regulator interest in ESG reporting by corporates. issuance of debt. We expect all these The appointment of a State Minister for Multiple initiatives including workshops, changes to support exponential growth the development of capital markets is events, roundtables and the publication in the number of issuers, enabling encouraging and we look forward to of an ESG Guidance document for shareholders to unlock value from their working together to enhance the role of Listed Companies have supported the businesses. the CSE in the country’s growth plans. journey of these progressive corporates The collaborative stance adopted by with research conducted by GRI Market Intermediaries the SEC is welcome as it has enabled revealing that Sri Lanka has the most Market intermediaries are key partners in the clearance of several issues that number of ESG reports in South Asia. building and sustaining the momentum will support the structural changes We are encouraged by the growing of a vibrant stock exchange as they are necessary. The proposed SEC Act enthusiasm of our Listed Companies to the point of contact for both investors which has been pending for some time adopt sustainability reporting and our and issuers. They are key beneficiaries is to be presented to Parliament which continued advocacy is pivotal to the of product innovations and process will pave the way to better market overall sustenance of our capital market efficiencies delivered by CSE as it widens regulation and a more efficient capital and the Sri Lankan economy at large. their product portfolios and strengthens market including the long-awaited The CSE is the strategic partner for the COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 28
Chief Executive Officer’s Message
Annual Report Awards of the Institute of Performance tradition that commenced with plantation Chartered Accountants of Sri Lanka and The performance 2020 was a stellar year companies in 1896. Today the CSE also supports the Chartered Institute of for CSE as we recorded 96% increase thrives as a matured and vibrant stock Management Accountants of Sri Lanka in revenues and other income to deliver market that mobilises capital flows of to promote excellence in corporate Rs.1.04 Bn in Total Income. A cost- over Rs. 300 Bn over the last 4 years. reporting which have supported the conscious culture nurtured over the past Incorporated in its present form in country’s commendable progress in this few years supported a decline of 13% in 1985 by seven (7) Stock Broker Firms key area. other operating expenses. Net Finance as the Colombo Securities Exchange Income also improved by 11% despite Guarantee Ltd, a company Limited by The CSE also signed and partnered a the declining interest rates through the Guarantee, the CSE now offers state- Master Services Agreement with the active management of funds which were of-the art pre-trade, trade and post- London Stock Exchange Group (LSEG) locked in at high rates for long tenors trade platforms supported by a network Academy to deliver various professional which yielded a higher rate of funds than of 26 Stock Broker Firms which offer training programs to delegates in the AWFDR supported by an increase in end-to-end digitalised trading solutions Sri Lanka. Several accredited programs the fund base of 14%. These favourable to a diversified pool of over 700,000 have been customised to suit the movements aligned to convert a loss individual and institutional investors. Sri Lankan market and are set to cover of Rs.39 Mn in 2019 to a profit before eight areas of significance including tax of Rs.458 Mn. Increased profitability It is a time to recognise the combined advanced financial modelling, investor attracted a taxation charge of Rs.40.7 efforts of all stakeholders who have relations, risk management, sustainable Mn. Consequently, the profit for the year shared our journey in driving our growth. finance and anti-money laundering. was Rs.417.2 Mn in comparison to a The CSE has gained recognition in The initial workshop for Non-Executive loss of Rs.42.9 Mn in 2019 making this the international arena as a member Directors (NEDs) of listed companies one of the best performances in the of the World Federation of Exchanges was enthusiastically received with a history of the CSE. and has on multiple occasions held repeat programme to accommodate the the Chairmanship of the South Asian registrations. Total Assets increased by 22% to Federation of Exchanges, shaping Rs.4.14 Bn due to strong growth in capital market development policy and The CSE has also launched a investments and other liquid assets. Total cooperation in the South Asian Region. scholarship programme for journalists to Equity increased by 13% to Rs.3.35 Bn, We celebrated the 35th year milestone obtain the Diploma in Financial Markets strengthening the balance sheet as with a bell-ringing ceremony on 3rd to strengthen financial journalism and the accumulated fund increased. December 2020 which was a 100% understanding of the underlying issues Total liabilities increased largely due online, first-of-its-kind event for to support appropriate coverage of to increased broker deposits in lieu of bell-ringing ceremonies on the theme ‘A issues that arise from time to time, bank guarantees and other payable Transformative past - A Vibrant Future’. strengthening the sustainability of which is attributable to increased activity markets and protecting stakeholder levels. Cashflows were strong as we Outlook interests. generated Rs.667 Mn in operating cash The outlook for 2021 is positive as flows of which Rs.155 Mn was utilised IMF enhanced its growth forecasts for Gender diversity among boards has also for investing and financing activities the year by 0.3% to 5.5% in January been promoted as CSE organised a boosting cash and cash equivalents by although the downside risks remain Ring the Bell for Gender Equality” event Rs. 512 Mn to Rs. 667 Mn. This leaves elevated as new strains of the virus in partnership with the International the CSE in a strengthened position emerge and economic vulnerabilities Finance Corporation Sustainable Stock to execute its ambitious plans for hinder progress. Vaccines have reached Exchanges (SSE) Initiative, UN Global expanding its role and significance in the the shores of many countries including Compact, UN Women, Women in ETFs, country’s capital market. Sri Lanka and are being administered and the World Federation of Exchanges. supporting growth and stabilisation Held in over 90 countries, this event 35 Years of CSE in economic activity. In Sri Lanka, the supports the country’s agenda to The Colombo Stock Exchange country’s budget deficits continue to drive gender equality at all levels and celebrated the completion of 35 years remain a concern and the sovereign addressing the lag in female participation as the country’s licensed operator of the rating downgrades in 2020 are likely to in the workforce and on boards in stock market, upholding a share trading prove a drag although we expect many comparison to South Asian countries. of the issues to be addressed in 2021. 29
Interest rates that declined sharply are It is with immense sorrow and grief that largely expected to remain at relatively we record the untimely demise of Board low levels to support recovery in 2021 Director Mr. CJP Siriwardena, a tower of which will favour continued interest in the strength and a reservoir of knowledge stock market. and experience. He shall be deeply missed. Plans for 2021 focus on positioning the CSE as a pivotal point for raising capital I would also like to place on record supported by market infrastructure our appreciation to the Chairman, developments, Product Diversification, Commissioners, Director General and widening of the investor base to build a Officials of the Securities and Exchange sustainable business model, Increasing Commission of Sri Lanka for their the number of companies listed on the support and guidance. exchange is a key strategic objective and significant groundwork has already been I commend and applaud the efforts done in this regard as noted above. We of the CSE team who have powered are also working on the creation of an through a year of immense challenges to OTC market for REPOs for Corporate deliver game-changing innovation and Debt, trading of Gold-backed products, business growth. Stock borrowing and lending and facilitating the issue of mortgage-backed During the year Mr. Charita Dumbukola, securities which will enable investors a Senior Manager who held many roles to diversify their portfolios further. The throughout his 26 years of service took new SEC Act will be an important retirement from the CSE. We thank him development covering regulatory for his services and wish him well. changes required for continuing to safeguard investor rights, enabling Our Stock Broker Firms have also the de-mutualisation of the CSE, shared the highs and lows with us in the facilitating new product development roller coaster ride that was 2020 and I and strengthening the effectiveness thank them for their unstinted support in of market regulation. We also need to creating a vibrant market. I thank our attract foreign and institutional investors investors and issuers for placing their by addressing their concerns. The confidence in the CSE and the power continuing momentum in the market is of the market to unlock value. I also encouraging giving us a head start and wish to acknowledge the support of auguring well for prospects in 2021. other market intermediaries, market participants and in particular the support Acknowledgements by media institutions in our journey. The emergence of CSE as a vibrant market place for unlocking shareholder value was possible due to the coordinated efforts of a number of stakeholders and I take this opportunity Rajeeva Bandaranaike to thank them for their invaluable Chief Executive Officer contribution. Oversight and guidance from the Chairman and Board of 22 March 2021 Directors have been key to execution of a record number of projects in 2020 and I thank them for their wise counsel and strong backing. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 30
Board of Directors
Mr. Dumith Fernando Chairman
Mr. Ray Abeywardena Mr. Dilshan Wirasekara Mr. Dimuthu Abeyesekera Director Director Director
Mr. Arjuna Herath Mr. Jayantha Fernando Mr. Suren De Silva Director Director Director 31
Mr. Dumith Fernando Other Current Appointments Previous Appointments Chairman Managing Director of Acuity Partners General Manager of Softlogic Capital Elected Non-Executive Director (Pvt) Ltd. PLC guiding investment and trading Appointed: 26th May 2017 Chairman of Acuity Stockbrokers (Pvt) portfolio management across Ltd and Acuity Securities Ltd. subsidiaries inclusive of the Group’s Skills & Experience Licensed Finance Company, Composite Twenty five years of experience in Independent Non-Executive Director of Insurer and Equity Brokerage. Softlogic Insurance PLC. international Investment Banking and Head of Treasury at Nations Trust Equities, based in New York and Hong Director of Lanka Ventures PLC, Lanka Bank PLC. Kong with leading global investment Energy Fund PLC and Guardian Acuity banks JP Morgan Chase & Co. and Asset Management Ltd (GAAM) Credit Suisse AG. Mr. Dimuthu Abeyesekera Director He holds a BA in Physics & Economics Previous Appointments Elected Non-Executive Director from Middlebury College in the U.S. and He served as Chairman of the Colombo Appointed: 1st February 2019 an MBA from Harvard Business School. Stock Exchange from 2017 to 2020, Managing Director/CEO of Acuity Skills & Experience Other Current Appointments Stockbrokers (Pvt) Ltd from 2001 to An experienced capital market Chairman of Asia Securities Holdings end 2008 and is a past Chairman of the professional counting over 31 years in (Pvt) Ltd. Colombo Stockbrokers Association. the industry. A veteran capital market Independent Director of the listed firms professional. Mr. Dilshan Wirasekara Union Assurance PLC and Singer Serves as an important resource person Director (Sri Lanka) PLC. at CSBA. Elected Non-Executive Director Member of the Financial System Stability Appointed: 21st November 2017 Consultative Committee (FSSCC) of Other Current Appointments the Central Bank of Sri Lanka and the Skills & Experience Director/CEO of Asha Securities Ltd, Economic Policy Steering Committee of Investment banker by profession with which is affiliated to Phillip Capital the Ceylon Chamber of Commerce. a career spanning over 25 years, Singapore, a specialised financial comprising diversified expertise in services organisation managing assets Previous Appointments financial services including, banking, worth over US$ 35 Billion with a network Managing Director and Group Chief treasury and investment management, of offices around the world. Operating Officer for Credit Suisse Asia capital market strategy and corporate Director at Asha Financial Services ltd, a Pacific. Worked at Credit Suisse from finance advisory services. Specialised Margin Trading Company in 2007 until 2013 and at JP Morgan An alumnus of INSEAD having Colombo. from 1995 until 2007 in roles across completed his Executive Professional Investment Banking, Equities, Private Education at INSEAD Business School Previous Appointments Equity and Corporate Strategy in Fontainebleau, France. He is also an Chairman of the Colombo Stockbrokers Alumnus of AOTS, Tokyo, Japan. Association (CSBA). Mr. Ray Abeywardena He specialises in Asset and Liability Director Chairman at Kalamazoo Systems PLC. Risk Management having secured the Elected Non-Executive Director accolade of leading and representing Appointed: 13th June 2013 two Sri Lankan companies in winning the International Bank Asset and Liability Skills & Experience competition organised annually by the Associated with Sri Lanka’s capital Netherlands Development Finance markets for over 34 years, primarily as Company (FMO), German Investment a Stockbroker and since 2009 as an Corporation (DEG) and Proparco - a Investment Banker. subsidiary of the Agence Française de Member of the Chartered Institute of Development (AFD). Marketing (UK) and holds a Masters Degree in Business Administration from Other Current Appointments the University of Wales. Director/Chief Executive Officer of First Capital Holdings PLC. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 32
Board of Directors
Mr. Arjuna Herath Mr. Jayantha Fernando Consultant on Digital Laws, Attorney Director Director General’s Chamber, Republic of Fiji Appointed Non-Executive Director Appointed Non-Executive Director Vice Chair, Government Advisory Appointed: 21st February 2020 Appointed: 21st February 2020 Committee, Internet Corporation for Assigned Names and Numbers (ICANN), Skills & Experience Skills & Experience California, USA A Senior Fellow Member of the Institute An Attorney with over 23 years of Chartered Accountant of Sri Lanka international experience in Cyber Law, Associate Chairman, ICANN and a Chartered Global Management with expertise in Digital Payments & Nominations Committee Accountant with a Bachelor of Science e-Commerce, International trade, Cyber Elected Bureau Member, Council degree from the University of Colombo, Security/ Cyber Crime, Intellectual of Europe Cybercrime Convention a MBA from the University of Strathclyde Property Rights & Software licensing, Committee (T-CY), Strasbourg, France in the United Kingdom and a Master of E-banking & Mobile Banking, Digitisation Arts in Financial Economics from the of capital markets, Dispute resolution in Mr. Suren De Silva University of Colombo. ICT Projects and negotiating contracts Director for large digital solutions. Extensive industry experience of over Appointed Non-Executive Director two decades in serving numerous Pioneered drafting of Sri Lanka’s digital Appointed: 21st February 2020 clients in the Public Sector and in the laws, including Electronic transactions, Private Sector and actively involved in Digital Payments, Cybercrime as Skills & Experience areas of Economy, Capital Markets, well as Data Protection and Cyber 23 Years as an Attorney at law and as Investments, Corporate Transformation Security Legislation. Drafted the Legal a legal practitioner mainly focused on & Restructuring, Corporate Planning, blueprint for the establishment of ICT commercial , corporate and admiralty Performance Improvement, Corporate Agency, Sri Lanka CERT and the use of work and advising on Project finance Governance, Technology, Accounting, authentication technologies at national transactions. Auditing, Professional Accountancy and sectoral level at Lanka Clear, Masters in Law (LLM) (University Organisations. through Central Bank. College London) (University of London) Led Sri Lanka’s entry to the Budapest (1997-1998). (Emphasis on regulation Other Current Appointments Cybercrime Convention and of financial markets, law and practice Senior Partner and Head of Consulting, Sri Lanka’s ratification of the UN of foreign investment in emerging Ernst & Young, Sri Lanka and Maldives. Electronic Communications Convention economies, privatisation). (UN eCC) in 2015, both firsts for South LLB (Hons.) (University of Wales College Previous Appointments Asia. Expert for UNCITRAL, Council of Cardiff) (1993-1995) A Board Member of the Sri Lanka of Europe and World Bank advising Accounting and Auditing Standards countries formulate Digital Laws. Attorney-At-Law, Supreme Court of the Democratic Socialist Republic of Monitoring Board. Holds a specialised Masters in Law Sri Lanka (June1997) of Gray’s Inn, A Commissioner of the Securities and (LLM) in IT & Telecommunications Law Barrister-At-Law (England and Wales) Exchange Commission of Sri Lanka. from the University London, which was (July 1996) Director Corporate Finance at Merchant completed on a Chevening Scholarship Bank of Sri Lanka Ltd. awarded by Government. Other Current Appointments Marketing Development Manager at Counsel/Consultant Special Projects D.L Other Current Appointments Ceylon Tobacco Company. & F De Saram, Attorneys at Law Chairman, LK Internet Domain Name Chairman of the Professional Registry Accountancy Organisation Development Previous Appointments Committee of the IFAC. Co-Chair, National Certificate Authority Former State Counsel - Attorney Task Force for Digital Generals Department 1999 - 2003 Past President of The Institute of Chartered Accountants of Sri Lanka. Authentication Services Advisory capacity for projects undertaken by State Institutions, Past President of the South Asian Director, Sri Lanka CERT & Director/ Legal Advisor, ICTA Statutory Boards, Ministries, Federation of Accountants. Government agencies, International Board Member of the Confederation of Organisations and overseas companies. Asia Pacific Accountants. Previous Appointments Chairman, Sri Lanka CERT (Computer Advising and representing Parties in Emergency Readiness Team) Commercial Arbitrations; Commissioner, Securities and Exchange Member of the National Intellectual Commission of Sri Lanka Board Director, Property Commission in the year 2002 Sri Lanka Standards Institution to 2004. 33
Management Team
Mr. Rajeeva Bandaranaike Mr. Renuke Mr. Chandrakanth Chief Executive Officer Wijayawardhane Jayasinghe Chief Regulatory Officer Chief Information Officer
Ms. Renu Ranatunge Mr. Kusal Nissanka Mr. Niroshan Wijesundere Mr. Nishantha Hewavithana Head of Legal Head of Finance and Head of Marketing Head of Research and Administration Strategy
Mr. Kaushal Siriwardena Mr. Nalin Fonseka Mr. Janaka Ms. Nilupa Perera Senior Manager - IT Systems Head of Central Depository Mahagedarawatta Head of Trading Operations, and Development Systems Manager Data Center Market Surveillance & Operations Corporate Affairs COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 34
Management Team
Ms. Kushlani Coswatte Ms. Lankesha Molligoda Ms. Vinduni Dullewe Ms. Kanishka Munasinghe Head of Internal Audit Head of Regulatory Policy and Head of Listing Head of Broker Supervision Compliance
Ms. Dulani Ms. Anoja Senanayake Warnakulasooriya Head of Human Resources Head of Enterprise Risk Management & Post Trade Settlement 35
We chose to innovate looking at new ways through which we remained relevant and efficient. We have began a new era of digitalisation which will facilitate market expansion, result in customer convenience and increase operational efficiency.
We began to Evolve, entering a stage of digitalisation that will fast-track us to new levels of growth. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 36
Creating Value GRI 102-40, 42, 43, 44 Engaging with Stakeholders
We maintain a continuous dialogue with key stakeholders such as investors, issuers and trading members as their contributions are key to sustain and improve market activity.
Needs and expectations of our key stakeholders
Investors Issuers Stockbrokers Regulator Employees
Attractive Competitive Brokerage Compliance Compensation valuations financing Robust technology Balanced Skill development Innovation Efficient listing regulation process Skill development Career Reliable Market integrity progression marketplace Diverse listing platforms
The CSE strive Issuers play a key Stockbrokers act to increase and role in increasing as the market broaden its market liquidity. intermediaries investor base connecting diverse as the financial stakeholders. transactions between investors determine our market performance. 37
As an exchange, the CSE also engages with other stakeholders including the Government agencies, local communities, other regulators, media and members of the public through various means such as direct meetings, awareness sessions, and media releases. The value created by the CSE to our stakeholders is discussed on page 48. Some of the key highlights of the year include
Rebuild Investor confidence Launched the Introduced Real Estate through marketing campaigns, revamped CSE Investment Trust (REITs), a discussions, improving market mobile app on 17th new investing instrument for surveillance and improving the September 2020. investors. mechanism to handle investor complaints by shortening the timeline.
Ways We Engaged with Our Stakeholders During 2020
Investors Employees Stockbroker Firms Issuers Regulator • Direct Meetings • Knowledge sharing • AGM • Meeting & • Regulatory approvals • 188 virtual and sessions • Investor Sri Lanka discussions • Reporting of any physical Awareness • Welfare Events forums and • Market opening non-compliance sessions • Appraisals and direct presentation events ceremonies • Events such as CFA meetings • On site inspections research challenge
The CSE also engaged through other platforms such as
• Social Media • Regular meetings with Regulator, SEC to discuss on rule amendments, obtain approvals and report any non-compliance • Media meet • Stock market sessions to educate students in schools and universities. • CSR programs
We also collaborate with various regional exchanges through MoUs and cross border training sessions. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 38
Creating Value GRI 102-47 Material Matters
Identifying and reviewing the material matters to our business require the input of all business divisions and stakeholders. A total of 24 matters were evaluated of which six were identified to have a high impact on our value creation and the Annual report emphasis these issues, opportunities, and challenges. However, in 2020, the CSE focused extensively on managing the impacts of COVID-19 to ensure the progress of our corporate strategy towards being more client-centric and innovative.
4 1,3
6 2,5 Significance to Stakeholder
Significance to Group
The following were the changes to the materiality map compared to last year 1. 1,5 and 6 were part of the materiality map 2. 2 shifted to high priority 39
Management Approach Relevant Disclosure Government Financial market activity impacts stakeholder sentiment and Review of the operating Pg 16 policy determines the level of value creation by the exchange. Several environment variables including local and global economic landscapes, policy 1 Indicators measuring market Pg 19 uncertainties, changes in regulation, movements in interest rates performance severely impact market performance. Technology The CSE strives to be on par with the technological advancements Digital capital report Pg 54 excellence in capital markets as technology enables us to provide innovative 2 solutions to clients. We consistently focus on innovation and digitalisation to spur investor interest. Health and The CSE considers health and safety as a priority. Human capital report Pg 59 safety 3 Innovation We consistently focus on innovation to provide high-quality services Intellectual capital Pg 66 4 to clients and be on par with regional exchanges. Economic Economic performance plays an integral part in driving the investor Operating environment Pg 16 performance confidence in the market. 5 Customer We maintain strict measures to ensure the cybersecurity of our IT Digital capital report Pg 54 privacy networks are reliable and secure and maintain high standards of 6 customer privacy. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 40
Creating Value How We Create Value
Material Inputs Our Value Creation Process
Products and Services Financial Resources Used in meeting our operational Secondary Market expenses and investments to We provide a reliable trading support our business to operate platform for investors. effectively and efficiently. Market Data We support investors make informed decisions by providing market data Technology through digital platforms. We deliver our products and services through secure Post Trade services technological platforms. We support investors manage risks such as counterparty risks by providing clearing and settlement services.
Skilled Employees Services at the exchange are Increase Number of Active Users delivered by employees who are specialised in the capital markets.
Our Vision To Create Wealth and Value Relationships We need investors, stockbrokers and issuers to raise capital and use our products and services. Enable Issuers to Raise Capital
Intellectual Capital Primary Markets Our trademarks and licenses We create listing Boards to provide are key to operate our business various financing options for issuers including both debt and equity.
Natural Capital We practice automation to save paper consumption 41
Outputs Outcomes
We invest in technology and innovation to provide an efficient and robust capital market
Investors Dividend Yield Effective risk management We monitor Market Turnover 3% risk indicators and minimise post-trade Rs. 397 Bn risks for investors.
The trading and market surveillance function of the CSE ensures a fair and Issuers orderly market. Number of Funds Raised primary issuances Rs. 61 Bn 8 Debt 2 Equity
Provide facilities to trade diversified products. Brokerages Trading Commissions Number of Rs. 4 Bn Investors 647,584 2% increase
Regulator Fees Ensure balanced regulation to maintain market integrity. Market Rs. 527 Mn Capitalisation Rs. 2,961 Bn
Amendments to CSE rules, listing criteria and issue of SEC directives and circulars to enhance investor Government confidence. Taxes and Share Corporate Transaction Levies Valuations Rs. 2,381 Ensure effective regulation of Price to book market participants through routine values 1.13 inspections, review of published times in 2020 reports and corporate announcements.
Public Awareness Programs 188 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 42
Corporate Strategy
The CSE focuses on five core areas to be globally competitive, increase market activity, and enhance the value realisation for our stakeholders.
Re-Rate CSE valuations to be on par with regional players Operating Income • Promote CSE brand. of the CSE • Attract new investors • Invest in the digitalisation of the stock market.
Increase Market Liquidity Listing 10% Depository 26% • Broaden listing criteria Trading 61% Market Data 3% • Engage with the Government to obtain incentives that attract the listing of large entities. Price to Book Value No of times Grow the retail investor base 1.143 • Marketing programs and awareness sessions. 1.14 • Invest in digitisation. 1.137 • Innovate new products and services. 1.134
Enhance the operational profitability of the Exchange 1.131
• Focus on cost rationalisation. 1.128
• Enhance revenue diversification through value-added services. 1.125 2019 2020 Improve the trust of stakeholders • Maintain strict governance and regulatory compliance New Listing • Monitor activities of market participants Amount Raised 100,000 14 • Assess the reliability of the information provided to stakeholders 12 • Set up an independent client dispute resolution mechanism 75,000 10 8 50,000 Number of client complaints dropped by 6 25,000 4 70% in 2020. 2 0 0 2019 2020 Volume (No of listings)
Financial Performance Rs. Mn 1,500
1,000
500
0
(500) 2019 2020 Total income Profit/(loss) before tax Profit/(loss) after tax 43
Accountability Business Line Reviews
NEW LISTINGS REVENUE CAPITAL RAISED
LISTING 10 Rs.99Mn Rs.61Bn
TURNOVER NUMBER OF SHARES REVENUE
TRADING Rs.397Bn 113 Bn Rs.794Mn
REVENUE MOBILE USERS NUMBER OF SUBSCRIBERS MARKET DATA Rs.28Mn 27,179 7
NEW ACCOUNTS INCOME REVENUE DEPOSITORY SERVICE 17,591 Rs.262Mn Rs.321Mn COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 44
Accountability Listing
The CSE primary market provides corporates multiple financing opportunities, access to a magnitude of funds from a wide array of investors and enhances international visibility of listed entities.
2020 Highlights
New Listings Performance of the Our Clients • 1 equity IPO Primary Market Number of companies listed • 1 equity introduction Rs. Bn 3,000 20 • 8 Debt IPOs 283 100 2,900 Further Issues 80 Value of the Market Market capitalisation • Rs. 30 Bn of rights issues 2,800 60
• Rs. 9 Bn private placements 40 2,700 Rs.2,961Bn 20 Total funds raised in 2020 with offer for sale 2,600 0 Four Listing Boards 2016 2017 2018 2019 2020 • Main Board Funds Raised Rs. 61 Bn • Diri Savi Board • Empower Board • Multi-currency Board
Diverse products such as Equity, Debt and REITs
Engagement
Products Innovative listing Boards
Listing rules The key role of the listing division is to ensure an efficient and transparent listing Facilitate listing of process through various debt and equity securities Broad and effective listing criteria and processes Expertise of employees Balanced regulation 45
Market Performance Key Initiatives The number of new issuances and total funds raised remained low during the Despite the challenges faced year due to the unfavourable impact of COVID-19 on the corporate sector and during the year, the CSE worked the continued decline in interest rates that encouraged corporates towards other with key stakeholders including competitive financing options such as bank loans. policymakers to create a favourable environment and encourage potential Total funds raised dropped by 32% to Rs. 61 Bn (including offer for sale) of which listings through tax concessions, primary issuances amounted to Rs. 22 Bn and further issues such as rights issues new products and new boards amounted to Rs. 30 Bn. There were 8 debt IPOs during 2020 with funds raised and simplified listing criteria and amounting to Rs. 22 Bn lower than Rs. 58 Bn reported last year. Private placements processes. amounted to Rs. 9 Bn. Some of the key initiatives during Rights issues amounted to Rs. 30 Bn, below the Rs. 31 Bn announced last year. 2020 include:
The economic and business environment had a severe impact on the primary market • Launched new product such as the of the CSE with the number of debt listings significantly dropping from 15 during REITs. 2019 to 8 in 2020. However, the CSE continued to enhance its listing processes • Expanded the listing criteria of the and frameworks and broadened the listing criteria to facilitate the listing of various Main Board and the Diri Savi Board. products including REITs. • Revised IPO timelines
Capital Raised • Reviewed and amended listing Rs. Bn rules related to the Empower Board taking into consideration feedback Other from stakeholders. • Published a document setting out
Debt IPOs the requirements for the listing of overseas companies. • Improved the e-listing application Rights issues approval process.
0 10 20 30 40 50 60 These initiatives improved the 2019 2020 flexibility of the primary market by simplifying processes and broadening Outlook listing criteria to facilitate various The CSE will continue to work on reviewing the listing application process, listing opportunities including equity, implementation of the listing framework, revamping the rights issue framework and and REITs (Real Estate Investment expanding the listing criteria to facilitate listing of state-owned entities and Trust). The CSE also maintained close multi-currency shares and debt securities. The proposed new listing processes and dialogue with corporates/listed issuers frameworks and digitised processes will enhance the flexibility and efficiency of the through events, meetings. During the listing process encouraging potential listings in local and foreign currencies. year, we reviewed 262 annual reports of various corporates. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 46
Accountability Trading
The CSE secondary market enables investors to optimise their wealth by creating reliable and robust platforms and market infrastructure to facilitate share trading activities.
2020 Highlights
Value Delivered to Investors Market Performance Our Clients Dividend Yield Number of Investors • 2.66% compared to 3.17% Rs. 397 Bn last year. 647,584 Rs. Mn 450,000 Corporate Valuations Investor Accounts by Type 400,000 • Market PER increased to 11.25 350,000 times from 10.8 times last year. 300,000 626,343 4,833 250,000 Local individual Foreign individuals 2020 was a highlight year with 200,000 a 132% increase in daily market 150,000 100,000 10,726 5,682 turnover 50,000 Local institutional Foreign institutional 0 2018 2019 2020
Active Engagement
Enhance Market Accessibility
The key role is to drive market Expertise activity by attracting new investors and Awareness broadening the and Financial investor base Literacy through
Balanced Regulation
Building Investor Confidence 47
Market Performance Key Initiatives The outbreak of the COVID-19 pandemic affected investor activity with the closure of Digitisation of the CSE the capital market for seven weeks due to the lockdown measures on the first wave Several initiatives were implemented of the pandemic in March 2020. An increasing number of foreign investors exited the during the year to expand our digital market in response to the increasing uncertainties and macro factors. Net foreign presence and digitise processes outflows amounted to Rs. 51.0 Bn compared to Rs. 11.7 Bn last year. to make markets more accessible to investors, minimise paperwork However, the declining interest rates in the local market led to local investors and manual processes and improve channelling their savings to the capital market which presented comparatively more efficiencies. lucrative investment opportunities. With this, corporate valuations and share price indices rebounded from the sharp movements witnessed during the first wave of • The first phase of digitisation was COVID-19. completed with the launching of end-to-end digital on-boarding An active local retail investor base had a significant impact on market performance of investors and online account during the year with market turnover reaching the highest level since 2011. Domestic opening features followed by turnover increased by 192% to Rs. 318.2 Bn being the key contributor to the record the conversion of paper-based market performance despite the severe effects of COVID-19 on markets, businesses, statements to electronic forms. and economies across the world. A strong uptick was seen in the participation of retail investors to 48% compared to 29% last year. In addition to the low interest • During the year, we focused on the rate regime, the launch of the revamped CSE mobile app and increasing awareness second phase of the digitalisation among budding investors increased the interest of particularly retail investors in the process and revamped the CSE market. mobile app and websites with an enhanced user interface for • Daily market turnover increased by 167% to Rs. 1,899 Mn. investors including access to live market data, latest market updates • Market turnover increased by 132% to Rs. 397 Bn. and commentaries to support • Domestic turnover rose by 192% to Rs. 318 Bn investors in making informed • Foreign market turnover grew by 26% to Rs. 79 Bn. decisions. • CSE signed an MOU with the Department for Registration of Persons enabling access to the information system to verify the Foreign companies 19% identity of CDS accounts holders. Performance by Foreign individuals 1% Investor Groups Local companies 32% Local individuals 48% In addition to investing in digitisation of the CSE to be on par, the CSE also ensured investor confidence was maintained through strict market surveillance, regulation and routine inspections and monitoring of market participants. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 48
Accountability Trading
Value Delivered to Investors Investors create wealth in two ways namely capital gain and dividend income. Capital gains are driven by the movement in share prices and corporate performance. During the year, the ASPI increased by 10.52% compared to last year while the most liquid stocks forming the S&P SL 20 declined by 10.18% compared to last year. The challenging business environments and subdued corporate performances also led to a dip in dividend yields to 2.66% compared to 3.17% last year. Corporate valuations such as Market PERs increased to 11.25 times by year-end compared to 10.83 times last year.
Returns, Yields and Valuation Multiples 2020 2019 2018 2017 2016 All Share Price Index (ASPI) 6,773.22 6,129.21 6,052.37 6369.26 6,228.26 Change (%) 10.52 1.27 (4.98) 2.30 (9.70) S&P SL 20 2,638.10 2,936.96 3,135.18 3671.72 3496.44 Change (%) (10.18) (6.32) (14.61) 5.00 (3.60) Market PER (Times) 11.25 10.83 9.65 10.6 12.4 Price to Book Value (Times) 1.13 1.14 1.18 1.3 1.4 Dividend Yield (%) 2.66 3.17 3.10 3.20 2.80
In addition to the economic value delivered to investors, the CSE also ensures transparency and builds on investor trust and confidence which is key to sustain the activities of the capital market.
Value Delivered to Other Stakeholders
Stockbrokers SEC Government Rs. 4.3 Bn Rs. 527 Mn Rs. 2.4 Bn Trading commissions to SEC fees Share transaction levies trading members Rs. 53 Bn Foreign investments
Outlook The CSE has embarked on a strategic plan for the next three years from 2021 to 2023 focusing on the five strategic areas to increase market liquidity, broaden investor base and foster investor participation. In addition, to moving forward with the digitalisation of the CSE, we will also focus on driving investor interest of both local and foreign investors by engaging through various platforms including meetings and awareness sessions. 49
Market Data
The live streaming of capital market-related data is important to enable investors make quick and informed trading decisions. We use various platforms to disseminate trade-related data and work with listed issuers to ensure corporate disclosures are reliable.
2020 Highlights
Value Delivered Followership base Our Digital Access Points • Access to real time market data The CSE official website and Mobile Number of Followers App play a pivotal role in information • Ensure quality of market data 28,000,000 30,000 dissemination to clients. • Network with data vendors 25,000 26,000,000 20,000 We use these platforms to provide high-quality market data including 24,000,000 15,000 commentaries on the capital market 10,000 22,000,000 and access to corporate filings and 5,000 press releases to support investors
20,000,000 0 make informed investment decisions. . 2017 2018 2019 2020 Mobile App
2,432 Followers
83,383 Followers 6,557 Our presence in social Subscribers media platforms
7,788 Followers 42,725 Followers COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 50
Accountability Market Data
Highlights Key Initiatives During 2020 The availability of digital channels and Revamping of the CSE website provision of up-to-date market data is • The website was upgraded to enhance pivotal to build investor confidence and user interface. attract potential investors. The CSE worked extensively in ensuring market Launch of the revamped CSE data is easily accessible to clients across mobile App the world. Various robust and up to date • Improved user interface and added platforms enabled the CSE provide live new features such as capital market streaming of trade-related data without commentaries, etc. any interruption during the year. Improve quality of market data The increase in our followship base • All corporates were required to submit % change to last a COVID-19 impact report. year CSE website 6.6% CSE Mobil App 92% You Tube 158% We ensure our Facebook 8.3% Twitter 48.7% stakeholders are Instagram 143% provided high quality LinkedIn 28% market data at the The revamped mobile app and website enhanced user experience and provided right time. During the investors access to more analytical market information. These platforms also year, we expanded our served as marketing tools for the CSE propagating the brand across the globe. reach in both social We also networked with various data vendors including Bloomberg Finance media platforms and LP, Direct FN limited, Refinitiv Limited, Six Financial Information and factset CSE website and research system Inc, to further expand our client network. Mobile App.
Outlook We will continue to work on expanding our followship base in both own and social media platforms as a large and diverse breadth of clients are a key asset to the capital market. Reliable and real time access to market data is important to drive investor activity in the capital market and the CSE will continue to work on upgrading its platforms and enhancing the quality of market data to meet the evolving needs of our clients. 51
Depository Services
The Central Depository Systems (Pvt) Limited (CDS) is the first depository in the South Asian region and the seventh in the world. The CDS acts as custodian for 98% of listed equity shares and 100% listed corporate debt in the capital market. In addition to performing core depository functions, we also offer several diversified services such as registrar services and corporate action related services including dividend payments and rights issues and virtual AGMs.
2020 Highlights
Value Delivered Performance Our Clients
Value of securities held on custody Rs. Value of securities held on custody. was Rs. 2,939 Bn. 250,000,000 Rs. Bn Other value-added services 200,000,000 1,772 Local Institutional • E-service enrollments 150,000,000 • SMS 18,554 100,000,000 • E-statements 48,806 Rs. 482 Bn 50,000,000 Local Retail Served 0 2017 2018 2019 2020 289 45 Core depository income Rs. 50 Bn Other value added services Listed Entities Market Participants Foreign individual
Rs. 113 Bn Rs. 633 Bn Securities held on custody Foreign institutional
Cutting edge technology and systems
Digitised post trade services Network with multiple stakeholders The key role of the including custodian CDS division is to banks maintain custody of investor accounts
25 years expertise in operating a CDS
Value added services COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 52
Accountability Depository Services
Highlights Key Initiatives Depository services The value of securities held on custody remained in line We worked on several projects to enhance the quality, with last year at Rs. 2,939 Bn while the volume of securities convenience and efficiency of post trade services offered to maintained by CDS increased by 13% compared to last year. clients. Number of new investor accounts significantly increased by 70% with the opening of 17,591 new investor accounts. Core Decentralisation depository income increased by 106% to Rs. 236 Mn. • This was a significant change to the capital market landscape as individuals are able to open security Corporate Solutions accounts with their Stock brokers eliminating the need to In addition to the depository services, the CDS also offers forward application forms and connected documents to several value-added services through an independent Registrar CDS. Stockbrokers are also able to carry out Broker to services and corporate actions unit since 2018. During the Broker portfolio transfers without the intervention of the year, revenue from the division increased by 35%. The new CDS. business unit catered to 36 clients from diverse industries and • This delegation and empowerment increased the flexibility handled 45 projects including dividend payments, virtual AGMs of stockbrokers and enabled the CSE service investors in and rights issues. an efficient and timely manner.
Digitisation • The CDS made good progress in following the CSE digitisation strategy by introducing the online account Data AGMs opening platform in September 2020. Following the Selling project, more than 4000 online accounts have been opened with a turnover of Rs. 10 Mn. The end to end digital onboarding of clients simplified the account IPO opening process for new investors. Dividend Services • CSE signed an MOU with the Department for Registration New of Persons enabling access to the information system to Business verify the identity of CDS accounts holders. Segment • Digitised processes such as the automation of back office Annual documentation. With these digitised processes, nearly Right Report 70% of CDS operations were performed digitally without Dispatching Issue any interruption during the COVID-19 outbreak.
Dematerialisation of share certificate process Maintaining Ledger Sub • In line with global standards for depositories, CDS rules shareholders Division were changed to ensure that share certificates submitted to the CDS are available to be traded only upon approval of the secretary of the respective listed entity. This mitigates the risk of forged/fraudulent share certificate Outlook deposits. CDS is aiming to digitise all interactions between the investors and the CDS Participants with further plans to strengthen Other value added services the platform making it one-stop-solution for all capital market • Form 3rd quarter of 2020, SMS alert service was activated related interactions to all subscribed investors free of charge to enable clients 1. Centralisation of nomination and transmission of share verify their transactions. process. This initiative aims to introduce a single point of • CDS has taken a green initiative to convert all paper- contact for all involved parties to increase the efficiency & based statements to electronic form and actively convenience of the processes. promotes CDS eStatement facility to the account holders 2. Extending online account opening facility to various client • CDS website was also relaunched with user-friendly categories. interfaces to offer browsers an informative browsing experience covering investor centric information maintained by the CDS. The new CDS website provides all stakeholders easy access to a plethora of information. 53
CDS facilitating for Virtual & Hybrid AGMs
The CDS not only changed the physical form of the AGM but revolutionised shareholder registration methodology and facilitated issuers to deliver AGM at a short notice providing for live streaming of AGM, Q&A sessions and live voting for resolutions. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 54
Accountability Digital Capital
Digital Transformation Active presence in social media With this strong IT infrastructure, the A strong digital presence is key to Our social media channels include CSE successfully conducted market attract a larger breadth of clients to the facebook, LinkedIn, Youtube, Twitter and operations despite the emergence of CSE. During the year, CSE digitised the Instagram. the pandemic and lockdown measures. CDS account opening process enables Although market activity was impacted potential investors to conveniently open The subscription base has been growing during the first wave of the pandemic CDS accounts via the CSE mobile app. fast with channels such as youtube and in March 2020, the CSE took steps to With these changes, the CDS account twitter increasing by 124% and 93% facilitate the remote functionality of the openings increased by 70%, the highest during the last year. exchange and market participants and reported growth in any given year. market activity continued without any Our virtual platforms interruptions during the second wave of These platforms widened our marketing With the outbreak of the pandemic, the pandemic. capabilities, supported digital marketing COVID-19 and the lockdown measures, and facilitated remote working measures the CSE shifted promotional campaigns Our Digitised Processes for the first time in our history. The CSE and awareness sessions online to • End to end digital on boarding of considers its digital presence as key to sustain the interest of especially retail investors including opening of investor drive market performance and expand investors from across the country. accounts. client networks and we work extensively • CSE introduced a single digital identity The CSE hosted 76 awareness and in building our digital eco-system which for all investors of the mobile app and education sessions online with 2928 will be our competitive strength. all future digital services of CSE would budding investors participating the evolve via the same digital identity sessions. Why We Invest in Digital Capital providing investors a seamless access Technology drives the CSE towards to all future Digital Channels Our IT Systems being more agile, competitive and vibrant • Digitised corporate announcements The CSE has two core systems namely by and publications of listed companies. • Enhancing seamless experience. the Automated trading system and Central depository system in addition to • CDS digital services such as • Driving operational excellence other enterprise systems that support e-connect. and cost savings through robotic market surveillance, broker supervision, • Implemented internal work flow automation and process efficiencies. registrar services and compliance. processes. • Minimising post trade risks. • Remote functionality of the exchange The CSE has over the years focused for the first time in history. In addition to ensuring a strong on building robust, stable, secure and • CSE integrated with Department of technological platform, the CSE also cutting-edge technology. During 2020, Registration of Persons, being the first adheres to strict Information Security we further upgraded IT infrastructure, institution in Sri Lanka to integrate with (ISO 27001) Standard enhanced datacenters, refreshed critical the department to enhance the KYC hardware and upgraded the ATS to validation process in line with CBSL Our Digital Touchpoints the latest generation offered by leading regulations. During the year, the CSE revamped trading systems. During the year CSE the CSE mobile app, CSE and CDS have invested into the future through During the year, the CSE formed the websites with improved features and the implementation of an Integrated Digitisation Committee in collaboration detailed commentaries for investors Rack-based data center solution which with the SEC with the objective of including market research articles. Redefines traditional Data Center digitising the end to end functions of the These changes enhanced the user Design with high energy efficient, highly CSE including the activities of the market interface and enabled end to end digital reliable and Converged Infrastructure participants. onboarding of clients. and expects a drastic reduction in data center operational costs in the future Upcoming Projects The Net book value of IT assets by year end amounted to Rs. 336 Mn compared Working within a fast evolving to Rs. 200 Mn last year with the environment, the CSE will continuously investment of Rs. 189 Mn. upgrade its IT infrastructure to enhance efficiency, availability and accessibility to our stakeholders. 55
Some of the upcoming projects include: • Introduction of a DVP system to minimise the asset commitment risk associated with trading of equity securities. • Launch of CDS e-connect to provide investors and corporates CDS digital services at their fingertips. • CSE will continue to offer standardised and scalable solutions to help market participants meet their growing regulatory obligations through digitising member firm reporting and integrated compliance and risk management solutions. • Hosting of virtual events such as ‘invest Sri Lanka Webinar series’ to encourage stakeholders share their views on the market and the macroeconomic condition of the country. These webinr series will also be targeting the foreign investor community as well.
IT Governance The IT steering committee oversees the IT function of the CSE namely the computer readiness team and the IT webinar committee.
Chief Executive Officer
Chief Information Officer
Computer IT Steering Readiness Team Committee
The Steering Committee ensure strict governance through IT policies that cover information security, data protection and IT service management.
Information and Cyber Security With the increasing volume of global cyber-security threats and breaches, CSE consider cyber-security preparedness as a priority.
On digitisation of the CSE, the core functional areas will soon depend on digital technologies which will also bring in high risk due to cyber threats.
The CSE continuously enhanced its security infrastructure and conduct continuous vulnerability, penetration and threat assessments for internal assets as well as publicly available services which guaranteed an un-interrupted service for all stakeholders.
CSE for the 7th consecutive year was obtained the ISO 27001: 2013 (Information Security Management System) standards which were re-certified for a further three- year period from 2020 - 2023.
COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 56
Accountability Social and Relationship Capital
The CSE plays an active role in building and nurturing strategic partnerships with diverse stakeholders including clients, trading members and regulator. We use our capital market expertise to deliver a positive impact to our stakeholders by supporting them optimise their capital resources and increase wealth and prosperity.
Creating Value to Our Stakeholders To our Clients : To our stockbrokers To our communities To our Regulator To the Government Investors and Issuers Market Turnover The trading The CSE hosted several • The CSE paid Rs. 527 Share transaction levies reached Rs. 397 Bn commissions earned by awareness sessions and Mn Fees to SEC amounted to Rs. 2 Bn 80% higher than last our trading members workshops to educate Direct taxes paid year. amounted to Rs. 4 Bn local communities and • Proposed rule amounted to Rs. 41 Mn Daily Average turnover during 2020 compared enhance their financial amendments to In addition, the CSE Rs. 1,899 Mn to Rs. 2 Bn last year, literacy especially on maintain a strict and attracted foreign inflows Doubled compared to representing an 100% the capital market. balanced regulatory of Rs. 53 Bn. last year and reached growth in the value Following these environment. the highest since 2014. created to trading awareness sessions, members. several buding investors Average dividend especially within the yield 2.66% age group of 18 to 16% decrease 30 participated in the compared to last year. capital market during Capital raised of the year. Rs. 61,049 Mn 10 new listings, 15 rights issues Performance of price index CSE ASPI was classified as the best performing index in the world during September 2020.
Balanced Regulation Ensuring a fair marketplace is key to build stakeholder confidence. The CSE ensures market integrity through strict governance, compliance and market surveillance. Any instances of market malpractices and non-compliance with CSE Rules are promptly referred to the regulator, the SEC for appropriate action.
Convenient Market Access The CSE offers state-of-the art pre-trade, trade and post-trade platforms that offer end-to-end digitalised trading solutions to a diverse pool of over 700,000 individual and institutional investors. Digital access points including the mobile app and active presence in social media platforms provide clients convenient and real time access to the stock exchange in addition to serving as a platform for continuous engagement and information dissemination. As a strong digital presence enhances the investment experience, improves efficiencies and enhances market integrity, the CSE focuses on digitising the stock exchange. The first phase was completed with the conversion of paper based statements to electronic form and facilitating electronic dividend Hon. Mahinda Rajapaksa, the Prime payments. As part of the second phase, the CSE and SEC launched a transformative Minister of Sri Lanka launches CSE digital offering through the new CSE Mobile App which enabled end-to-end digital and SEC Digital products onboarding of clients including the opening of digital CDS accounts. 57
On 17 September 2020, we held a The first program was hosted for Non- special market opening ceremony executive directors and the remaining In addition to the under the patronage of Prime Minister programs on the agreement will be Hon. Mahinda Rajapaksa, to earmark carried in 2021. These programs economic value the revamp of CSE digital touch points cover eight areas including advanced created, the CSE including the new CSE App with user financial modelling, investor relations, friendly interfaces covering trading risk management, sustainable finance offers several information, regulatory information and and anti-money laundering. investor centric information. other services to Our Webinars and Forums Number of Mobile application downloads Webinars are organised by the CSE in strengthen the trust in 2020 increased by 120% to 129,477 collaboration with industry associations users. to reach various market participants and confidence including investors and issuers. We Work Closely with • The CSE hosted a forum to discuss of stakeholders Stakeholders the changes in the tax systems • Social Media and various tax concessions and and enhance • The CSE Mobile App exemptions to maximise the benefits from the tax reforms. their investment • 188 Awareness sessions • The Federation of Information • Direct meetings experience Technology Industry Sri La nka (FITIS), • Other mediums such as media the Colombo Stock Exchange and releases, CSE website, circulars, the Information and Communication electronic media, etc. Technology Agency (ICTA) hosted • Bell ringing ceremonies a webinar titled “Financing Digital In December 2020, a bell ringing Transformation: Is Going Public the ceremony was hosted online to celebrate Next Step?”, to promote the listing of the 35th anniversary of the CSE under companies in the IT industry. the theme ‘A Transformative past - A • The Institute of Chartered Accountants Vibrant Future’. In addition, 6 market of Sri Lanka (CA Sri Lanka) and the opening ceremonies were held to Colombo Stock Exchange (CSE) celebrate various corporate and capital conducted a webinar titled “REITs: market milestones. The way Forward and Opportunities”, focusing on the newly introduced The CSE Investor Education Real Estate Investment Trusts (REITs) Corporate Community offered Platforms Framework. perspective on proposed Tax Reforms The CSE works on several programs to educate and enhance the financial literacy of budding investors in the country through • Awareness sessions • Advanced diploma in Financial markets (ADFM) which is also recognisd by the Chartered Institute of Management Accountants (CIMA) and the Institute of Certified Management Accountants of Sri Lanka (CMA). The third intake of students in 2020 also included foreign students and business journalists with the intention of enhancing business journalism in the country. • The CSE Signed an agreement with LSEG academy to provide bespoke IFC Partners with Colombo Stock Exchange for 5th Ring the Bell for Gender programs for the first time in Sri Lanka. Equality Event in Sri Lanka COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 58
Accountability Social and Relationship Capital
Commercial Bank of Ceylon PLC ring the bell to celebrate centenary year 59
GRI 102-8
Human Capital
CSE’s human capital comprises of a highly skilled and knowledge based workforce, with 95% of our employees having a strong combination of academic and professional qualifications. We nurture a learning culture with specialised career paths, conducive policies and practices and job security. Despite the challenges of COVID-19, the CSE reported no pay cuts or layoffs and no restrictions on employee benefits. Our team was well prepared to work remotely during the lockdown period and the CSE successfully conducted operations remotely with only a handful of critical staff reporting to work for a 02-month period during which no operational or technical lapses were reported. This was a historic achievement for the Exchange.
What Differentiates Us
Professionally and Positive work attitudes Policies to ensure Consistent employee Unique employee academically highly and conducive work strong governance development benefit schemes qualified diverse work environment force
Fair Gender Balance Regional Diversification Diversity by Experience
Average of 42% female 19% of the workforce • Experts: 30% of workforce representation in both based outside Colombo with 5 to 10 years of Management and experience at the Exchange. Non-Management cadre • Fresh talent: 32% of workforce less than 5 years.
We are a Vibrant and Diverse Team of 148 Members
Value Added During 2020
Training and Remuneration and Employee Active engagement development benefits paid. recognition Virtual welfare events Rs. 430 Mn Training hours per CSE Toastmasters club employee 7.25 hours In addition to the remuneration payments, Staff quiz Training expenditure the CSE offered job security Rs. 610, 924 Movie Night to employees with no reported instances of layoffs during the year. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 60
Accountability GRI 401-1, 405-1 Human Capital
The CSE team Our team comprises of 148 employees representing multiple geographic, ethnic, religious and cultural backgrounds in Sri Lanka.
Diversity and Inclusion within the CSE
The CSE maintains a healthy gender balance above the industry average with an overall female representation of 42% which also
Male 58% extends to the Senior the Management of the Exchange. Gender Female 42% • Female representation in Management category was 43% Distribution • Female representation in the non-management category was 41%.
Whilst the majority of our Team is assigned to our offices in Colombo, 19% of our workforce is located at 8 branches situated across the island.
The CSE talent pipeline includes multiple categories with 61% of employees within the executive level. The middle and top management categories form 26% of the workforce. Top Management 11% Middle Management 15% Employee Executive Level 61% Categories Non-Executives 13%
Good Employee Retention Record
Above 30 Years 3% A satisfied team is key to employee retention and the CSE has 20 - 30 Years 5% successfully retained a significant part of our workforce with 30% Employee 10 - 20 Years 22% of our workforce been part of CSEs journey for over 10 years and Years of Service 5 - 10 Years 37% 37% between 5 - 10 years. During the 35th anniversary in 2020, the Less than 5 Years 32% CSE recognised one staff member for being part of the CSE since inception.
Our Approach People care is at the heart of our strategy as we believe positive work attitudes and conducive work environments drive a productive and satisfied team. During the year, the HR division focused on four key areas to strengthen our talent pool despite the challenges of COVID-19. We continued to focus on attracting, developing, and retaining the best talents to build a pool of specialised knowledge and experience at the CSE while maintaining sound HR policies and governance to ensure an ethical workplace.
HR Strategy Our HR Policies and Procedures During the year, the CSE HR strategy focused on the following The CSE is committed to the principle of equal opportunity and four areas of human capital management. Despite several strives to maintain a balanced and inclusive workforce. external pressure and lockdown periods, the HR function of the Exchange worked collaboratively with the team. HR policies and procedures of CSE ensure that the Exchange complies with labour laws specified in the Shop and Office Our priorities in 2020 were: Employees Act including the right to freedom of association, • Retention the eradication of child and forced labour, non-discrimination • Engagement and abide by the labour rights and freedom of association principles. • Health and safety • Policies and Governance 61
ISO Certification The Human Resources Division of the CSE obtained the ISO 9001 - 2015 Quality Management system certification in 2018. We are amongst a very few corporates who have obtained and are continuing an ISO certification for the Human Resources function.
• The objective of this certification was to ensure continual improvement of HR processes, ensuring that our policies and procedures consistently provide for the needs of our employees and are in compliance with labour law regulations. • The ISO certification has enabled HR to maintain consistent practices and streamlined processes, ensuring quality and accuracy in our daily operations. • The certification covers areas such as recruitment, training and development and remuneration and other HR operations whilst also ensuring our practices are in compliance with labour laws specified in the Shop and Office Employees Act.
Organisational Culture • We maintain an open-door policy, providing our employees the freedom to approach even the highest authority in the hierarchy without hesitation. • We envision to promote and follow the examples of our corporate values of Professionalism, Integrity, Care, Teamwork and Passion. • The CSE is an equal opportunity employer. We nurture a diverse and inclusive culture. Our employees represent all types of geographic/ethnic/religious cultures in Sri Lanka and we respect and recognise them equally. • Our compensation philosophy focuses on gender pay equality.
Health and Safety at Work The health and safety policy demonstrate the commitment of the CSE to nurture a safe environment for employees. Divisional disaster recovery management coordinators and fire wardens assist employees in emergency situations. Several activities are lined up every year to enhance the health and safety measures and increase awareness among employees. Some of the activities performed during the year include;
• Bi-annual fire drills • Safety training • Awareness on action plans during emergency situations and cyber attacks • Awareness on cyber attacks • Routine pest control measures
With the emergence of the pandemic, the CSE also implemented additional safety measures. The operations of the Exchange were halted for two months from March 2020 to May 2020 on the first wave of the pandemic. As operations resumed, the CSE implemented several safety measures to maintain strict social distancing guidelines including reduced work hours, rosters and requesting all employees to travel by private transport with fuel costs being reimbursed. During the year, there were no instances of occupational injuries/diseases and health issues. The CSE is not a unionised organisation and does not have a formal committee in force to monitor health and safety.
COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 62
Accountability GRI 401-2, 404-3 Human Capital
Movements in Our Team Talent Acquisition The CSE invests in acquiring key talent by presenting opportunities to interns and other employment opportunities through Fixed Term Contracts as these bring in fresh talent to our workforce. We also develop and upskill the performers of our workforce by providing internal job posting opportunities, lateral transfers and promotions.
The selection process of the Exchange includes interviews, presentations, and tests to ensure the best fitted candidates are selected. During the year, the CSE also performed remote recruitment practices such as online interviews. The number of recruitments during the year was significantly lower than last year due to the pandemic. There were six internal job postings published during the year.
Despite the lockdown, the CSE effectively managed its cadre of both permanent and non-permanent employees and reported no dismissals during the year.
Opportunities for Further Employment Gender Wise Recruitment Distribution No. of Employees No. of Employees 6 15
4 10 Internal Job Posting Opportunities 2 5
0 0 2018 2019 2020 2018 2019 2020 Published 67% Filled 33% Contract Internship Male Female
Corporate Inductions The CSE induction programs carried out annually, is part of our onboarding activities for new recruits to familiarise them with the activities of the Exchange, corporate culture, values, practices, operational framework, and technical know-how. As the corporate induction program normally require co-mingling, the CSE postponed its annual induction program and recruits were inducted individually through one-on-one induction sessions.
Performance Management The performance-based culture of the CSE is backed by a goals based approach with individual goals and targets integrated to the corporate strategy of the Annual Annual Exchange. All employees are part of the performance management system of the Reviews Goal Exchange. Performance appraisals evaluate employee performance on predefined Settings key performance indicators.
During the year, 4 internal job posting opportunities were provided whilst, 8 employees were promoted in recognition of their performance. Mid-Year Revisions
Remuneration and Benefits Our remuneration policies and practices are linked to employee performance and are benchmarked against industry standards. The Performance linked remuneration methodology ensure fair compensation to all employees.
Our compensation philosophy ensures Gender Pay parity by ensuring employees are rewarded based on their performance and contribution and not on any Gender biases. During the year, employee compensation amounted to Rs. 414 Mn. Additionally CSE also offers a unique array of employee benefits covering all categories of employees. 63
GRI 401-3, 404-1, 2
• Benefits such as Staff Loans, Vehicle Loans and Educational Loans with highly Total Remuneration and Other Benefits attractive and beneficial interest rates. Cost (Rs. Mn) 500 • CSE is also one of the very few employers who offer Maternity Leave that is over and above the stipulated regulatory minimum. New mothers can enjoy up to 100 400 working days of maternity leave, giving them the opportunity to spend a prolonged 300 period of time with their new-born. Upon return to work they can also avail the Nursing Hour benefit, which grants them the opportunity to work 2 hours lesser 200 than the regular working hours until her baby turns 01. 100 • With a majority of our workforce comprising of qualified professionals in their respective fields, CSE also reimburses the annual membership fees related to 0 professional qualifications, further easing the financial burden of our employees, and 2018 2019 2020 also encouraging others to engage in broadening their educational qualifications. • Permanent employees and their families are provided with Hospitalisation Insurance covers in addition to other Insurance benefits such as Life Insurance, Critical Illness Covers and Personal accident covers.
Employees on Maternity Leave Employees on Parental Leave 2020 2019 Total No. of employees that were entitled to parental leave 38 37 Employees that took parental leave 2 4 Employees who returned to work after parental leave ended 1 3 Employees who returned to work after parental leave ended and who were still employed 0 3 12 months after their return to work Employees who took parent leave but leave period not ended as of 31st December 1 1
Training and Development Training and continuous learning is imperative at the Colombo Stock Exchange as the Training Hours per Employee core business functions at the CSE require highly technical knowhow which can only No. of Hours be obtained on the job or through cross-exchange related training programs. 30
Due to the pandemic and the closure of international borders, the training 20 opportunities both cross-border and local were limited. Training expenditure dropped to Rs. 0.6 Mn compared to Rs. 2.5 Mn last year and the training hours per employee dropped to 7.26. 10
Despite a challenging period, the CSE prepared a comprehensive training plan to ensure our focus on creating a learning organisation continues in the upcoming years. 0 2018 2019 2020 Employee Recognition Given the challenging work environment as a result of the pandemic, the annual staff recognition event was postponed. However, the CSE continues to recognise high performers for their hard work, dedication, and commitment towards the Exchange. Over the last several years, the CSE has presented various awards to employees in recognition of their performance in diverse areas. Although these events and awards could not be presented during the year, the CSE considers it a priority and will continue this initiative during the forthcoming years.
During the year, 5 employees completed 10 years of service. 2 employees completed 15 years, 1 employee completed 20 years and 1 more employee completed 25 years of dedicated service to the Exchange. We also recognised one employee at the 35th anniversary of the CSE for completing 35 years of service. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 64
Accountability GRI 413-1 Human Capital
CSE Value Champions Mercantile Sports Long Service Employees Achievements
Annual Employee Recognition Awards
Best Inductees Award Toastmaster Achievements
Quiz Competition Achievements
Movie Night Together with the involvement of members of the SRC Club the HR team organised the movie night, showcasing a movie which earned the highest number of votes from employees. Annual Staff Quiz Battle of the Brains’ was organised for the 5th consecutive year in September 2020. It is one of CSE’s most successful staff engagement activities and is an excellent platform for our employees to co-mingle with peer colleagues and partake in healthy competition. The quiz serves to be a knowledge gathering fun activity, where employees participate in teams and the Annual staff quiz participants and winners winners are awarded with a cash prize. Birthday Celebrations Engaging with Our Employees Other Forms of Engagement An individual birthday shout-out is The CSE strives to build an open and • HR clinics sent to all staff whilst the employee engaging culture. Year around, we • Official staff communication channels celebrating his/her birthday is hosted several initiatives to connect with such as email and intranet presented with a gift voucher on employees despite the pandemic. the day. Mini Remote Quizzes during Online Yoga Lockdown Our employees show cased their A series of Yoga classes were organised for employees and their loved ones to take part quizzing abilities through a series of during the second lock down. mini online quizzes during the 3-month lockdown in March. 65
CSE Toastmasters Club We recognise the efforts and achievement of our staff members belonging to the CSE We encourage employees to enhance Toastmasters club who have represented the club over the past years. We continue and showcase their talents in public to encourage new members to join the club and experience the benefits offered by speaking and leadership through Toastmasters International. Also, member achievements are recognised annually at our membership with the Toastmasters Annual Awards Ceremony. The membership fees of new members is reimbursed in full club. The club since its inception in whilst membership fees of existing members are also reimbursed for members who win 2015, has continued to groom our toastmaster contests or complete a desired number of club projects. employees and provide a platform for members to learn and grow within the CSE congratulates the achievements of TM Tharaka Amarasena and TM Nuwan toastmaster framework. Chathuranga for being awarded the Distinguished Toastmaster Status. CSE Toastmasters club also achieved the ‘Presidents Distinguished Club’ status for the year 2019/20. Due to the Covid-19 outbreak the 6th Club Installation for the year 2020 was not held this year. However, the CSE will continue to support and encourage staff to join the club.
CSE Toastmasters Club
Way Forward and 2021 Priorities Our long-term HR vision is to ensure the HR division is a Strategic Business Partner for the CSE Group directly contributing to the developments of the Exchange in achieving its vision of creating wealth and value.
We will focus on the key areas including talent management, enhancement, and operational excellence to effectively cater to the needs of both employees and the Exchange. Our medium-term priorities are to: • Attract, retain, and motivate employees through fair remuneration • Foster a performance driven culture and efficient talent utilisation • Develop skills and expertise by nurturing learning culture • Relationship building through Employee Engagement • Digitising HR processes COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 66
Accountability Intellectual Capital
Building Our Intellectual Capital The CSE is the sole stock exchange of the country offering a suite of exchange related services to clients from across the world. Currently, the CSE is home to investments of Rs. 2,961 Bn of which 23% is foreign and 77% is local.
Over its history of 35 years, the CSE has layed a strong foundation which is the intellectual capital of the exchange. These factors underpin the brand image of the exchange and foster trust and confidence of stakeholders.
Intellectual Capital IT Capabilities Technology is a core part of Skills and Expertise our business model and the Our capital market expertise CSE ensures its systems are is backed by employees with upto date and capable of over 9 years of experience. meeting diverse client needs.
Credibility of the Market Self Regulation We develop stakeholder A dedicated compliance trust and confidence division to ensure the by ensuring a balanced compliance of the CSE regulatory environment Group to all applicable laws, and monitoring its rules and regulations. compliance.
Innovation We consider innovation as key to differentiate the Seamless Connectivity CSE & CDS The CSE & CDS has in place a digital ecosystem with digital channels, High Quality Market Data automated processes and Effective information modern trading platforms. dissemination is key to support investors in Diversity decision making and the Our channels, CSE focuses on providing products and client the market data in the right bases are diverse. way at the right time. 67
How the CSE Enhanced its Intellectual Capital During the Year
Technological Know-how Invested Rs. 189 Mn on technology Credibility of the market is important to sustain the trust and and upgraded digital touchpoints such as the CSE mobile App confidence of stakeholders on the stock market. and websites to enhance user interface. CSE as frontline regulator, ensures balanced regulation and Further details in page 49 strictly monitors the activities of market participants to sustain market integrity. Skills and Expertise Invested Rs. 0.6 Mn on employee trainings and skill upgrde projects. The CSE plays an active role as a frontline regulator to ensure the integrity of the capital market. We oversee all market Further details in page 63 participants including listed issuers and trading members with demonstrate divisions assigned to perform these tasks.
Seamless Connectivity Market Surveillance and Corporate Affairs Providing convenient access to the market is key to attract a • Ensures the efficiency, timeliness and comprehensiveness of wider breadth of investors. The CSE digitisation drive was an corporate disclosures. initiative to enhance the digital access points to the market • Detects market malpractices and during 2020, the CSE launched the updated mobile app • Effective regulation of listed entities by reviewing which successfully attracted a large investor base with 5,224 financial statements. new investor accounts opened through the app. In addition, the CSE continued to maintain its active presence in social media • The Corporate Affairs Division adopts a risk based approach platforms and branches. in reviewing the financial statements of the Listed Companies.
Self Regulation Broker Supervision The CSE maintains strict governance protocols to ensure • Assessment of Risk of Stockbroker Firms. compliance with all applicable laws and regulations. • Perform system audits. A dedicated compliance division ensure the compliance status • Assess the financial stability, operational capacity, liquidity of the CSE at any given point of time and during the year profiles and compliance of broker firms to rules, regulations worked on the and standards. • Monitoring compliance with the SEC On-site inspection recommendations and ensuring timely implementation. • Prepare periodic reports on performance of Stockbroker Firms. • Compliance monitoring and reporting to the Board. • Awareness sessions to update Stockbroker Firms on the • Performed a self evaluation of the central depository in line applicable rules and best practices. with the Principles for Financial Market Infrastructures (PFMI standards). • Initiate enforcement action against Stockbroker Firms due to non-compliance with CSE Stockbroker Rules. • Periodic referrals were made to the Board sub committees and ten comprehensive referrals to the Board on matters relating to Stockbroker Firms
During the year, the CSE also engaged in • Regulatory developments such as facilitating the digitalisation of Stockmarket operations through the amendments of the CSE and CDS Rules and the broadening of listing criteria. • Enhanced rules governing BASEL III Debt Securities and listing of debt securities issued by the state owned enterprises. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 68
Accountability Intellectual Capital
Innovation Diversification We strive to enhance the investment experience and meet The CSE strives to diversify its products, services, channels and the evolving needs of market users. During the year, the CSE client mix. We consider diversification is key to drive sustainable successfully introduced the following product. growth of the CSE.
• Listing of Real estate investment trusts (REITs). Product and Services Diversity • REITs pool funds from public investors and such funds The CSE offers a range of products and services to clients. are thereafter utilised to acquire residential or commercial Listing Trading products Client Services properties, retail or industrial properties, infrastructure or • IPOs • Equity • Exchange related services. other real estate-related assets. • Rights • Debt • Other value added Projects in Progress issues services such as corporate • Facilitate REPO transactions through OTC platform. With this • Closed end funds registrar services which product, the CSE acts as a facilitator in connecting securities • REITs account for 4% of CDS providers who possess collateral and are in need of financing revenue. their liquidity requirements with cash providers • Facilitate trading of Paper Gold as a tradable product benefit the economy at large and acts as a hedging mechanism for investors. Channel Diversity • The CSE is currently in the process of facilitating the listing The CSE offers a range of products and services to clients and trading of foreign currency denominated shares and debt through various physical and digital channels such as securities issued by local entities. 8 branches, mobile app, website and social media platforms. • These product launches are subject to necessary legal and regulatory clearances from the Securities and Exchange Commission of Sri Lanka (SEC) and Central Bank of Sri Lanka (CBSL). • The CSE is exploring the possibility of facilitating the trading of Mortgage Backed Securities (MBS) on the CSE.
Standard in Compliance Client Diversity The CSE complies with the Information security (ISO 27001) Investors by type Investors Issuers ISO standards since 2013 by age group 631,176 retail 5% below 30 years 283 companies In addition all rule amendments, corporate compliance 16,408 Institutional 95% above 30 years programs and the corporate compliance reporting system are benchmarked against industry best practices and standards. High Quality Market Data The CSE works extensively in ensuring the quality of market data provided to clients. 69
GRI 102-7
Financial Capital Financial Performance Highlights The CSE reported a profit before tax of Rs. 458 Mn reversing the losses of Rs. (39) Mn last year. Increasing market activity drove a significant increase in CSE revenue enabling the exchange to have a profitable year despite challenging times.
Profit after tax amounted to Rs. 417 Mn compared to losses after tax of Rs. (43) Mn last year. The income tax expenses amounted to Rs. 41 Mn compared to Rs. 4 Mn last year.
The financial resources build the stability Financial Performance Rs. Mn. 2020 Highlights and resilience of the capital market. 1,500 Metrics Change The CSE financial capital include the accumulated fund, reserves and Income Rs. 1,041 Mn 83% 1,000 liabilities which cumulatively grew by Net Finance Income Rs. 279 Mn 11% 22% during the year to Rs. 4,142 Mn. 500 Strategic corporate plans, effective risk Operating expenses Rs. 863 Mn 0.4% management and optimal utilisation 0 Profit/loss before tax Rs. 458 Mn of both monetary and non-monetary Profit/loss after tax Rs. 417 Mn resources enabled the CSE drive market (500) activity to end the year 2020 on a 2019 2020 Other comprehensive Income for the year positive note with the accumulated fund Total income Rs. (24) Mn increasing by 14% to Rs. 3,248 Mn. Profit/(loss) before tax Profit/(loss) after tax
Revenue The revenue of the CSE increased two-fold to Rs. 964 Mn driven by growth in market activity. The CSE worked on several initiatives including digitisation, launch of new products CSE & CDS Fees 82% and revamping of mobile app to build investor confidence Listing Fees 9% and increase their participation in market activity. Local retail Revenue by Quotation Fees 1% Business Segments Brokers’ Fees 1% investors from various regions of the country showed strong Charges for Computer Information 2% interest in the capital market triggered by the low interest rate Listed Company Fees 4% environment during the year. Increasing awareness, seamless connectivity, and enhanced convenience through end-to-end digital onboarding of clients, enabled the CSE reach a wider breadth of local retail investors. CSE and CDS fees increased by 137% to Rs. 794 Mn and accounted for 82% of the CSE revenue. Listed company fees Despite the weakening economic performance across the world increased by 105% to Rs. 41 Bn. Other fees such as broker that led to a decline in foreign investor participation, local retail fees and listing fees remained broadly in line with last year. The investors drove market performance to the highest level since setback in fund raising activities of the exchange impacted 2011 with market turnover increasing by 132% to Rs. 397 Bn quotation fees which dropped by 32% to Rs. 9 Mn. during the year. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 70
Accountability Financial Capital
Total Costs Total costs of the CSE amounted to Rs. 863 Mn almost in line with last year. Staff costs formed 45% of the exchange cost base and increased by 16% to Rs. 389 Mn. Depreciation and Operational Efficiency amortisation costs amounted to Rs. 158 Mn, 4% lower than last Total Cost (Rs. Mn) year. Other operating expenses declined by 13% to Rs. 313 Mn 920 200 as Nation Building Taxes (NBT) & Disallowed VAT expenses due to abolished of NBT and lower VAT rate compared to 2019 900 150 and administration expenses declined during the year. Further 880 due to digitalisation initiatives CDS Statements expenses and 100 Stationery Expenses were reduced. Due to travel restrictions, 860 no participation in Overseas Conferences the relevant cost was 50 840 not incurred. As a result of not conducting Foreign Road Shows due to travel restrictions and moving into more online market 820 0 promotion activities, the Investor Education & Foreign Road 2018 2019 2020 Show expenses has been reduced by 35%. Cost to income ratio Although the exchange rate depreciation was a challenge, the CSE effectively managed operating costs through streamlined processes and digitisation. Net Finance Income The net finance income of the CSE increased by 11% to Net Finance Income Rs. 279 Mn with the 39% decline in finance costs. Rs. Mn 350 Interest expenses on lease liabilities declined to Rs. 11 Mn 300 compared to Rs. 29 Mn last year due to the most of lease 250 agreements were at the end of the tenor as the impact to 200 the income statement is front-loaded due to the higher 150 finance expense at the inception of the lease leading to a 100 reduction in overall interest expenses of the exchange. 50 0 Finance income increased by 5% compared with last year to 2018 2019 2020 Rs. 301 Mn as a result of increased in the fund based and Finance costs Finance income locking of investments at higher interest rates resulting the minimising the impact of the decreasing of interest rates
Highlights 2020 2019 Rs. Mn Rs. Mn Total Assets 4,142 3,387 Non-current 1,271 1,557 Current 2,871 1,829 Total Liabilities 794 431 Non-current 114 159 Current 680 272 Net assets 3,348 2,956 71
Assets Movements in key asset categories which Assets of the CSE increased by 22% to Rs. 4,142 Mn of which non-current assets cumulatively account for 82% of total assets formed 31% and current assets formed 69% of the assets. Rs. Mn 2,000 Non-current assets declined by 18% to Rs. 1,271 Mn as financial investments were re-classified as short term. This also led to an increase in the current assets 1,500 of the exchange by 57% to Rs. 2,870 Mn. As a result, current assets accounted for a higher 69% proportion of total assets. 1,000
Key Assets of the CSE 500 Financial Investments Total financial investments of the CSE increased by 14% to Rs. 2,632 Mn of which 0 21% was long-term. The CSE maintained a portfolio of investments with 21% of
Other the investments on long term listed debentures and fixed deposit the remaining Financial short term investments including money market funds, fixed deposits and listed equipment equivalents Investments investments Cash and Cash debentures which mature over the forthcoming 12 month period.
Property, plant and 2019 2020 Property and equipment of the exchange increased by 19% to Rs. 327 Mn with capital investments of Rs. 174 Mn mainly towards upgrading of the Date Centre and the cost incurred towards for digital initiatives and to facilitate the Work From Home arrangements for the Exchange
Cash and cash equivalents significantly increased during the year to Rs. 632 Mn compared to Rs. 122 Mn last year. The increase in cash balances was primarily driven by the profitability of the exchange during the year and due to increase in Brokers’ liquidity margin with compared to last year due to increased market trading activities Equity/ Net Assets Liabilities The net assets of the CSE increased by 13% Total liabilities of the exchange increased by 84% to Rs. 793 Mn of which 86% to Rs. 3,348 Mn as the reported profitability was current liabilities. of the exchange enabled an increase in the Accumulated fund. During the year, non-current liabilities declined by 28% to Rs. 114 Mn as lease liabilities on right to use assets declined during the year. However, Employee Other reserves remained in line with Benefits liabilities has been increased higher salary increment rate and decreasing in last year. interest rates.
Current liabilities increased by 149% to Rs. 680 Mn due a threefold increase in broker deposits as a result of increased market trading activities. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 72
Accountability Natural Capital
The CSE is a member of the Sustainable stock exchanges initiative since 2015 and plays an active role in embedding the sustainability concept across various companies and industries in the country. We issue environmental, social, and corporate governance (ESG) criteria guidelines to support corporates integrate sustainability to their corporate strategies and encourage more balanced corporate disclosure through sustainability reports.
We Support Corporates Embrace Sustainability Reporting
Three focused technical serious Number of listed companies preparing Hosted a Bell ringing ceremony to workshops focused on addressing sustainability reports increased to 130 celebrate the two year partnership the key challenges and questions in from 121 from 2018 to 2019 with GRI prepating sustainability reports Our Initiatives During the Year The CSE Although our direct impact on the environment is limited to the consumption of paper and energy, the CSE worked on several projects to drive a change in the corporate sector of the country through awareness and recognition of sustainable corporates. reduced paper
We connect with global organisations to promote best practices in sustainability consumption by through workshops, events and publications such as the ESG guideline document for listed issuers. 35% compared to • The CSE collaborates with the Global Reporting Initiative (GRI) since 2018. last year. Digitised • Work with the Institute of Chartered Accountants in Sri Lanka and the Institute of Management Accountants of Sri Lanka to host the Annual report award ceremony. processes
Congratulations! and increasing awareness contributed to the reduced paper The CSE in was recognised as an honouree in the national category at the International Standards of Accounting and Reporting awards (ISAR) held in November consumption. 2020. The award was presented in recognition for the CSE active engagement with GRI to promote sustainability practices. 73
Sustaining Our Value Creation Corporate Governance
Dear Members, 2020 underscored the importance of effective leadership and governance structures as countries, industries and businesses thrived, adapted or struggled depending on these two key factors. Sharp contrasts in managing the threat of the pandemic and the varied experiences shed light on the need for holistic approaches to the solution, balancing often conflicting priorities. Sustainable growth clearly requires visionary leadership that carefully maintains an appropriate balance of stakeholder interests and a healthy regard for the planet. In CSE’s role as a market operator, corporate governance takes on an even more important role as it is a key contributing factor to a vibrant market that upholds the interests of market participants.
CSEs emergence from the lockdown as a digitalised stock exchange was possible due to the leadership given by the Board as priorities were realigned quickly to operate in a world that had been reset. Ensuring that solutions implemented benefited all stakeholders was key to engineering the emergence and the results stand testimony to their effectiveness. In addition, we have also worked together with the market regulator, SEC, to change a number of rules and processes to clear bottlenecks that have deterred stakeholders and lengthened processing times. The Board and subcommittees have been proactive in increasing the frequency of their meetings to address the issues within their respective areas of oversight to accelerate the change needed. The flexibility to conduct meetings online or to have hybrid meetings supported the increased oversight, realignment of strategy and resource allocation which underpinned the achievements in 2020.
On behalf of the Board of Directors of the Colombo Stock Exchange, I affirm that the principles of good corporate governance are applied consistently across the CSE Group and that the Corporate Governance Report provides a fair account of corporate governance practices within the Group. The Board has voluntarily adopted the Code of Best Practice on Corporate Governance issued by the Institute of Chartered Accountants of Sri Lanka and our current status in complying with the Code is set out in this report.
We witnessed and adapted to new ways of doing business in 2020 and as vaccines roll out around the world, it is time to reflect on how we move forward. Retaining values while shedding legacies that are not relevant in a world that is more conscious of the need to balance people, the planet and profits will be key to building sustainable growth for all. CSE will continue to hone its governance structures, policy frameworks and processes to drive sustainable growth through sound corporate governance to sustain the emergence of a vibrant market.
Dumith Fernando Chairman
22 March 2021 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 74
Sustaining Our Value Creation GRI 102-18 Corporate Governance
Legal Form CSE Governance Structure Governance At a Glance • The Colombo Stock Exchange (CSE) is a • All Board members are non-executive company limited by guarantee. Members directors. The Board Charter sets out the roles, responsibilities and duties of the • The CSE is a mutual exchange and Board has fifteen Members & fifteen Trading Risk and Audit Members, of which Twenty Six Members • Roles of Chairman and Chief Executive Committee operate as Stockbrokers for both Equity Officer are separated & Debt and Four members operate as • The appointment and removal of the Stockbrokers only for Debt. Board of Directors Company Secretary is a matter for the • All Members are corporate entities. HR Committee entire Board • Members appoint 5 directors of whom • No director has served for more than one is elected as the Chairman. 8 years Four directors are appointed by the Consultative Committee of Market • The Board and committees of the Board Government on the recommendation Stakeholders (CCMS) undertake a self-evaluation annually of the Securities and Exchange Commission of Sri Lanka. • The CEO is appraised annually by the Board • CSE has a wholly-owned subsidiary, Central Depository Systems (Pvt) Ltd. Rules Committee • Directors of the Board serve without CEO CDS and CSE both have the same remuneration Board of Directors. • An annual declaration of director’s interests is obtained from all directors • An annual undertaking is obtained from each director to disclose any conflicts of interest • A Conflict of Interest form is also circulated at each Board meeting/ Board Committee meeting and directors are required to disclose any interests Internal Audit Management they may have on the matters to be Committee discussed at the meeting • The Annual General Meeting is the main platform for engaging with members • The Board has approved policies on key matters to provide guidance and direction in the day to day functioning of the CSE and CDS 75
Legal Form CSE Governance Structure Governance At a Glance • The Colombo Stock Exchange (CSE) is a • All Board members are non-executive company limited by guarantee. directors. The Board Charter sets out the roles, responsibilities and duties of the • The CSE is a mutual exchange and Board has fifteen Members & fifteen Trading Members, of which Twenty Six Members Marketing Committee • Roles of Chairman and Chief Executive operate as Stockbrokers for both Equity Officer are separated & Debt and Four members operate as • The appointment and removal of the Stockbrokers only for Debt. Member Evaluation Company Secretary is a matter for the • All Members are corporate entities. Committee entire Board • Members appoint 5 directors of whom • No director has served for more than one is elected as the Chairman. 8 years Four directors are appointed by the Nominations • The Board and committees of the Board Government on the recommendation Committee undertake a self-evaluation annually of the Securities and Exchange Commission of Sri Lanka. • The CEO is appraised annually by the Board • CSE has a wholly-owned subsidiary, Dispute Resolution Central Depository Systems (Pvt) Ltd. Committee • Directors of the Board serve without CDS and CSE both have the same remuneration Board of Directors. • An annual declaration of director’s interests is obtained from all directors Arbitration & Disciplinary Committee • An annual undertaking is obtained from each director to disclose any conflicts of interest • A Conflict of Interest form is also circulated at each Board meeting/ Board Committee meeting and directors are required to disclose any interests Information Investment they may have on the matters to be Technology Steering Committee discussed at the meeting Committee • The Annual General Meeting is the main platform for engaging with members • The Board has approved policies on key matters to provide guidance and direction in the day to day functioning of the CSE and CDS COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 76
Sustaining Our Value Creation Corporate Governance
Corporate Governance Report An Effective Board Questions arising shall be resolved with Code Ref D.6 D.6.1 Code Ref A1.1 A1.5 a majority vote and in the event of an CSE has championed high standards The Board of Directors is responsible equality of votes, the chairman shall of corporate governance in our role as for setting the strategic direction and have a second or casting vote. A secure a market operator and has set in place monitoring the performance of the electronic Board paper storage and strong governance structures, policies CSE. They appoint the Chief Executive distribution system are used to circulate and processes in line with best practice Officer and approves appointments of meeting agendas and Board papers in this rapidly evolving field. Key Management Personnel. The Board prior to Board and also sets in place formal governance Sub-Committee meetings. Agenda The CSE governance framework is structures and policy frameworks that and board papers are uploaded giving based on the following: provide the executive management directors at least 5 days for review of the same. There is provision for approval • Companies Act No. 7 of 2007 team guidance in managing their day to day operations. All Board members of board resolutions by circulation for • Relevant provisions of the Securities bring independent judgement to bear on urgent matters. Minutes are maintained and Exchange Commission of Sri matters set before the Board. by an Independent company secretary Lanka Act No. 36 of 1987 and and directors have access to the amendments thereto Board Meetings archives through the secure electronic • Articles of Association Code Ref A1.1 A1.6 A6 platform. Minutes of Board Sub- Committee meetings are tabled at the • Code of Best Practice on Corporate Regular Board meetings are held following Board meeting and matters Governance issued by the Institute of monthly with special Board meetings arising from the same are deliberated Chartered Accountants of Sri Lanka. being convened as the need arises. and actioned as deemed appropriate. This report provides signposts to the The required quorum for a meeting is 5 Attendance at Board Meetings and Code of Best Practice where relevant. directors with at least two elected and Board Committee Meetings are two appointed directors being present. given below.
Governance Board Regulatory Committees Other Committees
Director Board Meetings Meetings Risk & Audit HR Nominations Committee Rules Arbitration & Disciplinary Dispute Resolutions Member Evaluations Consultative Committee Marketing AGM/EGM SEC Orientation meeting Mr. Dumith Fernando 13/13 1/1 1/1 1-1 1/1 6/6 1/1 1/1 1/1 1/1 Mr. Ray Abeywardena 13/13 1/1 2/2 1/1 1/1 1/1 1/1 Mr. Dilshan Wirasekara 13/13 3/3 1/1 1/1 1/1 1/1 0/1 1/1 Mr. Dimuthu Abeyesekera 11/13 1/1 1/1 0/1 0/1 1/1 Mr. Arjuna Herath 13/13 5/5 1/1 8/8 1/1 1/1 1/1 1/1 Mr. Jayantha Fernando 11/13 1/1 1/1 1/1 8/8 1/1 1/1 1/1 1/1 Mr. Suren De Silva 12/12 5/5 1/1 4/4 1/1 1/1 1/1 1/1 1/1 Mr. C.J.P. Siriwardena 8/12 3/5 1/1 1/1 4/4 1/1 1/1 1/1 0/1 1/1 Mr. Murtaza Ali Jafferjee 4/4 0/1 1/1
The lockdown to contain the COVID-19 pandemic necessitated virtual meetings which were conducted on secure platforms and the digitalisation of board papers in previous years supported this process. These meetings maintained the effectiveness of face to face meetings as the decisions at these meetings supported the transition to a fully remotely operational stock exchange in a relatively short space of time. 77
Board Responsibilities Code Ref A1.2 A1.3 The Board Charter was approved & adopted by the Board in January 2018 as part of the annual process, the Board Charter is reviewed to ensure it is fit for purpose and incorporates key development. The Charter sets out the roles and responsibilities of the Board as summarised below.
Role Responsibilities Duties • Leadership • Optimal use of skills and expertise. • Fiduciary duty of integrity, • Strategic guidance • Implement strategic plans and policies. transparency and in the best interest of all stakeholders. • Independent oversight • Monitor operational performance. • Protect and promote CSE image • Ultimate decision making body • Develop sound internal controls • Confidentiality of information • Ensure compliance with regulation. • Risk management • Evaluate social and environmental impact. • Appointment of the Chief Executive Officer (CEO) • Implementing the terms of appointments and KPIs for evaluation of CEO.
The Board reviewed the Strategic Plan developed by the Management up to 2020 and reviewed performance against the same on a quarterly basis.
The Board ensures that the CEO and the Key Management Personnel (KMP) have the required skills and expertise to implement business strategy and uphold the corporate values of CSE with assistance from the HR Committee. The HR Committee reviews talent pipelines within CSE to facilitate optimal performance and succession. Performance management systems in place facilitate the assessment of development needs provide a basis for rewarding performance through approved incentive schemes.
The Board ensures that the affairs of CSE are conducted in accordance with legislative and regulatory requirements. Directors have the ability to request professional advice on matters considered material and relevant to the Company.
Company Secretary Code Ref A1.4 A1.5 Company secretarial services are provided by an Independent Law Firm with a full Role of Company Secretary time representative to assist and advise the Board of directors. Responsibilities of the Company Secretary are summarised in the adjacent column. Appointment and • Provide guidance to the Board on removal of the Company Secretary is a matter for the Board as a whole. matters of governance; • Assist the Chairman in organizing The Board has delegated authority to facilitate smooth operations of the CSE and the activities of the Board has set in place an appropriate organisation structure and a comprehensive policy • Ensure Board compliance framework to ensure compliance with regulatory requirements and realisation of its regulatory requirements and the short, medium and long term goals. The Directors have no vested interests and take articles of association decisions on matters before them using independent judgment. It has also appointed • Assist the Board in self-evaluations Sub Committees to assist in the discharge of their duties which have oversight processes responsibility for defined areas as set out on page 78. • Maintain register of conflicts of interest • Carry out any other duties as may be assigned by the Board COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 78
Sustaining Our Value Creation Corporate Governance
Board Sub Committees Composition and areas of oversight by the sub-committees are given below: Board Sub Committees Composition Objective Regulatory Rules Committee 4 members • Ensure that the rules of the CSE achieve the purpose of maintenance of a market in which securities can be issued and traded in an orderly and fair manner. Arbitration and Disciplinary 4 Members • To hear all doubts and disputes arising between the members of the Exchange in Committee the course of business as well as all matters of a disciplinary nature. Dispute Resolution 4 Members • To adjudicate any decision of the CSE secretariat pertaining to a client complaint Committee against a Stockbroker firm upon an appeal being made by a party to the dispute who is not satisfied with the relevant decision of the CSE secretariat. Member Evaluation 3 Members • Evaluate the suitability/acceptability of the new shareholders of an existing Committee stockbroker firm in the event of a significant change of shareholding relating to such firm. Governance Risk and Audit 4 members • Ensure the establishment of an appropriate risk management framework within the CSE including its enforcement. • Monitor the integrity of financial statement and review internal controls and work of internal/ external audit functions Nomination Committee 3 members • Review and evaluate any nomination deposited with the CSE by a member for the election as a Director, in terms of the CSE Articles and recommend the approval or disapproval of such nomination to the Board. • Review and evaluate any nomination for reelection as a Director, in instances where a Director, being eligible, wishes to offer himself/ herself for re-election and recommend the approval or disapproval of such nomination to the Board HR Committee 3 members To evaluate, assess, decide, and recommend to the CSE Board on any matter that may affect the Human Resource Management of the CSE. Other Marketing 4 members • To determine the marketing initiatives of the CSE Other Committees Consultative Committee of 16 members Provide policy direction to the market promotional strategies Market Stakeholders
Board Committee Activities During the Year Arbitration and Disciplinary Committee • Instituted disciplinary action against one (01) Stockbroker Firm. Dispute Resolution Committee • Handled 04 appeals pertaining to investor complaints Nomination Committee • Evaluation of appointments/re-appointment to the CSE Board Member Evaluation Committee Evaluation carried out by the Secretariat in relation to a transfer of shares of a Member Firm resulting in a significant change in shareholding which was recommended for approval to the Board of Directors 79
Risk and Audit • Approve the annual internal audit plan. • Oversee the progress of the internal audit function. • Review internal audit reports and determine whether critical risks are mitigated. • Recommend the appointment of external auditors and review their performance. • Reviewed the Investment Policy Statement and Investment Procedure Manual the recommended changes to the approval of the Board of Directors. HR • Review and recommend the CEO’s compensation, including incentive, bonus, benefit and retirement plans, to the Board for approval. • Review and recommend the Company’s compensation philosophy, strategy, and guidelines. • Review major changes in the organisational structure of management as proposed by the CEO. • In consultation with the CEO, review and recommend the appointment of and compensation, including incentive, bonus, benefit and retirement plans, for the senior management. • Review with the CEO existing senior management resources, and performance evaluations, including recruitment and training programs, to ensure that compensation is linked to performance. Marketing • Provided guidance for local and foreign investor-focused awareness drive on broad-basing the investor base.
Director Induction and Training Code Ref A1.8 The elected Directors are all industry experts currently serving in top Executive level capacities in their respective firms. The Appointed Directors are all professionals who have served in the organisation for many years and are well versed with the industry. An orientation meeting was conducted during the year for newly appointed directors. Further, the Directors participate in numerous forums where they receive presentations on matters related to their roles which support them in discharging their roles.
Role of Chairman Code Ref A.2 A.3 Role of Chairman The Chairman of the Board is elected from among the Elected Directors annually and • Effective participation of both may be re-elected provided that no Chairman shall hold office for more than three elected and appointed directors. consecutive years from the date of his appointment unless re-elected unanimously by the Board. The roles of Chairman and CEO are separated and the Chairman is • Effective contribution of all directors a non-executive director who presided over all meetings. He leads the Board and is • Balance of power between elected appointed annually. The same director can be re-elected as the Chairman if the period and appointed directors. of service doesn’t exceed three years. The Chairman’s role is set out below. • Views of all directors are considered on issues. Composition of the Board Code Ref A.4 A.5 • Promote a constructive relationship The Board comprises nine non-executive directors with five directors elected with the Board directors and by the fifteen Members. Four directors appointed by the subject Minister on the management. recommendation of the Securities and Exchange Commission of Sri Lanka. Profiles • Ensure the Board has complete of Board members setting out their experience and skills are given on page 31 of this control on CSE affairs report. The directors are holding senior positions in leading companies, as a result they have gained vast experience and also due to their academic and professional background, all of them possess financial acumen and knowledge. The Chief Executive Officer is responsible for implementing strategy and managing day to day operations of the CSE Secretariat and is accountable to the Board of Directors for its performance. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 80
Sustaining Our Value Creation Corporate Governance
Appointment, Directors’ Remuneration Code Ref B Re-election and Independence Directors of the Board serve without remuneration. However, CSE repays any Code Ref A.7 A.8 reasonable expenses incurred on the business or management of the exchange. In terms of Article 50 of the Articles of Association of the CSE, the Directors Managing Conflicts who should retire by rotation are It’s a requirement for directors to act in the best interest of the exchange that determined on the basis of the two enhance public confidence and impartiality of the board. As per the Board Charter, directors who have been longest in the directors are advised to discuss annually at a Board Meeting, the hypothetical office since their last election and situations leading to conflicts of interest. In addition, an annual undertaking to disclose they may stand for re-election by any conflicts of interest should be signed by the Board directors and a ‘Conflicts the members at the Annual General of Interest Disclosure From’ is circulated at each Board meeting/Board Committee Meeting. The nominations committee meetings to identify instances of conflicts of interest. evaluates director nominations presented by existing members and makes In the event of a conflict of interest: recommendations to the Board. Based on the recommendations, the Board 1. The director is required to submit a written application form disclosing the conflict recommends directors to SEC. New of interest. directors and directors to be re-elected 2. Obtain advice and guidance of the Chairman in the event of the uncertainty of need to provide declaration forms conflict of interest. assuring that he/she is fit and proper 3. Board director cannot participate in the decision-making process. to hold office based on factors such 4. The disclosure of the decision on whether a conflict exists and how the conflict as past performance, skills, technical was managed is documented in meeting minutes. knowledge, instances of past/pending disciplinary or administrative action by Relations with Members Code Ref C.1 C.2 C.3 regulators or judiciary system. The Board directly engages with the members who are licensed stockbrokers at Appraisal of Performance frequent meetings. Minutes are maintained of these meetings and feedback is given on how concerns raised are being addressed. During the year several and regular Code Ref A.9 A.11 consultations were held on matters relating to Members, regulatory matters and The Board conducts annual appraisals market development matters. of its performance and that of its sub-committees. As per the Board The Annual Report, Notice of Annual General Meeting, Resolutions and voting charter, the effectiveness of the Board procedures are sent to members 21 days prior to the AGM facilitating participation is evaluated in areas of composition, and review of matters presented. Proxy forms are also included on page 144 of accountability, responsibility and conduct this report enabling members to participate via proxy. The CSE has a mechanism encompassing matters set out in a to record all proxy votes and proxy votes lodged for each resolution. Separate Schedule to the Board Charter. The resolutions are proposed at the AGM for each substantially separate issue facilitating Board evaluates its performance at voting on each substantial issue. Accordingly, the adoption of the report and accounts least annually based on a performance is proposed as a separate resolution. The Board, including the Chairmen of all the evaluation checklist. sub-committees, are present at the AGM to answer any questions.
The Board appraises the performance The CSE’s future strategies and their potential impact have been disclosed in the of the CEO annually against pre-defined following sections of this Annual Report. targets that have been agreed prior to • Chairman’s Massage on pages 22 to 24. commencement of the year. The targets • CEO’s Massage on pages 25 to 29. include financial and non-financial goals. • Operational Review on pages 43 to 72. 81
The Annual Report Code Ref D.1 Internet of Things This Annual Report provides a balanced view of CSE’s position, performance for the & Cybersecurity year ended 31st December 2020 and its prospects. The Directors’ Report on page Code Ref G 88 contains the following as specified by the Code: The Board allocates sufficient time for discussion of information technology Requirement Page Ref. and cyber risk as it is a critical capital for the functioning of our business. CSE Statement that all material interests in contracts involving the 90 complies with Information Security (ISO Company have been declared and that they refrained from voting on 27001) standard aspires to maintain high matters in which they were materially interested levels of Statement confirming review of the internal controls and obtaining 90 cyber-security taking in to account assurance on its effective operation peer exchange practices and the rapid evolution of technology. Statement setting out the responsibilities of the Board for the 88 preparation and presentation of financial statements Sustainability Reporting Statement by the Auditors about their reporting responsibilities 88 Code Ref H Report/Statement on Internal Control 90 This Annual Report is an Integrated Report prepared according to the Management Discussion & Analysis 88 IR Framework published by the Statement that the business is a going concern 88 International Integrated Reporting Council, integrating sustainability Related party transactions 90 information with governance and financial information. Accountability & Audit Code Ref D.2 D.3 Requirement Page The Risk & Audit Committee has oversight responsibility for approval of appropriate Ref. accounting policies, CSE’s internal control framework and risk management processes. It comprises of 4 independent non-executive directors as set out in the Economic sustainability 8 report of the Risk & Audit Committee which also summarises the responsibilities of The Environment 72 the Audit Committee and activities undertaken during the year. They are supported by Internal Audit who reports directly to the Risk & Audit Committee reviewing the Labour Practice 59 efficacy of internal controls. Additionally, the committee also reviews risk management Society 56 processes of the CSE which is supported by Internal Audit who reports directly to the Stakeholder identification, 36 Risk & Audit Committee reviewing the efficacy of internal controls within the defined engagement and effective risk appetite approved by the Board. The Risk & Audit Committee also meets with communication external auditors to discuss audit plans, matters arising from the audit, audit reports and management letters including an in-camera meeting. Formalise Sustainability 8 Reporting processes Members Code Ref E F CSE is a mutual exchange comprising fifteen Members and fifteen Trading Members, all of whom are corporate entities. Twenty six Members operate as Stockbrokers for both Equity & Debt while four members trade solely in Debt securities. It is a company limited by guarantee as per provisions of the Companies Act No.7 of 2007. The Annual General Meeting is the main forum for dialogue with the members on relevant matters of concern to the general membership. Feedback obtained from members on areas of concern during the year are communicated to the Board by the CEO. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 82
Sustaining Our Value Creation Managing Risks
The CSE considers risk management as an ongoing process piloting the stability of the exchange. Our ability to mitigate the key risk indicators influencing value creation The CSE three-tiered is driven by our strong risk management capabilities, benchmark risk management Governance Structure framework and well-governed risk processes. Every quarter, the CSE prepares The CSE Enterprise Risk an updated risk heat map highlighting the key risk indicators to be monitored and Management Framework conforms reviewed. to best practices of the COSO (The Committee of Sponsoring Organisations of the Treadway Commission)
Oversight Board of Directors
Design and approve the framework to identify and report Risk and Audit Chief Executive risk indicators and independently Internal Audit Committee Officer assure the adequacy of the risk management framework
Communicate monitor and Risk Management Management report risk indicators Function Committee
Responsibility for Risk Daily risk Management at the management at the operational level divisional level
Risk Management Process The risk management process at the CSE is an on-going and cyclical process that commences with risk identification followed by risk assessment, risk treatment/ Identify Risk mitigation, monitoring and reporting to the CSE Board. Risks are evaluated and updated on a continuous basis to reflect the latest information and experiences to Review Controls ensure all significant risks are appropriately identified and addressed.
Initially, the risk identification will be done at the divisional level considering each and every business process of the division. Upon identification of the risks, the Risk Management Function conducts annual review sessions with the Management Committee (MC) to identify the Key Risks impact to the CSE performance. The key risks identified will be classified into four categories; Financial, Strategic, Operational Assess Risk and Compliance, to facilitate focus on identified Key Risks. The Risk mitigating Control Risk strategies are formulated by the Management Committee and approved by the Risk and Audit Committee (RAC) which is a sub-committee of the CSE Board of Directors. ERM Division monitors the effectiveness of the Risk mitigating strategies every quarter and reports to the RAC. In addition, an independent review is performed by the Internal Audit function and the findings are encapsulated to the RAC. All the other risks identified will be maintained in divisional risk registers along with the proposed action plans to mitigate the same. The divisional risks will also be reviewed on a quarterly basis. 83
Based on the Q4 2020 risk review the CSE categorised its Top 10 risks into four broader level risk categories as follows.
Operational Risk Strategic Risk Financial Risk Compliance Risk Business Continuity Reputation Risk Credit Risk (Settlement Failure) Legal and Compliance Risk Information Security & Data Competition Risk Deficiencies in Policies and Governance Risk Procedures Talent Management Emerging Technologies Cyber Security Threat
Operational Risk Operational Risk covers potential deficiencies in our information systems, internal processes, human errors, or external disruptions as guided by Principle 17 of the Principles for Financial Market Infrastructures issued by the International Organisation of Securities Commissions. Any one of these factors could negatively affect the way we deliver our products and services and may have far-reaching consequences in destabilising the integrity and stability of our markets. For this reason, the risks of operational failure affect all our material factors in a worst-case scenario.
Factors contributing to an increase in operational risks include: i. Failures in our internal control and risk management. ii. Failures in our technological infrastructure. iii. Malicious attacks from external sources such as data hackers.
These risks have the potential to affect our ability to generate earnings, damage our brand and reputation, and in a worst-case scenario, take our markets offline. Following four risks classified as operational risk:
Operational Risk Mitigating Activities 1. Business Continuity • Comprehensive system testing • IT Systems & Business Disruption • Manned Disaster Recovery Site • Pandemic/COVID-19 Outbreak • Upgraded security infrastructure. • Physical threats -Terrorism Risk & • Redundant System Architectures and Infrastructure Climate • Staffs awareness and following health authorities Guidance. • Enhanced security measures 2. Information Security & Data • Fine-tuned IT policies and procedures to comply with general data protection Governance Risk regulations (GDPR) 3. Talent Management • Recognise & reward key performing talents. • Training and development • Foster an inclusive workplace by implementing open door polices. • Recruiting diverse talents 4. Cyber Security Threat • Conduct threat assessments. • Vulnerability tests COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 84
Sustaining Our Value Creation Managing Risks
Financial Risk Financial Risk refers to risks arising from internal and external sources that may affect the Exchange’s ability to meet its financial obligations.
Risk Mitigating Activities 1. Credit Risk (Settlement Failure) • Delivery Versus Payment model implementation Credit Risk is the most significant financial risk for CSE as it affects • Introduction of robust margin model with DVP our cashflow and in turn, our ability to conduct our day-to-day implementation operations or to achieve the deliverables specified in our strategic • Performed risk-based audits and inspections on-site plan. Additionally, a credit default may also have significant impact on and branch visits. our brand and reputation and dissuade investors from participating in our marketplace. Only the Credit Risk have been identified in the Organisational Risk matrix. However, the CSE is checking Market Risk, Liquidity Risk, Interest Rate Risk, and other related risks under Financial Risks at the divisional level.
Strategic Risks Strategic Risks covers risks that may threaten the Exchange’s competitive position or severely damage the Exchange’s reputation.
Risk Mitigating Activities 1. Reputation Risk Policies and procedures in place to handle The ongoing success of CSE is highly dependent on its reputation for trust, integrity, the reputational risk. and resilience in everything that we do. Reputation risk arises in a wide variety of situations, for example, where CSE is perceived to have not acted with integrity or failed to deliver resiliency in its activities. Any outcome that causes detriment to this reputation has the potential to damage CSE’s future business prospects through reduced business volumes or regulatory impact or intervention. Any events or actions that damage the reputation or brands of the CSE, such as those propagated via social media or caused by its misuse, could adversely affect the business, financial condition and operating results. 2. Competition Risk • Building and promoting a trusted brand The rapidly evolving competitive landscape has grown more complex, especially • Increasing market awareness through with the increased market volatility and the emergence of fintech players who investor forum, awareness sessions, etc. threaten to disrupt the business models of existing players. This in turn has spurred our traditional competitors to accelerate their own strategic offerings, which translates into even greater competition for us. The aggressive launch of new products and services by regional exchanges also be considered as competition to the CSE. 3. Emerging Technologies • Periodical risk assessment on the The increased integrated artificial intelligence (AI) in digital transformation strategies implemented system brings with it associated risks such as inherent bias in the historical data and • Evaluations on emerging technologies behaviour patterns which feed AI algorithms. This may give rise to automated decisions which are not aligned with current societal expectations or organisational values.
AI use by cyber hackers can also render cyber security defence and detective mechanisms ineffective. Regulators are considering the application of existing or new frameworks to manage the development of innovative financial services technologies, which are important for maintaining the resilience and stability in the market and allowing innovation with emerging technology. 85
Legal & Regulatory Risk Legal & Regulatory Risk covers the risk of a change in regulations and law that might affect an industry or a business.
Risk Mitigating Activities 1. Legal and Compliance Risk • Continuous monitoring of compliance with all The CSE is exposed to risks associated with the management of applicable legal and regulatory requirements applicable changes to the regulatory requirements of Government of Sri Lanka. to the CSE Group through a web-based compliance The risk of loss resulting from breach of or non-compliance with monitoring and reporting system. applicable laws, regulations or contractual obligations covered under • Comprehensive compliance reports are submitted to this category. the Board of Directors on a monthly basis 2. Deficiencies in Policies and Procedures • Periodical review on the Policies and Procedures Deficiencies in our policies and procedures governing our business • Periodical research on implementing new Policies and and operations may result in disruptions to the business as well as Procedures our reputation. We therefore need to adopt a rigorous approach in formulating policies and procedures, and take all necessary steps to test, compare and benchmark our policies and procedures to ensure that they are aligned with best practices.
In addition to the top 10 risks highlighted in the organisational Risk Matrix, a separate divisional risk registry maintained by each division to identify the risks associated with the day-to-day business processes with the action plans to manage such risks. In the Risk Management Process, Key risk indicators (KRIs) corresponding to each individual risk item will be identified and monitored at the Management Committee level under the consolidated model. These KRIs will contribute to the overall level of severity of the risk, which will be assessed in view of emerging trends.
Our key developments during the year include • Re-organise the business continuity risk considering “COVID-19 Outbreak” and pandemic situation of the country. • Inclusion of four new risks namely Reputational Risk, Technology Risk, Information Security & Data Governance Risk and Deficiencies in Policies and Procedures. • Evolving nature in the cyber threats in the global scenario, CSE re-considered to increase the Risk Rating in order to further strength our cyber security measures.
As the main highlight of the year our robust BCP process and proper planning from the risk management perspective helped CSE Operations to continued seamlessly with no interruptions amidst the COVID-19 pandemic during the year.
Our risk heat map for 2020 (Q4 revision) 4Q 2020 Review Top Organisational Risk Severity Risk Level 1 Settlement failure 18.8 Very High Risk 2 Business Continuity 15.0 High Risk 3 Cyber Security Risk 15.0 High Risk 4 Reputation Risk 15.0 High Risk 5 Competition Risk 12.0 Medium Risk 6 Information Security & Data Governance Risk 10.0 Medium Risk 7 Emerging Technologies 10.0 Medium Risk 8 Talent Management 8.0 Low Risk 9 Deficiencies in Policies and Procedures 8.0 Low Risk 10 Legal and Compliance Risk 6.0 Low Risk We have maintained a steady growth trajectory of the market and across all of our services over the last Thirty Five years. Annual Report of the Board of Directors on the Affairs of the Company 88 Directors’ Responsibility for Financial Reporting 91 Risk and Audit Committee Report 92 Independent Auditor’s Report 94 Statement of Profit or Loss and Other Comprehensive Income 96 Statement of Financial Position 97 Statement of Changes in Equity 98 Statement of Cash Flows 99 Notes to the Financial Statements 100 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 88
Annual Report of the Board of Directors on the Affairs of the Company
The Board of Directors of the Colombo The CSE Secretariat, headed by the Financial Statements Stock Exchange (CSE) has pleasure in Chief Executive Officer is responsible The Financial Statement of the Company presenting their Annual Report to the for the operations of the CSE, and is and its subsidiary have been prepared in Members, together with the audited accountable to the Board of Directors. accordance with Sri Lanka Accounting consolidated Financial Statements and Standards prefixed SLFRS and LKAS, Auditors’ Report on those Financial Vision, Mission and Corporate the Companies Act No. 07 of 2007 and Statements for the financial year ended Conduct other applicable statutory and regulatory 31st December 2020. The Vision and Mission statements are requirements. given on Page 5 of the Annual Report. This Annual Report on the affairs of The business activities of the group are The Financial Statement of the Company the Company contains the information conducted in keeping with the highest and its Subsidiary for the year ended required in terms of the Companies Act level of ethical standards in achieving its 31st December 2020, duly signed by the No. 07 of 2007. Vision and Mission. Head of Finance and Administration and two of the Directors of the Company on The Financial Statements were reviewed Principal Activities pages 96 to 134 form an integral part and approved by the Board of Directors The principal activity of the Company of the Annual Report of the Board of on 22 March 2021. is the operation of a Stock Exchange Directors. under license from the Securities and General Exchange Commission of Sri Lanka. Directors’ Responsibility for The Colombo Stock Exchange (CSE) The fully-owned subsidiary, Central Financial Reporting is a company limited by guarantee, Depository Systems (Pvt) Ltd. (CDS) acts The Statement of Directors’ incorporated in Sri Lanka on 02 as a depository for listed securities and Responsibility for the Financial Reporting December 1985, under the Companies performs the corporate actions services given on page 91 forms an integral part Act No.17 of 1982 and is licensed by the and registrar services in addition to of the Annual Report of the Board of Securities and Exchange Commission Depository functions. Directors. (SEC). The CSE was re-registered as per the Companies Act No.7 of 2007 There were no significant changes in Auditor’s Report on 13 May 2008 with GL 12 as the new the nature of principal activities of the Messrs. KPMG, the Auditors of the number assigned to the Company. Company and its subsidiary during the Company carried out the audit on the financial year under review. Consolidated Financial Statements for The CSE is a mutual exchange and the year ended 31 December 2020 and has fifteen Members and fifteen Trading Review of Operation their report on those statements which Members, of which twenty six Members A review of the activities of the CSE forms an integral part of the Report of operate as Stockbrokers for both during the year is contained in the the Board of Directors, on page 94 of Equity and Debt and four Members Chairman’s Statement on pages 22 to this Annual Report. are appointed by the CSE as Trading 24 and the Chief Executive Officer’s Members only for Debt. All Members are Review on pages 25 to 29 and the Significant Accounting Policies corporate entities. The CSE became the Operational Review on pages 43 to 72 first South Asian member of the World The significant accounting policies the Annual Report 2020. These reports Federation of Exchanges (WFE) in 1998. adopted in preparation of the Financial form an integral part of the Annual CSE is also a member of the South Statements are given on pages Report. Asian Federation of Exchanges (SAFE) 100 to 107. and Member of Association of National Future Developments Numbering Agencies (ANNA). The fully- Going Concern owned subsidiary, Central Depository An overview of the future development The Board is satisfied that the Company Systems (Pvt) Ltd is a Member of Asia- of the CSE is given in the Chairman’s has adequate resources to continue Pacific Central Securities Depository Statement on pages 22 to 24 and the its operations in the foreseeable future. Group (ACG). Chief Executive Officer’s Review on Therefore, we continue to adopt the pages 25 to 29 and the Operational “going-concern” basis in preparing these The policy making body of the CSE Review on pages 43 to 72 the Annual Financial Statements. is the Board of Directors composed Report 2020. These reports form an of nine members. Five Directors are integral part of the Annual Report. elected by the fifteen Members, while the Government on the recommendation of Securities Exchange Commission appoint four. 89
Income Outstanding Litigation The income of the Group for 2020 was Rs. 1,041 Mn (2019: Rs. 568 Mn) while the In the opinion of the Directors and the Company’s income was Rs.831 Mn (2019: Rs. 483 Mn). An analysis of the income is Company’s Lawyers, pending litigation given in Note 04 & 05 to the Financial Statements. against the Company disclosed in Note 28 of the Financial Statements will not Financial Results and Appropriations have a material impact on the financial The Group has recorded a Profit before tax of Rs.458 Mn (2019: Loss before tax position of the Company or its future Rs.39 Mn) and Loss after tax of Rs. 417 Mn (2019: Rs.43 Mn) for the year 2020. operations. The Company has recorded a Profit before tax of Rs. 318 Mn (2019: Loss before tax Rs.57 Mn) and Profit after tax of Rs. 318 Mn (2019: Loss after tax Rs.57 Mn) for the Events after the Reporting Date year 2020. Events after the Reporting Date has been disclosed in Note 32 of the The Group’s total other comprehensive expense for the year 2020 was Rs.25 Mn Financial Statements. (total other comprehensive Expense of Rs. 11 Mn in 2019) while the Company has recorded a total other comprehensive expense of Rs.25 Mn for the year 2020 (total Board of Directors other comprehensive expense of Rs. 9 Mn in 2019). The following Directors held office as at the Statement of Financial Position date: Taxation The income tax rate applicable on the Company and the subsidiary company was Name of the Directors 28% (2019 - 28%). Mr. Dumith Fernando (Chairman) Mr. Ray Abeywardena Dividend Mr. Dilshan Wirasekara The Board of Directors of the CSE has not recommended a Dividend in compliance Mr. Dimuthu Abeyesekera with the Companies Act No. 07 of 2007 and Articles of Association of the CSE. Mr. Arjuna Herath (Appointed to the Reserves Board on 21st February 2020) A summary of the consolidated reserves is given below. Mr. Jayantha Fernando (Appointed to the Board on 21st February 2020) As at 31st December 2020 2019 Rs. 000 Rs. 000 Mr. Suren De Silva (Appointed to the Accumulated Fund 3,248,052 2,855,722 Board on 21st February 2020) Other Reserve 166 166 Mr. C.J.P. Siriwardena (Appointed to Capital Reserve 99,975 99,975 the Board on 21st February 2020), Total 3,348,193 2,955,862 (Deceased on 24th February 2021)
Capital Expenditure and Capital Commitments Mr. Dilshan Wirasekara and Mr. Dimuthu Abeyesekera retire by rotation at the The total capital expenditure on acquisition of property, plant and equipment and conclusion of the Annual General intangible assets of the Group amounted to Rs.200 Mn (2019: Rs.29 Mn). Details of Meeting in terms of Article 50 of the property and equipment are given in Note 10 and 11 to the Financial Statements. The Articles of Association, and being eligible capital expenditure approved and contracted for and not contracted for as at 31st and offering himself for re-election. December 2020 is given in Note 29 to the Financial Statements. The details of the Directors’ meetings Property and Equipment which comprise Board meetings, Special Details of property, plant and equipment are given in Note 10 to the financial Board Meetings, Risk & Audit Committee statements. Meetings, HR Committee Meetings, Nominations Committee meetings, Donations Arbitration & Disciplinary Committee During the year Company did not made any donations. (Rs. 68,880/- in 2019). Meetings, Dispute Resolution Committee Meetings, Member Evaluation Statutory Payments Committee Meetings, Marketing The Directors, to the best of their knowledge and belief, are satisfied that all Committee Meetings, Consultative statutory payments in relation to the Government and the employees have been Committee Meetings and Rules made up to date. Committee Meetings and the attendance of Directors at these meetings are given on page 76 of the Annual Report. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 90
Annual Report of the Board of Directors on the Affairs of the Company
Board Sub Committee Risk Management and Internal As far as the Directors are aware the The composition of the Board sub Control Auditors do not have any interest with committees, comprising of Risk Management the CSE or its subsidiary other than Non-Executive Directors is provided on The Company has an ongoing process those disclosed above. page 78. in place to identify, evaluate and manage the risks that are faced by the Company. The Auditors have expressed their The report of the Board Risk and Audit A separate report on risk management is willingness to continue in office. Committee is given on pages 92 to 93. given on pages 82 to 85. A resolution to re appoint the Auditors and authorise the Directors to determine Directors’ Interest Register Internal Control their remuneration will be proposed at the Annual General Meeting. The CSE maintains a Directors’ Interests The strong internal controls are integral Register in compliance with the provision to the sound management of the Notice of Meeting of the Companies Act No. 7 of 2007. Company, hence the Board committed The Directors of the CSE have disclosed to maintain strict financial, operational The 36th Annual General Meeting of their interests in other companies to the and risk management controls over all its the CSE will be held on 23rd June 2021 Board and those interests are recorded activities including safeguard the assets at 4.30 p.m. at the Colombo Stock in the Interests Register conforming of the Company and prevent and detect Exchange, Auditorium, 4-1, West Block, to the provisions of the Companies frauds. World Trade Center, Colombo 01. Act No.7 of 2007. The particulars of those entries are set out on Note 31 to There is an ongoing process for Acknowledgement of the the Financial Statements and form an identifying, recording, evaluating and Contents of the Report integral part of the Annual Report of the managing the risks that are faced As required by Section 168 (1) (k) of Board of Directors. by the Company, and the Directors the Companies Act No. 07 of 2007, the have reviewed this process, through Board of Directors hereby acknowledges Related Party Transactions the Board Audit and Risk Committee the contents of this Annual Report. including internal reviews, internal audits The Directors have also disclosed and system audits. transactions if any, that could be For and on behalf of the Board of classified as related party transactions Directors. Corporate Governance in terms of LKAS 24 “Related Party Disclosures” which is adopted in the The Directors and Management of preparation of the financial statements. the CSE have placed emphasis on Those transactions disclosed by the conforming to the best corporate Directors are given in Note 31 to the governance practices and procedures. Dumith Fernando financial statements forming part of the A separate report on Corporate Chairman Annual Report of the Board of Directors. Governance is given on pages 73 to 81 in the Annual Report. Directors’ Remuneration Auditors In compliance with the provisions of the Arjuna Herath Articles of Association, the CSE has The Company’s Auditor’s during the Director not made any payments on account period under review was Messrs KPMG, of Directors’ remuneration other than Chartered Accountants. Audit Fees payment pertaining to meet out of and reimbursement of expenses paid pocket expenses for attending Board to KPMG during the year under review Meeting as given in Note 31 to the by the Company and its subsidiary Jacey and Company financial statements. amounted to Rs. 1,143,263 (Rs. 1,010,000 in 2019). Further Secretaries Environmental Protection Rs. 730,686 (Rs. 422,040 in 2019) was paid on account of tax-related services. 22 March 2021 To the best of knowledge of the Board, The detail of their remuneration is given Colombo the Company has complied with in Note 7 to the Financial Statements. the relevant environmental laws and regulations. The Company has not engaged in any activity that is harmful or hazardous to the environment. 91
Directors’ Responsibility for Financial Reporting
The responsibility of the Directors, in relation to the Financial Statements, is set out The Financial Statements of the in the following statement. The responsibility of the Auditors, in relation to Financial Company and its Subsidiary have been Statements, is set out in the Report of the Auditors’ on the Annual Report. certified by the Company’s Head of Finance and Administration, the officer As per the provisions of the Companies Act No. 7 of 2007 the Directors are required responsible for their preparation, as to prepare Financial Statements for each financial year and place them before a required by the Sections 150 (1) (b) General Meeting. The Financial Statements comprise the Statement of Financial and 152 (1) (b) of the Companies Act. Position as at 31st December 2020, and the Statement of Comprehensive Income, Also the Financial Statements of the Statement of Changes in Equity and Cash Flows for the year then ended and Notes Company and its Subsidiary have been thereto. signed by two Directors on 18 March 2021 as required by Sections 150 (1) The Financial Statements of the Company and its Subsidiary give a true and fair view of: (c) and 152 (1) (c) of the Companies Act the state of affairs of the Company and its Subsidiary as at the Statement of Financial No.7 of 2007. Position date and the Profit or Loss of the Company and its Subsidiary for the financial year ended on the Statement of Financial Position date. The Directors to the best of their knowledge and belief, are satisfied that all statutory payments in relation The Directors have ensured that, in preparing these Financial Statements: to all relevant regulatory and statutory 1. The appropriate accounting policies have been selected and applied in a authorities which were due and payable consistent manner. Material departures, if any have been disclosed and by the CSE and its subsidiary CDS as explained; at the Statement of Financial Position 2. All applicable accounting standards as relevant have been followed; date have been paid or where relevant 3. Judgments and estimates have been made which are reasonable and prudent. provided for.
The Directors confirm that the Consolidated Financial Statements of the CSE and its The Directors are of the view that they Subsidiary CDS for the year ended 31st December 2020 presented in this Annual have discharged their responsibilities as Report have been prepared in accordance with the Sri Lanka Accounting Standards set out in this statement. prefixed SLFRS and LKAS ,Companies Act No: 7 of 2007 and Sri Lanka Accounting and Auditing Standards Act No: 15 of 1995. By order of the Board
The Directors have adopted the going concern basis in preparing the Financial Statements. The Directors are of the view that the CSE and CDS have adequate resources to continue in operation. Jacey and Company The Directors have taken reasonable steps to safeguard the assets of the CSE and its Secretaries subsidiary CDS and in this regard to give proper consideration to the establishment of appropriate internal control systems with a view of preventing and detecting fraud 22 March 2021 and other irregularities. Further, the Directors have a responsibility to ensure that Colombo the Company maintains sufficient accounting records to disclose, with reasonable accuracy.
Directors are required to prepare the Financial Statements and to provide the Company’s External Auditors, Messrs KPMG, with every opportunity to carry out any reviews and tests that were considered appropriate and necessary for expressing their independent audit opinion on the Financial Statements. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 92
Risk and Audit Committee Report
Composition of the Committee Meetings of the Committee The Risk and Audit Committee of the Colombo Stock Exchange (CSE) comprises of 3 During the year, four (4) Risk and appointed Directors and 1 elected Director. Audit Committee meetings were held to discuss relevant matters The members of the Risk and Audit Committee appointed by the Board are; including, but not limited to, Enterprise Risk Management, Budgets, and Mr. Arjuna Herath-Chairman Investments, reports of the Internal and (Appointed on 21st February 2020) External Auditors and Annual/Quarterly Mr. Dilshan Wirasekara accounts. The Company Secretary (Appointed on 20th August 2020) functions as the Secretary to the Risk and Audit Committee. Minutes of each Mr. C.J.P. Siriwardena committee meeting were recorded (Appointed on 21st February 2020) and submitted for confirmation at the Mr. Suren De Silva immediate subsequent committee (Appointed on 21st February 2020) meeting and subsequently presented to the Board for ratification. All 4 members of the Risk and Audit Committee are Non-Executive Directors. Risk Management The Chief Executive Officer, Head of Finance & Administration, Head of Internal Audit, The Committee is tasked with the Head of Enterprise Risk Management & Post Trade Settlement, other relevant Senior monitoring the effectiveness and Management members and External Auditors & Internal Auditors attend the meetings implementation of the Enterprise of the Risk and Audit Committee on invitation. Risk Management (ERM) Policy and Framework in the CSE which ensure Responsibilities and Duties of the Committee potential risks are identified, measured, The responsibilities and duties of the Committee were based on the Terms of monitored and managed or mitigated Reference (TOR) adopted by the Company in terms of best practices. The TOR as within the defined risk tolerance levels approved by the Board of Directors, include the following functions: approved by the Board.
• To ensure that adequate and efficient processes are in place to identify, report and The Committee reviewed the Annual monitor risks. update to the ERM Framework and ERM • To benchmark risk management exposure of the CSE against other exchanges Policy. The Committee recommended • To advise the Board on the risk profile and appetite of the Company and as part of that the risks be categorised broadly this process, to oversee the risk assurance within the CSE. as Strategic Risk, Operational Risk, Financial Risk and Compliance Risk to • To act on behalf of the Board of Directors to ensure that appropriate mechanisms be in line with the practices followed by are in place with respect to risk identification, risk assessment, risk assurance and other Regional Exchanges. Further to overall risk management. that committee also recommended to • To review significant accounting and reporting issues, including complex or unusual include Key Risk Indicators (KRI’s) to transactions, recent professional and regulatory pronouncements, and understand measure the severity of the risks. The their impact on financial statements of the Company. Committee recommended to include • To review the effectiveness of the Company’s internal control systems. the “Act of Terrorism” as a new risk to • To monitor and review the effectiveness of the Company’s internal audit function, the CSE’s Organisational Risk Matrix in the context of the overall financial control and risk management system of the considering the impacts of the Easter Company. Sunday Attack. The Committee also • To assess independence and objectivity of the external auditor. reviewed the quarterly updates to the ERM Framework and discussed • To make recommendations to the Board of Directors on the appointment, reappointment and removal of the CSE’s external auditor. 93
the effectiveness of the risk treatment measures and the progress of the action The Purpose of the Internal Audit plans which were proposed to mitigate the exposure of the Organisational Risks. In Division as highlighted in the Internal addition, the audit committee also involved in review, discussion and preparation of Audit Charter is as follows: action plans relating to BCP/DRP in light of the COVID-19 pandemic. The Committee • Overall Risk Management Process also reviewed of the Whistle Blower Policy and recommend for the approval of the • Strengthen the Internal Controls in all Board of Directors. areas Integrity of Financial Statements • Ensure Compliance with Policies, Procedures and Regulations The Committee reviewed the appropriateness of the accounting policies used and the financial statements of the group to assess their integrity and compliance • Recommend opportunities for Process with Accounting Standards. The Committee reviewed and discussed with the Improvement and enhancing Efficiency management, the quarterly financial statements and recommended the same for • Recommending Revenue Maximisation approval of the Board. and Diversification opportunities • Enhancing System Controls Internal Controls The Committee reviewed the effectiveness of the Group’s internal control systems In-line with the above requirements, and suggested, where necessary, appropriate remedial measures. The Committee an internal audit plan was developed decided to establish a holistic risk map in order to monitor the same on a regular and executed with the approval basis at the Committee’s meetings. of the Risk and Audit Committee. Improved Policies, Procedures and External Audit Controls arising from the audits were The independence of the External Auditor was evaluated by the Committee and recommended for implementation. The the Committee also reviewed the non-audit services provided by the Auditors to findings of the internal auditor together ensure that the provision of such services does not impair the External Auditors’ with management comments and independence. The Committee met with the External Auditor during the year to agreed action plans were reviewed by discuss their audit approach and procedures, including matters relating to the scope the Committee during the year and of the audit and Auditor’s independence. The Risk and Audit Committee reviewed the approved for implementation. Consolidated Financial Statements audited by Messrs. KPMG for the financial year ended 31st December 2020 and approved the Financial Statements for submission to On behalf of the Risk and Audit the Board. The Committee also reviewed and approved the Letter of Representation Committee; to be given to the External Auditors for the year 2020.
The Risk and Audit Committee has recommended for approval at the Annual General Meeting, the re-appointment of the external Auditor, Messrs. KPMG and for the Board Arjuna Herath of Directors to fix the Auditors’ remuneration. Chairman - Risk and Audit Committee
Internal Audit Colombo 22 March 2021 The Internal Audit Charter governing the Mission, Purpose, Responsibilities, Scope and Accountability of the Internal Audit Division was presented and approved at the Risk and Audit Committee Meeting in January 2020. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 94
Independent Auditor’s Report
TO THE SHAREHOLDERS OF COLOMBO STOCK EXCHANGE Report on the Audit of the Financial Statements Opinion We have audited the accompanying financial statements of Colombo Stock Exchange, (“the Company”), and the consolidated financial statements of the Company and its Subsidiaries (“the Group”), which comprise the statement of financial position as at 31 December 2020, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2020, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.
Basis for Opinion We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics issued by CA Sri Lanka (Code of Ethics), and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information Management is responsible for the other information. These financial statements do not include the other information.
Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s and the Group’s financial reporting process. 95
Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Report on Other Legal and Regulatory Requirements As required by section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.
CHARTERED ACCOUNTANTS Colombo, Sri Lanka
22 March 2021 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 96
Statement of Profit or Loss and Other Comprehensive Income
Group Company For the Year Ended 31 December, 2020 2019 2020 2019 Note Rs. Rs. Rs. Rs.
Revenue 4 964,510,388 492,236,962 728,818,757 377,648,875 Other Income 5 76,930,710 75,871,042 102,231,225 105,492,837 1,041,441,098 568,108,004 831,049,982 483,141,712 Staff Cost 6 (389,424,128) (332,961,214) (342,578,444) (295,911,699) Depreciation & Amortisation (158,009,759) (163,534,902) (157,937,098) (163,448,358) Other Operating Expenses 7 (313,471,711) (358,912,866) (231,501,703) (266,703,546) Impairment Charges and other Credit Losses on Financial Assets (1,903,182) (3,814,323) (1,959,373) (2,010,127) Net Finance Income 8 279,378,134 252,044,563 221,357,403 187,585,164 Profit/(Loss) before Taxation 458,010,452 (39,070,738) 318,430,767 (57,346,854) Income Tax Expense 9 (40,771,620) (3,892,757) - - Profit/(Loss) for the year 417,238,832 (42,963,495) 318,430,767 (57,346,854)
Other Comprehensive Income
Items that will never be reclassified to Profit or Loss Actuarial Gain/(Loss) on defined benefit plans 24 (24,908,241) (10,569,040) (24,908,241) (9,432,786)
Items that are or may be reclassified to Profit or Loss
Net Change in Fair Value of Financial Assets Measured at 16 - - - - Fair value Through Other Comprehensive Income
Total Other Comprehensive Income/(Expense), Net of Tax (24,908,241) (10,569,040) (24,908,241) (9,432,786)
Total Comprehensive Income/(Expense) for the Year 392,330,591 (53,532,535) 293,522,526 (66,779,640)
The accounting policies and notes annexed form an integral part of these Financial Statements. Figures in brackets indicate deductions. 97
Statement of Financial Position
Group Company As at 31 December, 2020 2019 2020 2019 Note Rs. Rs. Rs. Rs.
ASSETS Non Current Assets Property and Equipment 10 327,485,615 275,151,175 327,485,571 275,151,130 Intangible Assets 11 133,971,103 144,069,918 133,971,102 143,997,256 Capital Work in Progress 12 125,136,332 81,033,878 125,136,332 81,033,878 Investments in Subsidiary 13 - - 25,000 25,000 Financial Investments at Amortised Cost 14 383,221,774 755,804,513 383,221,774 755,804,513 Other Investments 15 200,333,651 200,199,921 200,333,651 200,199,921 Investment in LFSB 16 1,165,965 1,165,965 - - Settlement Guarantee Fund 17 100,000,000 100,000,000 100,000,000 100,000,000 Total Non Current Assets 1,271,314,440 1,557,425,370 1,270,173,430 1,556,211,698
Current Assets Inventories 2,324,944 2,846,521 2,157,737 2,684,652 Trade and Other Receivables 19 318,128,965 255,615,685 262,186,167 231,969,939 Tax Assets 35,074,691 37,907,974 35,074,691 34,388,037 Financial Assets at FVTPL 20 1,081,243,254 842,015,123 460,493,995 330,954,977 Financial Investments at Amortised Cost 14 377,380,132 - 377,380,132 - Other Investments 15 424,865,714 569,206,642 424,865,714 569,206,642 Cash and Cash Equivalents 21 631,823,007 122,202,140 488,678,057 96,778,620 Total Current Assets 2,870,840,707 1,829,794,085 2,050,836,493 1,265,982,867 Total Assets 4,142,155,147 3,387,219,455 3,321,009,923 2,822,194,565
EQUITY AND LIABILITIES Accumulated Fund 3,248,052,115 2,855,721,524 2,614,756,314 2,321,233,788 Other Reserves 22 100,140,965 100,140,965 - - Total Equity 3,348,193,080 2,955,862,489 2,614,756,314 2,321,233,788
Non Current Liabilities Brokers’ Deposits in lieu of Bank Guarantee 23 939,970 939,970 939,970 939,970 Employee Benefits 24 106,392,758 74,372,166 106,392,758 74,372,166 Lease Liabilities on Right-to-use of Asset 25 6,866,741 83,439,535 6,866,741 83,439,535 Total Non Current Liabilities 114,199,469 158,751,671 114,199,469 158,751,671
Current Liabilities Brokers’ Deposits in lieu of Bank Guarantee 23 379,233,736 90,738,120 291,733,154 77,946,728 Other Payables 26 190,786,222 87,752,134 186,839,863 83,965,579 Amounts due to Related Company 27 - - 31,909,028 86,181,758 Tax Liability 28,170,545 - - - Lease Liabilities on Right-to-use of Asset 25 81,572,095 91,570,876 81,572,095 91,570,876 Bank Overdraft 21 - 2,544,165 - 2,544,165 Total Current Liabilities 679,762,598 272,605,295 592,054,140 342,209,106 Total Equity and Liabilities 4,142,155,147 3,387,219,455 3,321,009,923 2,822,194,565 The accounting policies and notes annexed form an integral part of these Financial Statements. These Financial Statements have been prepared and presented in compliance with the requirements of the Companies Act No.07 of 2007.
Kusal Nissanka Head of Finance & Administration
The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Approved and signed on behalf of the Board;
Dumith Fernando Arjuna Herath Chairman Director
22 March 2021 Colombo. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 98
Statement of Changes in Equity
Accumulated Other Capital Total Equity Group Fund Reserves Reserve Rs. Rs. Rs. Rs.
Balance as at 01 January 2019 2,909,254,059 165,965 99,975,000 3,009,395,024
Total Comprehensive Income Loss for the Year (42,963,495) - - (42,963,495)
Other Comprehensive Income Actuarial Loss on Employee Benefits (10,569,040) - - (10,569,040)
Total Other Comprehensive Income /(Expense) for the Year (10,569,040) 165,965 - (10,569,040) Total Comprehensive Income/(Expense) (53,532,535) 165,965 - (53,532,535) for the Year Balance as at 31 December 2019 2,855,721,524 165,965 99,975,000 2,955,862,489 Balance as at 01 January 2020 2,855,721,524 165,965 99,975,000 2,955,862,489 Total Comprehensive Income Profit for the Year 417,238,832 - - 417,238,832
Other Comprehensive Income Actuarial Loss on Employee Benefits (24,908,241) - - (24,908,241) Total Other Comprehensive Income /(Expense) for the Year (24,908,241) - - (24,908,241) Total Comprehensive Income for the Year 392,330,591 - - 392,330,591 Balance as at 31 December 2020 3,248,052,115 165,965 99,975,000 3,348,193,080
Accumulated Other Total Equity Company Fund Reserves Rs. Rs. Rs.
Balance as at 01 January 2019 2,388,013,428 - 2,388,013,428
Total Comprehensive Income Loss for the Year (57,346,854) - (57,346,854)
Other Comprehensive Income Actuarial Loss on Employee Benefits (9,432,786) - (9,432,786)
Total Other Comprehensive Income/(Expenses) for the Year (9,432,786) - (9,432,786) Total Comprehensive Income/(Expenses) for the Year (66,779,640) - (66,779,640)
Balance as at 31 December 2019 2,321,233,788 - 2,321,233,788
Restated Balance as at 01 January 2020 2,321,233,788 - 2,321,233,788
Total Comprehensive Income Profit for the Year 318,430,767 - 318,430,767
Other Comprehensive Income Actuarial Loss on Employee Benefits (24,908,241) - (24,908,241)
Total Other Comprehensive Income/(Expense) for the Year (24,908,241) - (24,908,241) Total Other Comprehensive Income/(Expense) for the Year 293,522,528 - 293,522,528 Balance as at 31 December 2020 2,614,756,314 - 2,614,756,314
The accounting policies and notes annexed form an integral part of these Financial Statements. Figures in brackets indicate deductions. 99
Statement of Cash Flows
Group Company For the Year Ended 31 December, 2020 2019 2020 2019 Note Rs. Rs. Rs. Rs.
Cash Flows from Operating Activities Profit/(Loss) before Taxation 458,010,452 (39,070,738) 318,430,767 (57,346,854)
Adjustments For Depreciation/Amortisation 10/11 158,009,759 163,534,902 157,937,098 163,448,358 Interest Income 08 (178,509,796) (226,668,271) (177,716,093) (192,843,626) Interest on Lease Liabilities on Right-to-use of Asset 25 11,457,574 28,894,654 11,457,574 28,894,654 Fair Value Gain on Financial Assets Measured at FVTPL 08 (108,250,556) (49,618,038) (49,539,018) (16,351,345) Profit/Loss on Sale of Property & Equipment 05 (79,200) 1,455,951 (79,200) 1,455,951 Gratuity Provision 24 18,309,521 11,980,540 12,292,745 10,659,996 Gratuity Provision-Transfer to/(Reversal from) Subsidiary 24 - - 6,016,779 2,456,798 Provision/(Reversal) for Impairment of Trade receivables 1,998,322 1,652,309 2,054,513 1,652,309 Impairment Charges on Financial Assets (95,141) 288,489 (95,141) 357,818 Operating Profit/(Loss) before Working Capital Changes 360,850,935 107,550,202 280,760,024 (57,615,941)
Decrease/(Increase) in Inventories 521,577 (521,698) 526,915 (513,645) Decrease/(Increase) in Trade and Other Receivables (64,462,016) 13,741,751 (32,233,942) 5,255,864 Increase/(Decrease) in Other Payables 103,034,088 (28,989,012) 102,874,284 (26,673,442) Increase/(Decrease) in Amounts due to Related Company - - (54,272,730) 66,412,444 Increase/(Decrease) in Brokers’ Deposit 288,495,616 (22,223,708) 213,786,426 (303,272) Cash Generated from/(Used in) Operating Activities 688,440,200 (145,542,869) 511,440,977 (13,437,992) Income Tax, ESC,WHT and Dividend Tax Paid (9,767,788) (18,012,417) (686,652) (13,299,796) Gratuity Paid 24 (11,197,173) (2,541,800) (11,197,173) (2,541,800) Net Cash Generated from/(Used in) Operating Activities 667,475,239 (166,097,086) 499,557,152 (29,279,588)
Cash Flows from Investing Activities Interest Income 08 192,965,157 258,807,934 192,184,239 207,832,348 Purchase of Property & Equipment and Intangible Assets 10 (190,348,114) (22,819,170) (190,348,114) (22,819,169) Proceeds from Sale of Property & Equipment 105,453 (579,790) 105,453 (579,789) Increase in Fixed Deposit 125,000,000 575,000,000 125,000,000 175,000,000 Increase in Corporate Debenture Investments - 23,500,000 - 23,500,000 Decrease in Investments in Unit Trusts (130,977,575) (637,990,294) (80,000,000) (314,603,632) Capital Work in Progress 12 (44,102,454) (2,938,367) (44,102,454) (2,938,367) Net Cash Generated from/(Used in) Investing Activities (47,357,533) 192,980,313 2,839,124 65,391,391
Cash Flows from Financing Activities Lease Payments on Right-to-use of Asset 25 (107,952,674) (111,104,130) (107,952,674) (111,104,130) (107,952,674 (111,104,130) (107,952,674) (111,104,130) Net Increase/(Decrease) in Cash and Cash Equivalents 512,165,032 (84,220,903) 394,443,602 (74,992,327) Cash and Cash Equivalents at beginning of the Year 119,657,975 203,878,878 94,234,455 169,226,782 Net Cash and Cash Equivalents at End of the Year 21 631,823,007 119,657,975 488,678,057 94,234,455
Analysis of Cash and Cash Equivalents at End of the year Cash in Hand 325,050 325,050 250,050 250,050 Cash at Bank 26,955,775 4,991,098 25,906,007 3,655,570 RTGS Account 17,600 17,600 - - Short Term investment in Overnight Repos 604,524,582 116,868,392 462,522,000 92,873,000 Cash & Cash Equivalents 631,823,007 122,202,140 488,678,057 96,778,620
Bank Overdraft - (2,544,165) - (2,544,165) Net Cash & Cash Equivalents at End of the Year 21 631,823,007 119,657,975 488,678,057 94,234,455 The accounting policies and notes annexed form an integral part of these Financial Statements. Figures in brackets indicate deductions. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 100
Notes to the Financial Statements
1. Reporting Entity 2.2 Basis of Measurement 3. Significant Accounting 1.1 Domicile and Legal Form The Financial Statements of the Group Policies Colombo Stock Exchange is a Company have been prepared on the historical The accounting policies set out below Limited by Guarantee incorporated & cost basis except for the following have been applied consistently to all domiciled in Sri Lanka. The registered material items in the statement of periods presented in these consolidated office of the Company is located at financial position: financial statements, and have been 4-01, West Block, World Trade Center, applied consistently by Group entities. Echelon Square, Colombo 01, and • Financial assets at Fair Value through the principal place of business is also Profit or Loss (FVTPL) are measured at 3.1 Basis of Consolidation situated at the same place. fair value; The Financial Statements of the • Financial assets at Fair Value through Company and Group comprise the The Consolidated Financial Statements Other Comprehensive Income Financial Statements of the Company of the Company as at and for the year (FVTOCI) are measured at fair value; and its Subsidiary for the year ended ended 31 December 2020 comprise • Liabilities for defined benefit 31 December 2020. The Financial the Company and Central Depository obligations are measured at its present Statements of the Company’s Subsidiary Systems (Private) Limited which was value. for the purpose of consolidation is incorporated on 02 September 1991 as prepared for the same reporting year as • Right to use of Assets & Lease a wholly owned subsidiary of Colombo that of Colombo Stock Exchange, using Liability on Right to use of Assets are Stock Exchange. consistent accounting policies. measured at present value of future cash flows 1.2 Principal Activities and Nature of 3.1.1 Business Combinations Operations 2.3 Functional and Presentation Business combinations are accounted The principal activity of the Company Currency for using the acquisition method as is the operation of a Stock Exchange. The Financial Statements are presented at the acquisition date - i.e. when The subsidiary operates a clearing in Sri Lanka Rupees, which is the control is transferred to the Group. and settlement of securities system for Group’s functional currency. Financial The consideration transferred in the equities and debt instruments traded in information presented in Sri Lanka acquisition is generally measured at fair the Colombo Stock Exchange and acts Rupees has been rounded to the value, as are the identifiable net assets as a depository for such securities. nearest rupee. acquired. Any goodwill that arises is tested annually for impairment. Any gain 2.4 Significant Accounting on a bargain purchase is recognised in 2. Basis of Preparation Judgments, Estimates and profit or loss immediately. Transaction 2.1 Statement of Compliance Assumptions costs are expensed as incurred, except The Consolidated Financial Statements The preparation of Financial Statements if they are related to the issue of debt or which comprise the Statement of requires management to make equity securities. Financial Position, Statement of Profit judgments, estimates and assumptions or Loss and Other Comprehensive that affect the application of accounting The consideration transferred does Income, Statement of Changes in Equity, policies and the reported amounts of not include amounts related to the Statement of Cash Flows and Notes Assets, Liabilities, Income and Expenses. settlement of pre-existing relationships. to the Financial Statements thereto Actual results may differ from these Such amounts are generally recognised have been prepared in accordance with estimates. in profit or loss. the Sri Lanka Accounting Standards (SLFRSs and LKASs) laid down by the Estimates and underlying assumptions Any contingent consideration payable Institute of Chartered Accountants of are reviewed on an ongoing basis. is measured at fair value at the Sri Lanka and comply with the Revisions to accounting estimates are acquisition date. If the contingent requirements of Companies Act No. 07 recognised in the period in which the consideration is classified as equity, then of 2007. estimate is revised and in any future it is not remeasured, and settlement is periods affected. accounted for within equity. Otherwise, The Financial Statements of Colombo subsequent changes in the fair value Stock Exchange for the year ended of the contingent consideration are 31 December 2020 were authorised recognised in profit or loss. for issue in accordance with a resolution of the Board of Directors on 22 March 2021. 101
3.1.2 Non-Controlling Interests 3.2 Foreign Currency Transactions A financial asset is measured at NCI are measured at their proportionate Transactions in foreign currencies are amortised cost if it meets both of share of the acquiree’s identifiable net translated to Sri Lankan Rupees at the the following conditions and is not assets at the acquisition date. Changes foreign exchnge rate ruling at the date designated as at FVTPL: in the Group’s interest in a subsidiary of the transaction. Monetary assets • it is held within a business model that do not result in a loss of control are and liabilities denominated in foreign whose objective is to hold assets to accounted for as equity transactions. currencies at the Reporting Date are collect contractual cash flows; and translated to Sri Lankan Rupees at the • its contractual terms give rise on 3.1.3 Subsidiaries foreign exchange rates ruling at that specified dates to cash flows that ‘Subsidiaries’ are investees controlled date. Foreign exchange differences are solely payments of principal and by the Group. The Group ‘controls’ an arising on translation are recognised in interest on the principal amount investee if it is exposed to, or has rights the profit or loss. outstanding. to, variable returns from its involvement with the investee and has the ability 3.3 Financial Instruments to affect those returns through its 3.3.1 Recognition and initial A debt investment is measured at power over the investee. The financial measurement FVOCI if it meets both of the following statements of subsidiaries are included Trade receivables and debt securities conditions and is not designated as at in the consolidated financial statements issued are initially recognised when FVTPL: they are originated. All other financial from the date on which control • it is held within a business model assets and financial liabilities are initially commences until the date when control whose objective is achieved by both recognised when the Group becomes a ceases. collecting contractual cash flows and party to the contractual provisions of the selling financial assets; and instrument. 3.1.4 Loss of control • its contractual terms give rise on When the Group loses control over a A financial asset (unless it is a trade specified dates to cash flows that subsidiary, it derecognises the assets receivable without a significant financing are solely payments of principal and and liabilities of the subsidiary, and any component) or financial liability is initially interest on the principal amount related NCI and other components measured at fair value plus, for an item outstanding. of equity. Any resulting gain or loss is not at fair value through profit or loss recognised in profit or loss. Any interest (FVTPL), transaction costs that are On initial recognition of an equity retained in the former subsidiary is directly attributable to its acquisition investment that is not held for trading, measured at fair value when control or issue. A trade receivable without a the Group may irrevocably elect to is lost. significant financing component is initially present subsequent changes in the measured at the transaction price. investment’s fair value in OCI. This 3.1.5 Transactions eliminated on election is made on an investment-by- consolidation 3.3.2 Classification and subsequent investment basis. Intra-group balances and transactions, measurement of financial assets and any unrealised income and On initial recognition, a financial All financial assets not classified as expenses (except for foreign currency asset is classified as measured at: measured at amortised cost or FVOCI transaction gains or losses) arising from amortised cost; fair value through other as described above are measured intra-group transactions, are eliminated comprehensive income (FVOCI)-debt at FVTPL. This includes all derivative in preparing the consolidated financial investment; fair value through other financial assets. On initial recognition, statements. Unrealised gains and losses comprehensive income (FVOCI)-equity the Group may irrevocably designate resulting from transactions between investment; or fair value through profit or a financial asset that otherwise meets the Group and its Associates are also loss (FVTPL). the requirements to be measured at eliminated in preparing the consolidated amortised cost or at FVOCI as at FVTPL financial statements to the extent of the Financial assets are not reclassified if doing so eliminates or significantly Group’s interests in the Associates. subsequent to their initial recognition reduces an accounting mismatch that unless the Group changes its business would otherwise arise. Unrealised losses are eliminated in the model for managing financial assets, in same way as unrealised gains, but only which case all affected financial assets to the extent that there is no evidence of are reclassified on the first day of the first impairment. reporting period following the change in the business model. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 102
Notes to the Financial Statements
3.3.3 Financial assets - Business 3.3.4 Financial assets-Assessment whether contractual cash flows are solely model assessment payments of principal and interest The Group makes an assessment of the For the purposes of this assessment, ‘principal’ is defined as the fair value of the objective of the business model in which financial asset on initial recognition. ‘Interest’ is defined as consideration for the a financial asset is held at a portfolio level time value of money and for the credit risk associated with the principal amount because this best reflects the way the outstanding during a particular period of time and for other basic lending risks and business is managed, and information costs (e.g. liquidity risk and administrative costs), as well as a profit margin. is provided to management. The information considered includes: In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes • the stated policies and objectives for assessing whether the financial asset contains a contractual term that could change the portfolio and the operation of those the timing or amount of contractual cash flows such that it would not meet this policies in practice. These include condition. In making this assessment, the Group considers: whether management’s strategy focuses on earning contractual interest • contingent events that would change the amount or timing of cash flows; income, maintaining a particular • terms that may adjust the contractual coupon rate, including variable-rate features; interest rate profile, matching the • prepayment and extension features; and duration of the financial assets to the duration of any related liabilities or • terms that limit the Group’s claim to cash flows from specified assets (e.g. non- expected cash outflows or realising recourse features). cash flows through the sale of the assets; A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of • how the performance of the portfolio is principal and interest on the principal amount outstanding, which may include evaluated and reported to the Group’s reasonable additional compensation for early termination of the contract. Additionally, management; for a financial asset acquired at a discount or premium to its contractual par amount, • the risks that affect the performance of a feature that permits or requires prepayment at an amount that substantially the business model (and the financial represents the contractual par amount plus accrued (but unpaid) contractual interest assets held within that business (which may also include reasonable additional compensation for early termination) is model) and how those risks are treated as consistent with this criterion if the fair value of the prepayment feature is managed; insignificant at initial recognition. • how managers of the business are compensated - e.g. whether 3.3.5 Financial assets - Subsequent measurement and gains and losses compensation is based on the fair Financial assets at These assets are subsequently measured at fair value. Net value of the assets managed or the FVTPL gains and losses, including any interest or dividend income, are contractual cash flows collected; and recognised in profit or loss. • the frequency, volume and timing Financial assets at These assets are subsequently measured at amortised cost of sales of financial assets in prior amortised cost using the effective interest method. The amortised cost periods, the reasons for such sales is reduced by impairment losses. Interest income, foreign and expectations about future sales exchange gains and losses and impairment are recognised in activity. profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Transfers of financial assets to third Debt investments These assets are subsequently measured at fair value. Interest parties in transactions that do not qualify at FVOCI income calculated using the effective interest method, foreign for derecognition are not considered exchange gains and losses and impairment are recognised in sales for this purpose, consistent with profit or loss. Other net gains and losses are recognised in OCI. the Group’s continuing recognition of the On derecognition, gains and losses accumulated in OCI are assets. reclassified to profit or loss.
Financial assets that are held for trading Equity investments These assets are subsequently measured at fair value. or are managed and whose performance at FVOCI Dividends are recognised as income in profit or loss unless the is evaluated on a fair value basis are dividend clearly represents a recovery of part of the cost of the measured at FVTPL. investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss. 103
Classification and subsequent Cost includes expenditure that is directly The estimated useful lives of the Property, measurement of financial liabilities attributable to the acquisition of the Plant & Equipment of the Group as at At the inception the Group determines asset. The cost of self-constructed 31st December 2020 are as follows: assets includes the costs of materials the classification of its financial liabilities. Estimated and direct labour, any other costs Accordingly, financial liabilities are useful lives directly attributable to bringing the asset classified as: Furniture & Fittings 10 years to a working condition for its intended Hardware & Software 5 - 10 years i) Financial liabilities at fair value use, and the cost of dismantling and Office Equipment 5 years through profit or loss (FVTPL) removing the items and restoring Motor Vehicles 5 years the site on which they are located. • Financial liabilities held for trading Telephones 4 years Purchased software that is integral to the • Financial liabilities designated at Right to use of Assets Agreement functionality of the related equipment is fair value through profit or loss period capitalised as part of that equipment. ii) Financial liabilities at amortised Where parts of an item of property and The depreciation rates are determined cost. equipment have different useful lives, separately for each significant part of The subsequent measurement of they are accounted for as separate items an item of Property, Plant & Equipment financial liabilities depends on their (major components) of property and and commence to depreciate when classification equipment. it is available for use, i.e. when it is in the location and condition necessary 3.3.6 Non-Derivative Financial Gains and losses on disposal of an for it to be capable of operating in the Liabilities item of property and equipment are manner intended by the management. All financial liabilities are recognised determined by comparing the proceeds Depreciation of an assets ceases at initially on the trade date, which is the from disposal with the carrying amount the earlier of the date that the assets is date that the Group becomes a party of property and equipment, and are classified as held for sale or the date that to the contractual provisions of the recognised net within the “other income” the asset is derecognised. instrument. The Group derecognises in profit or loss. a financial liability when its contractual 3.5.4 Capital Work-in-Progress obligations are discharged, cancelled or 3.4.2 Subsequent Costs Capital work-in-progress is stated at expire. The cost of replacing part of an item of cost. These are expenses of a capital property and equipment is recognised nature directly incurred for system The Group classifies non-derivative in the carrying amount of the item, if it development. financial liabilities into the other financial is probable that the future economic liabilities category. Such financial benefits embodied within the part will 3.5 Intangible Assets liabilities are recognised initially at fair flow to the Group and its cost can be Intangible Assets consist of application value less any directly attributable measured reliably. The costs of the software used in trading, clearing, transaction costs. day-to-day servicing of property and settlement, surveillance, accounting, equipment are recognised in the profit or mail systems and the web site of the Subsequent to initial recognition, loss as incurred. Colombo Stock Exchange. these financial liabilities are measured at amortised cost using the effective 3.4.3 Depreciation 3.5.1 Basis of Recognition interest method. Depreciation is charged to the profit or An Intangible Asset is recognised if it is loss on a straight-line basis over the probable that future economic benefits Other financial liabilities comprise of bank estimated useful lives of each part of that are attributable to the asset will flow overdrafts, trade and other payables and an item of property and equipment. to the enterprise and the cost of the asset brokers’ liquidity deposits payables. Items of property, plant and equipment can be measured reliably in accordance are depreciated from the date they are with the LKAS 38, Intangible Assets. 3.4 Property and Equipment available for use or, in respect of 3.4.1 Recognition and self-constructed assets, from the date 3.5.2 Subsequent Expenditure Measurement that the asset is completed and ready Subsequent expenditure on intangible Property and equipment are stated at for use. assets is capitalised only when it cost less accumulated depreciation and increases the future economic benefits any impairment losses. embodied in the specific assets to which it relates. All other expenditure is expensed as incurred. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 104
Notes to the Financial Statements
3.5.3 Amortisation 3.6 Leases the lease and associated Intangible Assets are amortised on a The Company initially applied SLFRS 16 non-lease components as a single straight-line basis to profit or loss, from Leases from 1 January 2019. lease component. the date when the asset is available for use, over the best estimate of its useful The Company applied SLFRS 16 using 3.6.3 As a lessor economic life. the modified retrospective approach. The Company leases out its right-of-use assets. The Company has classified 3.5.4 Research and Development 3.6.1 Definition of a lease these leases as operating leases. The Costs Previously, the Company determined Company is not required to make any Expenditure on research activities, at contract inception whether an adjustments on transition to SLFRS 16 undertaken with the prospect of arrangement was or contained a lease for leases in which it acts as a lessor, gaining new scientific or technical under IFRIC 4 Determining whether an except for a sub-lease. knowledge and understanding, is Arrangement contains a Lease. The recognised in profit or loss as incurred. Company now assesses whether a The Company sub-leases some of its Development activities involve a plan contract is or contains a lease based on properties. Under LKAS 17, the head or design for the production of new or the definition of a lease. lease and sub-lease contracts were substantially improved products and classified as operating leases. The processes. Development expenditure On transition to SLFRS 16, the Company Company assessed the classification of is capitalised only if development costs elected to apply the practical expedient the sub-lease contracts with reference can be measured reliably, the product or to grandfather the assessment of which to the right-of-use asset rather than the process is technically and commercially transactions are leases. The Company underlying asset and concluded that feasible, future economic benefits are applied SLFRS 16 only to contracts they are operating leases under SLFRS probable, and the Group intends to and that were previously identified as leases. 16. The Company has also entered into has sufficient resources to complete Contracts that were not identified as a sub-lease during 2019, which has development and to use or sell the asset. leases under LKAS 17 and IFRIC 4 were been classified as a finance lease. The expenditure capitalised includes the not reassessed for whether there is a cost of materials, direct labour, overhead lease under SLRFS 16. Therefore, the The Company has applied SLFRS 15 costs that are directly attributable to definition of a lease under SLRFS 16 was Revenue from Contracts with Customers preparing the asset for its intended use, applied only to contracts entered into or to allocate consideration in the contract and capitalised borrowing costs. Other changed on or after 1 January 2019. to each lease and non-lease component. development expenditure is recognised in profit or loss as incurred. 3.6.2 As a lessee 3.7 Inventories As a lessee, the Company’s leased Inventories include stationeries, stamps Capitalised development expenditure assets include property and building. and data wall spares and measured is measured at cost less accumulated The Company previously classified at the lower of cost and net realisable amortisation and any accumulated leases as operating leases based on value. impairment losses. its assessment of whether the lease transferred significantly all of the risks 3.8 Impairment of Assets 3.5.5 De-recognition of Intangible and rewards incidental to ownership of 3.8.1 Non-derivative Financial Assets Assets the underlying asset to the Company. Financial instruments and contract Intangible assets are derecognised on Under SLFRS 16, the Company assets disposal or when no future economic recognises right-of-use assets and lease Loss allowances for trade receivables is benefits are expected from their liabilities for most of these leases - i.e. always measured at an amount equal to use. Gain or losses arising from de these leases are on-balance sheet. lifetime ECLs. recognition of an intangible asset are measured as the difference between the At commencement or on modification When determining whether the credit net disposals proceed and the carrying of a contract that contains a lease risk of a financial asset has increased amount of the asset and are recognised component, the Company allocates the significantly since initial recognition in profit or loss. consideration in the contract to each and when estimating ECLs, the Group lease component on the basis of its considers reasonable and supportable relative stand-alone price. information that is relevant and available without undue cost or effort. This However, for leases of property the includes both quantitative and qualitative Company has elected not to separate information and analysis, based on non-lease components and account for the Group’s historical experience 105
and informed credit assessment and result of past service provided by the 3.10 Provisions including forward-looking information. employee, and the obligation can be A provision is recognised if the Group estimated reliably. has a present legal or constructive The Group assumes that the credit obligation as a result of a past event, risk on a financial asset has increased 3.9.2 Defined Contribution Plan and it is probable that an outflow of significantly if it is more than 90 days - Employees’ Provident Fund and economic benefits will be required to past due. Employees’ Trust Fund settle the obligation. A defined contribution plan is a post The Group considers a financial asset to employment benefit plan under which 3.11 Revenue be in default when: an entity pays fixed contribution into Revenue is recognised to the extent that separate entity and will have no legal it is probable that the economic benefits • the Customer is unlikely to pay its or constructive obligation to pay further will flow to the group and the revenue credit obligations to the Group in full, amounts. can be reliably measured. without recourse by the Group to actions such as realising security (if All employees who are eligible for 3.11.1 CSE & CDS Fees any is held); or Employees’ Provident Fund and CSE & CDS fees on securities traded on • the financial asset is more than 90 Employees’ Trust Fund are covered by the stock exchange are recognised on a days past due. relevant contributions to the defined trade date basis. contribution plans and are recognised Presentation of allowance for ECL in as an expense in profit or loss when 3.11.2 Listing Fees the statement of financial position incurred. Annual listing fees are recognised on an accrual basis and charged annually from Loss allowances for financial assets (a) Employees’ Provident Fund listed companies a fee of Rs.100,000/- measured at amortised cost are The Company and employee contribute or 0.003% of the market capitalisation deducted from the gross carrying 12% and 8% respectively on the of the Listed Entity as at 31st December amount of the assets. basic salary of each employee to the 2020 of the year immediately preceding, employees’ approved provident fund. whichever is higher, subject to a Write-off maximum of Rs. 2,000,000/- The gross carrying amount of a financial (b) Employees’ Trust Fund asset is written off when the Group has 3.11.3 Quotation Fees The Company contributes 3% of the no reasonable expectations of recovering The initial listing fee payable when the basic salary of each employee to the a financial asset in its entirety or a portion ordinary voting shares of an Entity are employee’s trust fund. thereof. For corporate customers, the listed on the Exchange and recognised Group individually makes an assessment upon the listing of an applicant. with respect to the timing and amount 3.9.3 Defined Benefits Plan - Gratuity of write-off based on whether there is a Additional listing fees are recognised As required by LKAS-19 “Employee reasonable expectation of recovery. The for a further issue of Securities by way Benefits”, which the Company has Group expects no significant recovery of rights issue of shares, issues of provided for gratuity liability based on from the amount written off. However, shares credited as fully paid-up by way projected unit credit method. financial assets that are written off could of capitalisation of reserves, issues of still be subject to enforcement activities shares through private placements, scrip However, under the Payment of Gratuity in order to comply with the Group’s dividend, share swaps & ESOP as per Act No.12 of 1983, the liability to an procedures to recovery of amount due. listing rules. employee arises only on completion of five years of continued service. 3.9 Employee Benefits 3.11.4 Brokers’ Fees 3.9.1 Short - Term Employee Monthly subscription fees from brokers The Group recognises all Actuarial Benefits are recognised on an accrual basis. Short-term employee benefit obligations Gains/(Losses) arising from Defined Benefit plans immediately in Other are measured on an undiscounted basis 3.11.5 Charges for Computer Comprehensive Income and Expenses and are expensed as the related service Information related to Defined Benefit in employee is provided. A liability is recognised for The CDS charge a fee on a benefits in profit or loss. the amount expected to be paid under pre-determined basis from listed short-term cash bonus plans if the The liability is not externally funded. companies for the service rendered Group has a present legal or constructive pertaining to providing information and obligation to pay this amount as a fees are recognised on an accrual basis. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 106
Notes to the Financial Statements
3.11.6 Listed Company Fees for financial reporting purposes and the existing tax liabilities; such changes to Listed Company Fee is charged based amounts used for taxation purposes. tax liabilities will impact tax expense in on the number of trades and Rs.15/- the period that such a determination is will be charged per trade, subject to a The measurement of deferred tax reflects made. minimum charge of Rs.25,000/- and a the tax consequences that would follow maximum charge of Rs.750,000/- per the manner in which the Group expects, 3.12.3.1 Withholding tax on annum. at the end of the reporting period, to dividends distributed by subsidiary recover or settle the carrying amount of Dividend distributed out of profit of the 3.11.7 Other Income its assets and liabilities. For investment Subsidiary attracts 10% deduction at • Dividend from unit trust is recognized property that is measured at fair value, source and is not available for set off in profit or loss on an accrual basis the presumption that the carrying against the tax liability of the Colombo when the Company’s right to receive amount of the investment property will Stock Exchange. Thus, the withholding the dividend is established. be recovered through sale has not been tax deducted at source is added to the • Interest income is recognised in rebutted. expense of the Subsidiary Company in profit or loss as it accrues, using the the Group Financial Statements as a effective interest method. Deferred tax is measured at the tax consolidation adjustment. rates that are expected to be applied to • Gain on disposal of property, plant and temporary differences when they reverse, 3.12.3.2 Economic Service Charge equipment have been accounted for in using tax rates enacted or substantively (ESC) profit or loss, after deducting from the enacted at the reporting date. As per the provisions of Economic net sales proceeds on disposal of the Service Charge Act No. 13 of 2006 carrying amount of such assets. Deferred tax assets and liabilities are and subsequent amendments thereto, offset if there is a legally enforceable right ESC is payable on the liable turnover at 3.12 Taxation to offset current tax liabilities and assets, specified rates. ESC is deductible from As per Sri Lanka Accounting Standard and they relate to taxes levied by the the income tax liability. Any unclaimed (LKAS 12) - “Income taxes”, tax expense same tax authority on the same taxable amount can be carried forward. is the aggregate amount included in entity, or on different tax entities, but determination of profit or loss for the they intend to settle current tax liabilities 3.12.3.3 Value Added Tax (VAT) period in respect of current and deferred and assets on a net basis or their tax Value Added Tax is calculated in taxes. Income tax expense is recognised assets and liabilities will be realised accordance with Value Added Tax Act No in the income statement. simultaneously. 14 of 2002 and subsequent amendments thereto. VAT is payable at 8%. 3.12.1 Current Taxation A deferred tax asset is recognised for Current tax is the expected tax payable unused tax losses, tax credits and 3.12.3.4 Nation Building Tax (NBT) on the taxable income for the year, deductible temporary differences to As per the provisions of the Nation using tax rates enacted or substantively the extent that it is probable that future Building Tax Act, No. 9 of 2009 and the enacted on the Reporting Date, and any taxable profits will be available against subsequent amendments thereto, Nation adjustment to tax payable in respect of which they can be utilised. Deferred tax Building Tax should be payable at the previous years. Provision for taxation is assets are reviewed at each reporting rate of 2% with effect from 1 January based on the profit for the year adjusted date and are reduced to the extent that it 2011 on the liable turnover as per the for taxation purposes in accordance is no longer probable that the related tax relevant provisions of the Act. From 01st with the provision of the Inland Revenue benefit will be realised. December 2019, Nation building tax is Act No. 24 of 2017 and subsequent removed. amendments thereto. 3.12.3 Other Tax Exposures In determining the amount of current 3.13 Related Party Transactions The Company is Liable for income tax at and deferred tax, the Group takes Disclosure has been made in respect the rate of 28% on the taxable profit. into account the impact of uncertain of the transactions in which one party tax positions and whether additional has the ability to control or exercise 3.12.2 Deferred Taxation taxes and interest may be due. This significant influence over the financial Deferred tax assets are reviewed at each assessment relies on estimates and and operating policies/decisions of the reporting date and are reduced to the assumptions and may involve a series other, irrespective of whether a price is extent that it is no longer probable that of judgments about future events. New being charged the related tax benefit will be realised. information may become available Deferred tax is recognised in respect that causes the Group to change its of temporary differences between the judgment regarding the adequacy of carrying amounts of assets and liabilities 107
3.14 Statement of cash flows The Statement of Cash Flows has been prepared by using the ‘Indirect Method’ of preparing cash flows in accordance with the Sri Lanka Accounting Standard - LKAS 7 on ‘Statement of Cash Flow’, whereby operating activities, investing activities and financing activities are separately recognised. Cash and cash equivalents comprise of short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.
3.15 New Accounting Standards Issued but not Effective The Institute of Chartered Accountants of Sri Lanka has issued number of new Sri Lanka Accounting Standards (SLFRSs/LKASs) and amendments that are effective for annual periods beginning after the current financial year. Accordingly these standards have not been applied in preparing these financial statements and the Company plans to apply these standards if applicable as and when they become effective.
Company does not expect the following new Accounting standards, amendments and interpretations that will become effective for future accounting periods will have a significant impact on the Company’s financial statements.
• Amendments to references to conceptual framework in Sri Lanka Financial Reporting Standards • Amendments to Sri Lanka Accounting Standard - LKAS 1 “Presentation to Financial Statements” and Sri Lanka Accounting Standard - LKAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” • Amendments to Sri Lanka Accounting Standard - SLFRS 3 Business Combinations • Sri Lanka Accounting Standard - SLFRS 17 Insurance Contracts • Amendments to SLFRS 9, LKAS 39, and SLFRS 7 - Interest rate benchmark reforms. • Amendments to Sri Lanka Accounting Standard - SLFRS 10 “Presentation to Financial Statements” and Sri Lanka Accounting Standard - LKAS 28 “Investments in Associates and Joint Ventures” COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 108
Notes to the Financial Statements
04. Revenue Group Company For the Year Ended 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
CSE & CDS Fees 793,550,363 335,144,567 616,245,922 259,960,515 Listing Fees 89,842,404 90,525,794 89,842,404 90,525,794 Quotation Fees 8,997,400 13,196,066 8,997,400 13,196,066 Brokers’ Fees 12,825,631 13,051,500 12,825,631 13,051,500 Charges for Remote Data Link 907,400 915,000 907,400 915,000 Charges for Computer Information 17,473,280 19,465,100 - - Listed Company Fees 40,913,910 19,938,935 - - 964,510,388 492,236,962 728,818,757 377,648,875
05. Other Income Group Company For the Year Ended 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
High Speed Data Signal Charges 27,884,683 26,091,684 27,884,683 26,091,684 Data Communication Income 8,449,474 9,305,263 8,449,474 9,305,263 Sponsership Income 245,443 6,954,594 (7,311) 6,954,594 CDS Rental Income - - 43,371,405 40,523,884 Management Fee - - 7,994,913 7,493,487 Profit/(Loss) on Disposal of Property & Equipment 79,200 (1,455,951) 79,200 (1,455,951) Miscellaneous Income 40,271,910 34,975,452 14,458,861 16,579,878 76,930,710 75,871,042 102,231,225 105,492,837
06. Staff Cost Group Company For the Year Ended 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Salaries 299,670,178 286,694,253 266,467,387 255,357,998 Staff Bonus 48,516,451 6,714,365 44,050,684 6,714,365 Terminal Benefits (Gratuity) 18,309,521 11,980,540 12,292,745 10,659,996 Staff Welfare 7,210,331 10,857,715 6,313,495 9,034,823 Medical & Insurance Expenses 12,365,714 12,612,173 10,664,065 10,608,256 Transport & Travelling 3,351,933 4,102,168 2,790,068 3,536,261 389,424,128 332,961,214 342,578,444 295,911,699 The Number of Employees at the end of the Year 2020 were 145 (149 in 2019). 109
07. Other Operating Expenses Group Company For the Year Ended 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Administration Expenses 36,396,396 42,906,867 15,790,754 21,014,363 Data Communication Charges 18,793,889 20,104,380 14,598,416 15,603,277 CDS Statement Expenses 6,406,396 9,582,336 - - Stationery Expenses 1,032,887 1,841,517 868,800 1,528,696 Maintenance Expenses 140,389,640 137,209,291 113,135,535 110,029,367 Issuer Marketing Expenses 123,202 2,585,095 96,098 2,016,374 Donations - 68,880 - 68,880 Training Expenses 633,748 2,547,798 627,848 1,806,722 Conference Expenses - 3,411,777 - 3,135,344 Nation Building Tax & Disallowed VAT 27,897,155 45,644,930 18,121,384 30,256,044 Investor Education & Foreign Road Show Expenses 13,969,663 21,596,676 10,901,061 16,838,411 Publication & Website Expenses 9,834,163 8,540,016 7,685,100 6,640,568 Incentive Scheme for Brokers Back Office Systems 22,747,497 22,583,331 22,747,497 22,583,331 Directors’ Expenses 3,756,000 6,630,000 3,756,000 6,630,000 Auditors’ Remuneration 1,143,263 1,010,000 723,068 642,000 Fees Paid to Auditors for Non-Audit Services 730,686 422,040 544,578 210,774 Legal Fees 1,534,310 5,451,403 1,534,310 5,451,403 Professional Charges & Subscription 22,796,371 15,591,484 18,734,675 13,351,715 Risograph Expenses 22,260 36,815 17,363 28,714 Other Project Cost 5,264,185 11,148,230 1,619,216 8,867,563 313,471,711 358,912,866 231,501,703 266,703,546
08. Net Finance Income 08.1 Finance Income Group Company For the Year Ended 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Fair Value Gain on Financial Assets Measured at FVTPL 108,250,556 49,618,038 49,539,018 16,351,345 Interest Income on Investment 178,509,796 226,668,271 177,716,093 192,843,626 Interest Income on Staff Loan 14,086,717 10,883,862 14,086,717 10,883,862 Finance Income on the net investment in the lease 191,176 373,717 191,176 373,717 301,038,245 287,543,888 241,533,004 220,452,550
08.2 Finance Cost Interest on Lease Liabilities on Right-to-use of Asset 11,475,574 28,894,654 9,973,064 26,262,715 Interest Expense on Staff Loan 10,202,537 6,604,671 10,202,537 6,604,671 21,660,111 35,499,325 20,175,601 32,867,386
Net Finance Income 279,378,134 252,044,563 221,357,403 187,585,164 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 110
Notes to the Financial Statements
09. Taxation Group Company For the Year Ended 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
09.1 Income tax Expense Current tax expense (Note 09.2) 40,771,620 3,892,757 - - Deferred Tax (Note 18) - - - - 40,771,620 3,892,757 - -
09.2 Reconciliation on Accounting Profit/Loss to Income Tax Accounting Profit/(Loss) before taxation 458,010,452 (39,070,738) 318,430,767 (57,346,854)
Adjustment on Disallowable Expenses 191,513,042 202,485,706 185,479,796 198,874,039 Adjustment on Allowable Expenses (189,704,947) (150,004,380) (189,704,947) (149,993,053) Investment Income (182,585,152) (226,668,271) (181,791,449) (192,843,626) Business Income 277,233,395 (213,257,683) 132,414,167 (201,309,494) Investment Income 182,585,152 226,668,271 181,791,449 192,843,626 Assesable Income 459,818,547 226,668,271 314,205,616 192,843,626
Assesable Income 459,818,547 226,668,271 314,205,616 192,843,626 Tax Loss Utilised (314,205,616) (212,765,568) (314,205,616) (192,843,626) Taxable Income 145,612,931 13,902,703 - -
Income Tax at 28% (Note 9.3) 40,771,620 3,892,757 - - Income Tax on Current year Profit 40,771,620 3,892,757 - -
09.3 Tax has been provided at the rate of 28% in respect of CSE & CDS for the Financial Year 2020 (28% in 2019). Tax for the year has been calculated in accordance with the provisions of the the Inland Revenue Act No. 24 of 2017.
10. Property & Equipment 10.1 Group Right-of-use Furniture & Computers Office Motor Telephones Total lease assets Fittings Equipment Vehicles Land and Building Cost Rs. Rs. Rs. Rs. Rs. Rs. Rs.
As at 01 January 2020 251,403,674 167,296,609 445,774,020 48,850,463 12,190,987 13,194,026 938,709,779 Additions 9,923,525 668,599 162,887,404 855,977 - - 174,335,505 Disposals/Transfers - (750,238) (12,084,207) (965,249) - (478,191) (14,277,885) As at 31 December 2020 261,327,199 167,214,970 596,577,217 48,741,191 12,190,987 12,715,835 1,098,767,399
Accumulated Depreciation
As at 01 January 2020 93,075,691 110,150,592 389,985,747 45,442,898 11,805,738 13,097,939 663,558,605 Charge for the year 91,914,986 11,422,289 17,113,881 1,122,127 385,246 23,106 121,981,635 Disposals - (734,409) (12,092,864) (961,314) - (469,870) (14,258,456) As at 31 December 2020 184,990,677 120,838,472 395,006,764 45,603,711 12,190,984 12,651,175 771,281,784
Net Book Value
As at 31 December 2020 76,336,522 46,376,498 201,570,453 3,137,480 3 64,660 327,485,615
As at 31 December 2019 158,327,983 57,146,017 55,788,273 3,407,565 385,249 96,087 275,151,175 111
10.1.1 Based on the assessment carried out internally, by the Board of Directors no provision was required for the potential impairment of fixed assets as at 31 December 2020.
10.1.2 Gross carrying amount of fully depreciated assets as at 31 December 2020 is Rs.579,369,449/- (2019 Rs. 548,453,899/-)
10.1.3 There were no restrictions on the title of the Property and Equipment as at 31 December 2020.
10.1.4 There were no items of Property and Equipment pledged as security as at 31 December 2020.
10.2 Company Right-of- Furniture & Computers Office Motor Telephones Total use lease Fittings Equipment Vehicles assets Land and Building Cost Rs. Rs. Rs. Rs. Rs. Rs. Rs.
As at 01 January 2020 251,403,674 166,905,292 442,902,582 48,724,745 12,190,987 13,133,176 935,260,456 Additions 9,923,525 668,599 162,887,404 855,977 - - 174,335,505 Disposals - (750,238) (12,084,207) (965,249) - (478,191) (14,277,885) As at 31 December 2020 261,327,199 166,823,653 593,705,779 48,615,473 12,190,987 12,654,985 1,095,318,076
Accumulated Depreciation
As at 01 January 2020 93,075,692 109,759,299 387,114,324 45,317,183 11,805,738 13,037,091 660,109,327 Charge for the year 82,912,643 11,422,289 17,113,881 1,122,127 385,246 23,106 112,979,292 Provision transferred to Subsidiary 9,002,343 - - - - - 9,002,343 Disposals - (734,409) (12,092,864) (961,314) - (469,870) (14,258,457) As at 31 December 2020 184,990,678 120,447,179 392,135,341 45,477,996 12,190,984 12,590,327 767,832,505
Net Book Value
As at 31 December 2020 76,336,521 46,376,474 201,570,438 3,137,477 3 64,658 327,485,571
As at 31 December 2019 158,327,982 57,145,993 55,788,258 3,407,562 385,249 96,085 275,151,130
10.2.1 Based on the assessment carried out internally, by the Board of Directors no provision was required for the potential impairment of fixed assets as at 31 December 2020.
10.2.2 Gross carrying amount of fully depreciated assets as at 31 December 2020 is Rs. 575,487,431/- (2019 Rs. 545,004,576/-)
10.2.3 There were no restrictions on the title of the Property, Plant and Equipment as at 31 December 2020.
10.2.4 There were no items of Property and Equipment pledged as security as at 31 December 2020 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 112
Notes to the Financial Statements
11. Intangible Assets Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Cost Balance as at 01 January 556,337,426 551,336,547 555,904,731 550,903,852 Acquisition and Transfers during the year 25,936,134 5,000,879 25,936,134 5,000,879 Disposals & Transfers During the Year (93,930) - (93,930) - Balance as at 31 December 582,179,630 556,337,426 581,746,935 555,904,731
Accumulated Amortisation Balance as at 01 January 412,267,508 376,635,112 411,907,475 376,361,623 Charge for the year 36,028,124 35,632,396 35,955,463 35,545,852 Disposals & Transfers During the Year (87,105) - (87,105) - Balance as at 31 December 448,208,527 412,267,508 447,775,833 411,907,475 Net Book Value 133,971,103 144,069,918 133,971,102 143,997,256
Intangible Assets consist of application software used in trading, clearing, settlement, surveillance, accounting, mail systems and the web site of the Colombo Stock Exchange.
12. Capital Work in Progress Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Balance as at 01 January 81,033,878 78,095,511 81,033,878 78,095,511 Incurred during the year 145,213,957 10,019,543 145,213,957 10,019,543 Transfers (101,111,503) (7,081,176) (101,111,503) (7,081,176) Balance as at 31 December 125,136,332 81,033,878 125,136,332 81,033,878
The Capital Work in progress include the WIP for Central Counter Party (CCP) project and “Delivery Vs. Payment” (DVP) Project which are in progress.
13. Investment in Subsidiary Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Central Depository Systems (Pvt) Ltd. (10,000,000 Ordinary Shares-100% Ownership) - - 25,000 25,000 - - 25,000 25,000 113
14. Financial Investments at Amortised Cost Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Investment in Listed Debenture of HNB PLC 200,000,000 200,000,000 200,000,000 200,000,000 Investment in Listed Debenture of Sampath Bank PLC 350,000,000 350,000,000 350,000,000 350,000,000 Investment in Listed Debenture of Nations Trust Bank PLC 160,000,000 160,000,000 160,000,000 160,000,000 710,000,000 710,000,000 710,000,000 710,000,000
Interest Receivable 51,162,667 46,439,309 51,162,667 46,439,309 761,162,667 756,439,309 761,162,667 756,439,309
Less: Impairment Charges on Financial Assets (560,761) (634,796) (560,761) (634,796) 760,601,906 755,804,513 760,601,906 755,804,513
Financial Investments at Amortised Cost - Current 377,380,132 - 377,380,132 - Financial Investments at Amortised Cost - Non Current 383,221,774 755,804,513 383,221,774 755,804,513
15. Other Investments Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Investments in Fixed Deposits 600,000,000 725,000,000 600,000,000 725,000,000 Interest Receivable 25,366,560 44,594,864 25,366,560 44,594,864 625,366,560 769,594,864 625,366,560 769,594,864
Less: Impairment Charges on Financial Assets (167,195) (188,301) (167,195) (188,301) 625,199,365 769,406,563 625,199,365 769,406,563
Financial Investments at Amortised Cost - Current 424,865,714 569,206,642 424,865,714 569,206,642 Financial Investments at Amortised Cost - Non Current 200,333,651 200,199,921 200,333,651 200,199,921 625,199,365 769,406,563 625,199,365 769,406,563
16. Investment in LFSB Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Ordinary Shares 1,000,000 1,000,000 - - 1,000,000 1,000,000 - -
Fair Value Gain on Financial Assets Measured at FVTOCI 165,965 165,965 - - 1,165,965 1,165,965 - -
This represents 100,000 Ordinary Shares purchased from Lanka Financial Services Bureau Ltd (LFSB) by the Central Depository Systems (Pvt) Ltd. LFSB is the SWIFT Service Bureau for Sri Lanka which facilitates inter-bank transactions. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 114
Notes to the Financial Statements
17. Settlement Guarantee Fund Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Settlement Guarantee Fund 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,00
This fund was established as a Trust on 22 May 1988 to guarantee the settlement of trades between clearing members of the Central Depository System of the Colombo Stock Exchange and to provide for matters connected therewith and incidental thereto. Current trustees of the fund are Securities Exchange Commission of Sri Lanka (SEC) and Colombo Stock Exchange (CSE). The CSE has decided to transfer Rs. 100 Million to strengthen the Settlement Guarantee Fund subsequent to the fund meeting held on 20 December 2011 and transferred the funds on 18 January 2012.
18. Deferred Tax Assets Group Company As at 31 December 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Deferred Tax Liabilities 73,162,093 96,151,745 73,162,093 96,151,745 Deferred Tax Assets (73,162,093) (96,151,745) (73,162,093) (96,151,745) - - - -
Deferred tax assets and liabilities are attributable to the following temporary differences;
Property, Equipment & Intangible Assets 51,787,867 51,819,910 51,787,867 51,819,910 Right of Use Asset 21,374,226 44,331,835 21,374,226 44,331,835 Lease Liability (24,762,874) (49,002,915) (24,762,874) (49,002,915) Retirement Benefit Obligation (29,789,972) (20,824,206) (29,789,972) (20,824,206) Brought Forward Tax Loss (18,609,246) (26,324,624) (18,609,246) (26,324,624) Total Taxable Temporary Difference - - - - Applicable Tax Rate 28% 28% 28% 28% Deferred Tax Assets - - - -
Deferred Tax Assets arising from the unused tax losses has been recognised only to the extent of entity’s taxable temporary differences. Hence, the full amount of deferred tax asset arising from the unused tax loss has not been recognised in the Financial Statements in accordance with the LKAS 12 - “Income taxes” due to the unavailability of convincing other evidence that sufficient taxable profits will be available against which the unused tax loss can be utilised by the entity and Deferred Tax Asset amount has been disclosed in respect as follows
Unrecognised Deferred Tax Assets Group Company 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Tax Losses 248,322,283 328,584,478 248,322,283 328,584,478 115
19. Trade & Other Receivables Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Trade Receivables 76,219,045 49,214,433 18,660,216 20,451,818 Provision for Impairment (17,055,090) (15,056,768) (10,475,056) (8,420,543) 59,163,955 34,157,665 8,185,160 12,031,275 Net Investment in the Lease - 1,404,821 - 1,404,821 CSE & CDS Fees Receivable 16,900,273 4,846,374 13,144,658 3,769,403 Prepayments 83,143,153 39,186,461 83,122,968 39,159,643 Advance Payments 456,786 181,675 456,761 181,675 Refundable Deposits 46,174,513 46,866,025 46,174,513 46,866,025 Sundry Debtors 27,647,449 28,758,191 26,480,183 28,709,186 Other Receivable 272,128 272,129 269,628 269,628 Interest Receivable 73,552 23,967 55,140 18,340 Staff Loans 67,665,727 78,816,984 67,665,727 78,816,984 Prepaid Staff Cost 16,567,429 20,678,958 16,567,429 20,678,958 VAT Receivable - 358,435 - - WHT Receivable 64,000 64,000 64,000 64,000 318,128,965 255,615,685 262,186,167 231,969,939
20. Financial Assets at Fair Value Through Profit or Loss (FVTPL) Group Company As at 31 December 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
JB Vantage Money Market Fund 242,403,033 330,906,722 61,562,189 27,465,383 Guardian Acuity Money Market Fund 113,767,617 56,127,913 - - First Capital Money Market Fund 241,900,210 314,033,835 127,428,851 162,542,941 Capital Alliance Investment Grade Fund 241,313,328 140,946,653 241,313,328 140,946,653 NDB Wealth Money Plus Fund 241,859,066 - 30,189,627 - 1,081,243,254 842,015,123 460,493,995 330,954,977
20.1 Financial Assets at Fair Value Through Profit or Loss (FVTPL) Group 2020 2019 No. of Units Rs. No. of Units Rs.
CSE JB Vantage Money Market Fund 2,243,831 61,562,189 1,115,608 27,465,383 First Capital Money Market Fund 67,178 127,428,851 95,960 162,542,941 Capital Alliance Investment Grade Fund 12,224,648 241,313,328 7,944,282 140,946,653 NDB Wealth Money Plus Fund 1,287,355 30,189,627 - - 15,823,012 460,493,995 9,155,850 330,954,977
CDS JB Vantage Money Market Fund 6,591,323 180,840,844 12,325,394 303,441,339 Guardian Acuity Money Market Fund 5,628,160 113,767,617 2,963,866 56,127,913 First Capital Money Market Fund 60,347 114,471,359 89,435 151,490,894 NDB Wealth Money Plus Fund 9,026,069 211,669,439 - - 21,305,899 620,749,259 15,378,695 511,060,146 Total 37,128,911 1,081,243,254 24,534,545 842,015,123 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 116
Notes to the Financial Statements
21. Cash & Cash Equivalents Group 2020 2019 No. of Units Rs. No. of Units Rs.
Overnight Repos 604,524,582 116,868,392 462,522,000 92,873,000 Cash at Bank 26,955,775 4,991,098 25,906,007 3,655,570 RTGS Account 17,600 17,600 - - Cash in Hand 325,050 325,050 250,050 250,050 Favourable balance 631,823,007 122,202,140 488,678,057 96,778,620 Bank Overdraft - (2,544,165) - (2,544,165) Cash & Cash Equivalents in the Statement of Cash Flows 631,823,007 119,657,975 488,678,057 94,234,455
22. Other Reserves Group 2020 2019 No. of Units Rs. No. of Units Rs.
Capital Reserve (Note 22.1) 99,975,000 99,975,000 - - Other Reserve (Note 22.2) 165,965 165,965 - - 100,140,965 100,140,965 - -
22.1 Capital Reserve This represents 4,997,500 Ordinary Shares issued by CDS on capitalisation of its Revenue Reserves in Year 2004 and the transfer of its Capital Redemption Reserve in Year 2009.
22.2 Other Reserve This represents the reserves generated from valuation of financial assets measured at Fair Value Through Other Comprehensive Income (FVTOCI). Refer Note 16.
23. Brokers’ Deposits In Lieu of Bank Guarantee Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Non Current Liability Deposits for Computer Facility 111,670 111,670 111,670 111,670 Entrance Deposits 640,000 640,000 640,000 640,000 Deposits for Telephones 188,300 188,300 188,300 188,300 939,970 939,970 939,970 939,970
Current Liability Broker Deposits (Note 23.1) 291,733,154 77,946,728 291,733,154 77,946,728 Dex Liquidity Deposits (Note 23.2) 295,000 1,295,000 - - 15% Margin Deposit (Note 23.3) 87,205,582 11,496,392 - - 379,233,736 90,738,120 291,733,154 77,946,728
23.1 This is the cash deposit maintained by broker firms as part of their Liquidity Requirement in terms of Section 03 of Member Regulations of the Colombo Stock Exchange. 117
23.2 This is the cash deposit maintained by broker firms as part of their Liquidity Requirement in terms of Section 18 of CDS Regulations of the Colombo Stock Exchange.
23.3 This is the cash deposit maintained by broker firms as part of their Liquidity Requirement in terms of Section 5 of CDS Regulations of the Colombo Stock Exchange.
24. Employee Benefits Group Company 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Balance as at 01 January 74,372,166 54,364,386 74,372,166 54,364,386 Charge for the year 9,488,099 6,741,263 8,488,838 6,125,849 Interest for the year 4,464,870 5,239,277 3,803,907 4,534,147 Actuarial (Gains)/Losses recognised in OCI 29,264,796 10,569,040 24,908,241 9,432,786 Provision transferred to Subsidiary - - 6,016,779 2,456,798 Payments made during the year (11,197,173) (2,541,800) (11,197,173) (2,541,800) Balance as at 31 December 106,392,758 74,372,166 106,392,758 74,372,166
As required by the Sri Lanka Accounting Standard LKAS 19 - “Employee Benefits”, the Company and its subsidiary have provided gratuity liability based on the Projected Unit Credit Method.
The principal assumptions used to arrive above gratuity liability are as follows; 2020 2019
Expected Annual Average Salary Increment 8.32% 6.00% Discounting Rate/Interest Rate 7.00% 10.00% Staff Turnover Factor 8.05% 9.60%
24.1 Sensitivity of Assumptions used in calculating Employee Benefits Liability. Assumptions regarding discount rate and salary increment rate have a significant effect on the amounts recognised in profit or loss and statement of financial position.
Following table demonstrates the sensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the employment benefit liability measurement.
Discount Rate Discount Rate Salary Salary Increases Increases +1% -1% +1% -1%
Effect on the Aggregate Service and Interest Cost (64,042) 132,139 752,879 (699,882) Effect on Defined Benefit Obligation (6,796,557) 7,389,446 7,226,060 (6,777,117) COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 118
Notes to the Financial Statements
25. Lease Liabilities on Right-to-use of Asset Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Balance as at 1 January 2020 175,010,411 257,219,887 175,010,411 257,219,887 Additions 9,923,525 - 9,923,525 - Accretion of interest 11,457,574 28,894,654 9,973,064 26,262,715 Provision transferred to Subsidiary 1,484,510 2,631,939 Payments (107,952,674) (111,104,130) (107,952,674) (111,104,130) Balance as at 31 December 2020 88,438,836 175,010,411 88,438,836 175,010,411
Lease Liabilities on Right-to-use of Asset - Current 81,572,095 91,570,876 81,572,095 91,570,876 Lease Liabilities on Right-to-use of Asset - Non Current 6,866,741 83,439,535 6,866,741 83,439,535
26. Other Payables Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Interest Payable to Brokers 2,334,443 1,699,019 2,316,956 1,695,583 Payments Received in Advance 3,272,835 2,174,828 3,249,810 2,147,580 Sundry Creditors & Accrued Expenses 185,178,944 83,878,287 181,273,097 80,122,416 190,786,222 87,752,134 186,839,863 83,965,579
27. Amounts due to Related Company Group Company As at 31 December, 2020 2019 2020 2019 Relationship Rs. Rs. Rs. Rs.
Central Depository Systems (Pvt) Limited Subsidiary - - 31,909,028 86,181,758 - - 31,909,028 86,181,758
28. Contingencies & Commitments 28.1 Litigation Against the CSE 1) Mr. I.B.Isaac (Plaintiff) claimed Rs.21,784,454.97 (Including consequential damages) from the CSE stating that the CSE has failed to properly execute duty, was negligent and failed to exercise due diligence (Prior to the announcement of 2006 bonus issue of Touchwood Investments PLC) to safeguard Plaintiff’s interest and thereby lead to cause direct loss and damage to the plaintiff.
On 17th October 2016, the District Court of Colombo pronounced the judgement in favour of the Plaintiff granting him the reliefs prayed under (a),(c) and (d) of the prayer to the plaint, namely, • An amount of Rs. 11,784,454.97 with interest in respect of the losses incurred by him due to the investments in shares of Touchwood; • The aggregate interest up until the settlement of the dues as prescribed above; and, • Legal fees. 119
The CSE, on 09 December 2016, filed a petition of Appeal in the High Court of Civil Appeal of the Western Province praying to set aside the judgement of the District Court dated 17 October 2016.
The appeal No.WP/HCCA/COL/115/16 is scheduled for Judgement on 9th June 2021.
Based on the legal advice, the directors do not expect outcome of the pending litigations to have material effect on the Statement of Financial Position.
28.2 Tax Assessments Against the CSE The Department of Inland Revenue has issued assessment notices for income tax amounting to Rs. 16.1 million for the Year of Assessment 2005/2006, Rs.17.6 million for the Year of Assessment 2006/2007, Rs. 0.3 million for the Year of Assessment 2007/2008 and Rs. 0.4 million for the Year of Assessment 2009/2010. In addition to the above the Department of Inland Revenue has issued taxes in default notice for income tax amounting to Rs. 2.84 million, Rs. 0.04 million, Rs. 0.027 million & Rs. 4.5 million for the Year of Assessment 1997/1998, 1999/2000, 2003/2004, 2008/2009 respectively. The CSE has appealed to quash the income tax assessments issued by the Department of Inland Revenue. Based on the consultant opinion, Board of Directors of the Company is of the view that, no liability would arise to the Company since the said assessments are outside the scope of chargeability of taxation.
28.3 Tax Assessments Against the CDS The Department of Inland Revenue has issued assessment notices for income tax amounting to Rs. 3.94 million for the Year of Assessment 2008/2009 and Rs.3.03 million for the Year of Assessment 2009/2010 respectively. The CDS has appealed to quash the income tax assessment issued by the Department of Inland Revenue. Based on the consultant opinion, Board of Directors of the Company is of the view that, no liability would arise to the Company since the said assessments are outside the scope of chargeability of taxation.
29. Capital Commitments The Group and the Company has following purchase commitments in the ordinary course of business as at 31 December; Group Company As at 31 December, 2020 2019 2020 2019 Rs. Rs. Rs. Rs.
Property and Equipment - approved & contracted 45,070,050 2,056,467 45,070,050 2,056,467 45,070,050 2,056,467 45,070,050 2,056,467
30. Financial Instruments 30.1 Financial Risk Management Overview The Group has exposure to the following risks from financial instruments: a) Credit Risk b) Liquidity Risk c) Market Risk d) Operational Risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 120
Notes to the Financial Statements
30.1 Financial Risk Management contd. Risk Management Framework The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. In discharging its governance responsibility it operates through Risk & Audit Committee. The primary function of the Committee is to ensure the establishment of appropriate risk management framework within the Group. The Risk & Audit Committee is assisted in these functions by Internal Audit and the results are reported to the Risk & Audit Committee. The Risk & Audit Committee provides its assessment on the effectiveness of internal audit and external disclosure of accounting policies and financial reporting to the Board. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group has developed an Enterprise Risk Management framework & policy and currently in the process of reviewing the framework.
(a) Credit Risk Credit risk is the risk of financial loss to the Group if counterparty to a financial instrument fails to meet its contractual obligations. The Group is exposed to credit risk primarily from investment in unit trust, investment in fixed deposit,debentures, staff loans receivable, trade and other receivables which are financial assets and cash and bank balances with financial institutions. Fact sheets of the unit trusts are observed and reported to investment committee. Fixed deposit investments and debenure investments are in financial institutions which are having good credit ratings. Receivables are monitored to ensure that exposure to bad debts are minimised. Staff loans are given to permanent confirmed employees and are deducted from the salaries as per the terms of granting loans.
(b) Liquidity Risk Liquidity risk is the risk that the Group will not be able to honor its financial obligations as they fall due.
Finance division monitors the cash flow forecasts of the group to ensure sufficient cash availability to meet operational needs. The Group is able to meet all working capital requirements with its short term investments in Overnight Repo and money market unit trusts. Brokers’ Deposits in lieu of Bank Guarantee is the cash deposit maintained by broker firms as part of their Liquidity Requirement and have been invested in Overnight Repo investments in order to meet liquidity as and when required.
Surplus cash held over and above balance required for working capital management is invested in Overnight Repos and money market unit trusts.
The following are the remaining contractual maturities at the end of the reporting period of financial assets and liabilities, including estimated interest payments.
Group Carrying Total 03 Months or 03-12 Over Amount Less Months 01 Year Non -Derivative Financial Assets Rs. Rs. Rs. Rs. Rs.
31 December 2020 Financial Assets Cash in hand 325,050 325,050 325,050 - - Balances with Banks & Financial 631,497,957 631,497,957 631,497,957 - - Institutions Financial Assets at FVTPL 1,081,243,254 1,081,243,254 1,081,243,254 - - Financial Investments at Amortised Cost 760,601,906 760,601,906 - 377,380,132 383,221,774 Investments in LFSB 1,165,965 1,165,965 - - 1,165,965 Other Investments 625,199,365 625,199,365 - 424,865,714 200,333,651 Trade and Other Receivables 318,128,965 318,128,965 318,128,965 - - 3,418,162,462 3,418,162,462 2,031,195,226 802,245,846 584,721,390
Financial Liabilities Brokers’ Deposits in lieu of Bank 380,173,706 380,173,706 87,205,582 223,000,000 69,968,124 Guarantee Trade Payables 190,786,222 190,786,222 190,786,222 - - Lease Liabilities on Right-to-use of Asset 88,438,836 88,438,836 23,059,137 58,512,958 6,866,741 Bank Overdraft - - - - - 659,398,764 659,398,764 301,050,941 281,512,958 76,834,865 121
Group Carrying Total 03 Months or 03-12 Over Amount Less Months 01 Year Non -Derivative Financial Assets Rs. Rs. Rs. Rs. Rs.
31 December 2019 Financial Assets Cash in hand 325,050 325,050 325,050 - - Balances with Banks & Financial 121,877,089 121,877,089 121,877,089 - - Institutions Financial Assets at FVTPL 842,015,123 842,015,123 842,015,123 - - Financial Investments at Amortised Cost 755,804,513 755,804,513 - - 755,804,513 Investments in LFSB 1,165,965 1,165,965 - - 1,165,965 Other Investments 769,406,563 769,406,563 - 569,206,642 200,199,921 Trade and Other Receivables 255,615,685 255,615,685 255,615,685 - - 2,746,209,988 2,746,209,988 1,219,832,947 569,206,642 957,170,399
Financial Liabilities Brokers’ Deposits in lieu of Bank 91,678,090 91,678,090 11,496,392 79,241,728 939,970 Guarantee Trade Payables 87,752,134 87,752,134 87,752,134 - - Other Investments 175,010,411 175,010,411 20,734,067 70,836,809 83,439,535 Bank Overdraft 2,544,165 2,544,165 2,544,165 - - 356,984,800 356,984,800 122,526,758 150,078,537 84,379,505
Non -Derivative Financial Assets Carrying Total 03 Months or 03-12 Over Amount Less Months 01 Year Company Rs. Rs. Rs. Rs. Rs.
31 December 2020 Financial Assets Cash in Hand 250,050 250,050 250,050 - - Balances with Banks & Financial 488,428,007 488,428,007 488,428,007 - - Institutions Financial Assets at FVTPL 460,493,995 460,493,995 460,493,995 - - Financial Investments at Amortised Cost 760,601,906 760,601,906 - 377,380,132 383,221,774 Other Investments 625,199,365 625,199,365 - 424,865,714 200,333,651 Trade and Other Receivables 262,186,167 262,186,167 262,186,167 - - 2,597,159,490 2,597,159,490 1,211,358,219 802,245,846 583,555,425
Financial Liabilities Brokers’ Deposits in lieu of Bank 292,673,124 292,673,124 - 223,000,000 69,673,124 Guarantee Trade Payable 186,839,863 186,839,863 186,839,863 - - Lease Liabilities on Right-to-use of Asset 88,438,836 88,438,836 23,059,137 58,512,958 6,866,741 Bank Overdraft - - - - - 567,951,823 567,951,823 209,899,000 281,512,958 76,539,865 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 122
Notes to the Financial Statements
30.1 Financial Risk Management contd. Carrying Total 03 Months or 03-12 Over Amount Less Months 01 Year Company Rs. Rs. Rs. Rs. Rs.
31 December 2019 Financial Assets Cash in Hand 250,050 250,050 250,050 - - Balances with Banks & Financial Institutions 96,528,570 96,528,570 96,528,570 - - Financial Assets at FVTPL 330,954,977 330,954,977 330,954,977 - - Investments in Corporate Debentures 755,804,513 755,804,513 - - 755,804,513 Other Investments 769,406,563 769,406,563 - 769,406,563 - Trade and Other Receivables 231,969,939 231,969,939 231,969,939 - - 2,184,914,612 2,184,914,612 659,703,536 769,406,563 755,804,513
Financial Liabilities Brokers’ Deposits in lieu of Bank 78,886,698 78,886,698 - 77,946,728 939,970 Guarantee Trade Payable 83,965,579 83,965,579 83,965,579 - - Lease Liabilities on Right-to-use of Asset 175,010,411 175,010,411 20,734,067 70,836,809 83,439,535 Bank Overdraft 2,544,165 2,544,165 2,544,165 - - 340,406,853 340,406,853 107,243,811 148,783,537 84,379,505
(c) Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates that will affect the Group’s income. The objective of the market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The CSE has placed a special emphasis on the effect of market risk on fixed income securities and investments. Further, a board approved investment policy and an investment procedure manual are in place at the group to mitigate the market risk. The Group has set up a risk management division.
Currency Risk The Group is exposed to currency risk on purchasing of assets and obtaining of services that are denominated in a currency other than the respective functional currency of the Group. The currency in which transactions primarily take place are denominated in U.S. Dollars. The currency risk is limited by the short term nature of the period between the dates of the purchase and the settlement of the related liability.
However, the Group is not exposed to a significant currency risk due to the reason that there are no foreign currency exposures as at the reporting date.
Interest Rate Risk Interest rate risk arises due to fluctuations in the interest rates resulting in adverse impact to future cash flows or the fair values of financial instruments of the Group.
The Group’s approach in managing interest rate risk is to continuously monitor positions on a daily basis to a level that are viable and prudent. When analysing impacts of interest rate movements on profitability, Management resorted to the techniques of sensitivity analysis carried out on Group financial assets and liabilities, taking into account various interest rate scenarios.
Given below is a sensitivity analysis carried out as at 31 December 2020 that demonstrates possible impact to Group profitability due to a given change in interest rates, keeping all other variables constant.
Market Rates up by 1% Effect Market Rates drop by 1% Effect to the Interest Income to the Interest Income
Effect on Profit or Loss 1,762,631 (1,762,631) 123
(d) Operational Risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s involvement with financial instruments, including processes, personnel, technology, infrastructure and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. The Group is in the process of developing the procedure manuals in order to strengthen the systems, processes and internal controls.
30.2 Accounting Classification and Fair Values Classification of Financial Assets Group Financial Financial Financial Financial Total Carrying Fair Value Assets at Assets at Assets at Liabilities Amount Amortised FVTPL FVOCI measured at Cost Amortised Cost As at 31 December 2020 Note Rs. Rs. Rs. Rs. Rs.
Assets Cash in Hand 20 325,050 - - - 325,050 325,050 Balances with Banks & 20 631,491,957 - - - 631,497,957 631,497,957 Financial Institutions Financial Assets at FVTPL 19 - 1,081,243,254 - - 1,081,243,254 1,081,243,254 Financial Investments at 13 760,601,906 - - - 760,601,906 760,601,906 Amortised Cost Other Investments 14 625,199,365 - - - 625,199,365 625,199,365 Investments in LFSB 15 - - 1,165,965 - 1,165,965 1,165,965 Trade and Other 18 318,128,965 318,128,965 318,128,965 Receivables Total Financial Assets 2,335,753,243 1,081,243,254 1,165,965 - 3,418,162,462 3,418,162,462
Liabilities Due to Customers - - - - 60,633,947 60,633,947 60,633,947 Due to Brokers 22 - - - 382,508,149 382,508,149 382,508,149 Lease Liabilities on Right- 24 - - - 88,438,836 88,438,836 88,438,836 to-use of Asset Other Financial Liabilities - - - - 127,817,832 127,817,832 127,817,832 Total Financial Liabilities - - - - 659,398,764 659,398,764 659,398,764 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 124
Notes to the Financial Statements
30.2 Accounting Classification and Fair Values contd. Classification of Financial Assets Group Financial Financial Financial Financial Total Carrying Fair Value Assets at Assets at Assets at Liabilities Amount Amortised FVTPL FVOCI measured at Cost Amortised Cost As at 31 December 2019 Note Rs. Rs. Rs. Rs. Rs.
Assets ` Cash in Hand 20 325,050 - - - 325,050 325,050 Balances with Banks & 20 121,877,089 - - - 121,877,089 121,877,089 Financial Institutions Financial Assets at FVTPL 18 - 842,015,123 - - 842,015,123 842,015,123 Financial Investments at 13 755,804,513 - - - 755,804,513 755,804,513 Amortised Cost Other Investments 19 769,406,563 - - - 769,406,563 769,406,563 Investments in LFSB 14 - - 1,165,965 - 1,165,965 1,165,965 Trade and Other Receivables 17 255,615,685 - - - 255,615,685 255,615,685 Total Financial Assets 1,903,028,900 842,015,123 1,165,965 - 2,746,209,988 2,746,209,988
Liabilities Due to Customers - - - - 564,605 564,605 564,605 Due to Brokers 22 - - - 93,377,108 93,377,108 93,377,108 Due to Banks 20 - - - 2,544,165 2,544,165 2,544,165 Lease Liabilities on 24 - - - 175,010,411 175,010,411 175,010,411 Right-to-use of Asset Other Financial Liabilities - - - - 85,488,510 85,488,510 85,488,510 Total Financial Liabilities - - - - 356,984,799 356,984,799 356,984,799 125
Classification of Financial Assets Company Financial Financial Financial Financial Total Carrying Fair Value Assets at Assets at Assets at Liabilities Amount Amortised FVTPL FVOCI measured at Cost Amortised Cost As at 31 December 2020 Note Rs. Rs. Rs. Rs. Rs.
Assets Cash in Hand 20 250,050 - - - 250,050 250,050 Balances with Banks & 20 488,445,007 - - - 488,428,007 488,428,007 Financial Institutions Financial Assets at FVTPL 19 - 460,493,995 - - 460,493,995 460,493,995 Financial Investments 13 760,601,906 - - - 760,601,906 760,601,906 Other Investments 14 424,865,714 - - - 424,865,714 424,865,714 Trade and Other 18 262,186,167 - - - 262,186,167 262,186,167 Receivables Total Financial Assets 1,936,331,844 460,493,995 - - 2,396,843,839 2,396,825,839
Liabilities Due to Customers - - - - 60,509,982 60,509,982 60,509,982 Due to Brokers 22 - - - 294,990,080 294,990,080 294,990,080 Due to Related Parties 26 - - - 31,909,028 31,909,028 31,909,028 Lease Liabilities on Right- 24 - - - 88,438,836 88,438,836 88,438,836 to-use of Asset Other Financial Liabilities - - - - 124,012,925 124,012,925 124,012,925 Total Financial Liabilities - - - - 599,860,851 599,860,851 599,860,851 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 126
Notes to the Financial Statements
30.2 Accounting Classification and Fair Values contd. Company Financial Financial Financial Financial Total Carrying Fair Value Assets at Assets at Assets at Liabilities Amount Amortised FVTPL FVOCI measured at Cost Amortised Cost As at 31 December 2019 Note Rs. Rs. Rs. Rs. Rs. Rs.
Assets Cash in Hand 20 250,050 - - - 250,050 250,050 Balances with Banks & 20 96,528,570 - - - 96,528,570 96,528,570 Financial Institutions Financial Assets at FVTPL 18 - 330,954,977 - - 330,954,977 330,954,977 Financial Investments 13 755,804,513 - - - 755,804,513 755,804,513 Other Investments 19 769,406,563 - - - 769,406,563 769,406,563 Trade and Other 17 231,969,939 - - - 231,969,939 231,969,939 Receivables Total Financial Assets 1,853,959,635 330,954,977 - - 2,184,914,612 2,184,914,612
Liabilities Due to Customers - - - 564,605 564,605 564,605 Due to Brokers 22 - - - 80,582,281 80,582,281 80,582,281 Due to Banks 20 - - - 2,544,165 2,544,165 2,544,165 Due to Related Parties 26 - - - 86,181,758 86,181,758 86,181,758 Lease Liabilities on Right- 24 - - - 175,010,411 175,010,411 175,010,411 to-use of Asset Other Financial Liabilities - - - 81,705,390 81,705,390 81,705,390 Total Financial Liabilities - - - 426,588,610 426,588,610 426,588,610
30.3 Fair Values of Financial Instruments 30.3.1 Valuation Models The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements.
• Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. • Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. • Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs that have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments. 127
30.3.2 Financial instruments Measured at Fair Value - Fair Value Hierarchy The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial position.
Group Level 1 Level 2 Level 3 Total Rs. Rs. Rs. Rs.
31 December 2020 Financial Assets at FVTPL - 1,081,243,254 - 1,081,243,254 Investments in LFSB - - 1,165,965 1,165,965 Total Financial Assets - 1,081,243,254 1,165,965 1,082,409,219 Liabilities - - - -
31 December 2019 Financial Assets at FVTPL - 842,015,123 - 842,015,123 Investments in LFSB - - 1,165,965 1,165,965 Total Financial Assets - 842,015,123 1,165,965 843,181,088 Liabilities - - - -
Company Level 1 Level 2 Level 3 Total Rs. Rs. Rs. Rs.
31 December 2020 Financial Assets at FVTPL - 460,493,995 - 460,493,995 Total Financial Assets - 460,493,995 - 460,493,995 Liabilities - - - -
31 December 2019 Financial Assets at FVTPL - 330,954,977 - 330,954,977 Total Financial Assets - 330,954,977 - 330,954,977 Liabilities - - - - Level 2 fair Value Measurements
30.3.3.1 Reconciliation The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 2 of the fair value hierarchy. Financial Assets at FVTPL Group Company Rs. Rs.
Balance at 01 January 2020 842,015,124 330,954,977 Total gains or losses: - in profit or loss 108,250,556 49,539,018 Purchases 658,000,000 230,000,000 Redemption (527,022,425) (150,000,000) Balance at 31 December 2020 1,081,243,255 460,493,995 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 128
Notes to the Financial Statements
30.3.3.1 Reconciliation contd. Financial Assets at FVTPL Group Company Rs. Rs.
Balance at 01 January 2019 154,406,791 - Total gains or losses: - in profit or loss 47,862,730 16,209,374 Purchases 687,000,000 337,000,000 Redemption (47,254,397) (22,254,397) Balance at 31 December 2019 842,015,124 330,954,977
30.3.3.2 Unobservable Inputs Used in Measuring Fair Value The fair value of Unit Trust investments are determined by the relevant Unit Trust Fund Management Company. The Unit Trust Fund Management Company provides the fair value of the Group’s investment portfolio monthly.
Financial Instruments Not Measured at Fair Value This table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised. Group Level 01 Level 02 Level 03 Total Fair Total Carrying Values Amount Rs. Rs. Rs. Rs. Rs.
31 December 2020 Assets Cash & Cash Equivalents - - 325,050 325,050 325,050 Balances with Banks & Financial Institutions - - 631,497,957 631,497,957 631,497,957 Financial Investments at Amortised Cost - - 760,601,906 760,601,906 760,601,906 Other Investments - - 625,199,365 625,199,365 625,199,365 Trade and Other Receivables - - 318,128,965 318,128,965 318,128,965 Total Financial Assets - - 2,335,753,243 2,335,753,243 2,335,753,243
31 December 2020 Liabilities Due to Customers - - 60,633,947 60,633,947 60,633,947 Due to Brokers - - 382,508,149 382,508,149 382,508,149 Lease Liabilities on Right-to-use of Asset - - 88,438,836 88,438,836 88,438,836 Other Financial Liabilities - - 127,817,832 127,817,832 127,817,832 Total Financial Liabilities - - 659,398,764 659,398,764 659,398,764
31 December 2019 Assets Cash & Cash Equivalents - - 325,050 325,050 325,050 Balances with Banks & Financial Institutions - - 121,877,089 121,877,089 121,877,089 Financial Investments at Amortised Cost - - 755,804,513 755,804,513 755,804,513 Other Investments - - 769,406,563 769,406,563 769,406,563 Trade and Other Receivables - - 255,615,685 255,615,685 255,615,685 Total Financial Assets - - 1,903,028,900 1,903,028,900 1,903,028,900
31 December 2019 Liabilities Due to Customers - - 564,605 564,605 564,605 Due to Brokers - - 93,377,108 93,377,108 93,377,108 Due to Banks - - 2,544,165 2,544,165 2,544,165 Lease Liabilities on Right-to-use of Asset - - 175,010,411 175,010,411 175,010,411 Other Financial Liabilities - - 85,488,510 85,488,510 85,488,510 Total Financial Liabilities - - 356,984,799 356,984,799 356,984,799 129
30.3.3.3 Financial Instruments Not Measured at Fair Value This table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised.
Company Level 01 Level 02 Level 03 Total Fair Total Carrying Values Amount Rs. Rs. Rs. Rs. Rs.
31 December 2020 Assets Cash & Cash Equivalents - - 250,050 250,050 250,050 Balances with Banks & Financial Institutions - - 488,428,007 488,428,007 488,428,007 Financial Investments at Amortised Cost - - 760,601,906 760,601,906 760,601,906 Other Investments - - 625,199,365 625,199,365 625,199,365 Trade and Other Receivables - - 262,186,167 262,186,167 262,186,167 Total Financial Assets - - 2,136,665,495 2,136,665,495 2,136,665,495
Liabilities Due to Customers - - 60,509,982 60,509,982 60,509,982 Due to Brokers - - 294,990,080 294,990,080 294,990,080 Due to Related Parties - - 31,909,028 31,909,028 31,909,028 Lease Liabilities on Right-to-use of Asset - - 88,438,836 88,438,836 88,438,836 Other Financial Liabilities - - 124,012,925 124,012,925 124,012,925 Total Financial Liabilities - - 599,860,851 599,860,851 599,860,851
31 December 2019 Assets Cash & Cash Equivalents - - 250,050 250,050 250,050 Balances with Banks & Financial Institutions - - 96,528,570 96,528,570 96,528,570 Financial Investments at Amortised Cost - - 755,804,513 755,804,513 755,804,513 Other Investments - - 769,406,563 769,406,563 769,406,563 Trade and Other Receivables - - 231,969,939 231,969,939 231,969,939 Total Financial Assets - - 1,853,959,635 1,853,959,635 1,853,959,635
Liabilities Due to Customers - - 564,605 564,605 564,605 Due to Brokers - - 80,582,281 80,582,281 80,582,281 Due to Banks - - 2,544,165 2,544,165 2,544,165 Due to Related Parties - - 86,181,758 86,181,758 86,181,758 Lease Liabilities on Right-to-use of Asset - - 175,010,411 175,010,411 175,010,411 Other Financial Liabilities - - 81,705,390 81,705,390 81,705,390 Total Financial Liabilities - - 426,588,610 426,588,610 426,588,610
Assets for which Fair Value approximates Carrying Value For Financial assets and Financial liabilities that have a short term maturity (original maturity less than a year), it is assumed that the carrying amount approximate their values. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 130
Notes to the Financial Statements
31. Related Party Disclosures 31.1 Transactions with Key Management Personnel According to Sri Lanka Accounting Standard (LKAS 24) “Related Party Disclosures”, Key Management Personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the Board of Directors (including Executive and Non-Executive Directors) and Senior Management who can influence the planning & decision making process have been classified as Key Management Personnel of the Company.
Close Family Members (CFM) of the KMPs are those family members who may be expected to influence or be influenced by that KMPs in their dealing with the entity. They may include KMPs domestic partner and children of the KMPs domestic partner and dependents of the KMPs domestic partner.
There were no transactions made with CFMs during the year ended 31 December 2020. CSE paid Rs.3,756,000/- during the year as Directors’ Expenses. (Rs. 6,630,000 /- in 2019) The Company has incurred following costs for the CEO, CRO, CIO, Senior Managers and Managers during the year.
Company 2020 2019 Amount Rs. Amount Rs.
Short Term Employee Benefits 109,952,581 110,357,430 Long Term Employee Benefits 12,399,570 12,060,237
31.2 Transactions with Group Companies and Director Related Entities 2020 2019 Company Relationship Nature of Transaction Amount Rs. Amount Rs. a) Mr. Ray Abeywardena Acuity Stockbrokers Chairman CSE Member fee, data communication charges & 1,089,454 1,284,515 (Pvt) Ltd other charges Member fee, data communication & 130,868 181,253 other charges receivable Interest payment for Member Firms’ 385,054 289,705 liquidity deposit Member Firms’ liquidity deposit & entrance deposit as 20,500,000 3,540,000 at year end Interest payable for Member Firms’ liquidity deposit as 146,852 64,135 at year end Order Management systems & Broker Back office 1,000,000 1,000,000 Systems - Subsidy Order Management systems & Broker Back office 250,000 166,670 Systems - Subsidy Payable CDS Sale of CDS forms & Other CDS Charges 11,972 19,818 Amount receivable on sale of CDS forms - 6,129 as at year end Interest paid for Member Firms’ margin deposit 6,523 - Lanka Ventures PLC Director CSE Annual listing fee and ISIN Fee 110,160 119,647 ISIN Fee receivable as at year end 1,080 540 CDS Listed company fees 27,705 25,510 Receipts for computer information & 10,800 8,214 other CDS Charges Amount receivable for computer information provided as 7,560 3,520 at year end Listed company fees receivable as at year end 2,705 - 131
2020 2019 Company Relationship Nature of Transaction Amount Rs. Amount Rs. Softlogic Life Director CSE Annual listing fees 455,625 591,429 Insurance PLC Web Banner, CSE Mastermind and ISIN Fee 384,160 804,800 Web Banner, CSE Mastermind and ISIN Fee receivable 1,667 136,127 as at year end CDS Listed Company fee 139,875 122,445 Computer information & other CDS Charges 9,720 25,171 Listed Company fee receivable as at year end 114,875 42,210 Amount receivable for computer information provided as 5,400 1,173 at year end Guardian Acuity Asset Director CSE Investment in Unit Trust made during the year - 22,000,000 Management Ltd Redemption of Unit Trust made during the year - 22,254,397 CDS Investment in Unit Trust made during the year 148,000,000 - Redemption of Unit Trust made during the year 35,000,000 25,000,000 Investment in Unit Trust as at year end 113,767,617 56,127,914 LVL Energy Fund Director CSE Annual listing fee and ISIN Fee 143,654 174,488 Limited ISIN Fee receivable as at year end 540 540 CDS Listed Company fee 126,675 32,700 Computer information & other CDS Charges 11,934 4,694 Listed Company fee receivable as at year end 101,675 7,190 Amount receivable for computer information provided as 5,454 - at year end b) Mr. D. Wirasekara First Capital Holding Director/ CSE Annual Listing Fee 132,532 352,041 PLC CEO Sponsorship, Registration for CSE Quiz ,ISIN and 166,160 386,887 Advertising on CSE web site fee Amount Receivable for Sponsorship, Registration for 540 250,540 CSE Quiz ISIN Fee CDS Charges for computer information 65,394 13,895 CDS Service Charges 431,625 246,939 Amount Receivable for computer 5,400 4,507 information charges Amount Receivable for service charges 276,900 214,230 First Capital Asset Director/ CSE Investment in Unit Trust - 150,000,000 Management Limited CEO Investment as at year end 127,428,851 162,542,941 Redemption of Unit Trust 50,000,000 - CDS Investment in Unit Trust 70,000,000 150,000,000 Redemption of Unit Trust 127,000,000 - Investment as at year end 114,471,359 151,490,894 First Capital Equities Director CSE Member fees, Data Link cost - IDC and 933,171 862,110 (Pvt) Limited WAN charges Interest paid for Member Firms’ liquidity deposit 139,417 138,223 Member Firms’ liquidity deposit & entrance deposit as 6,250,000 1,750,000 at year end Interest payable for Member Firms’ liquidity deposit as 40,978 32,067 at year end Order Management systems & 1,000,000 1,000,000 Broker Back office Systems - Subsidy Order Management systems & 333,336 166,670 Broker Back office Systems - Subsidy payable Amount receivable for Member fees, 73,522 64,292 Data Link cost - IDC and WAN charges CDS Sale of CDS Forms 12,830 10,661 Interest for Member Firms liquidity deposit 10,971 - COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 132
Notes to the Financial Statements
31.2 Transactions with Group Companies and Director Related Entities contd. 2020 2019 Company Relationship Nature of Transaction Amount Rs. Amount Rs. First Capital Treasuries Director/ CSE Annual Listing Fee for the period 229,500 336,994 PLC CEO Amount receivable for ISIN fee 540 540 CDS Charges for computer information 76,680 12,534 CDS Service Charges for the period 25,000 25,510 Amount Receivable for computer 2,160 5,493 information charges c) Mr. D. Fernando Singer (Sri Lanka) PLC Director CSE Annual Listing Fee for the period 643,180 631,404 Renewal Of Ticker Service and ISIN Fee 74,820 151,774 Amount Receivable for Ticker Service and 1,080 1,080 ISIN Fee Purchasing furniture 9,944 - Amount payable for Purchasing furniture 9,944 CDS Charges for computer information, Direct Deposit 10,822 22,343 Shares, New Listing Fee and Charges for mandatory and voluntary offers CDS Service Charges 171,585 44,730 Amount Receivable for computer 9,789 2,347 information charges Amount Receivable for service charges 146,585 19,220 Asia Securities (Pvt) Ltd Chairman CSE Member fees, Data Communication charges, 944,818 1,362,694 photocopy charges Data Link charges and WAN charges Amount Receivable for Member fees, Data 103,762 108,020 Communication charges, photocopy charges Data Link charges and WAN charges Interest paid for Member Firms’ liquidity deposit 678,393 332,020 Member Firms’ liquidity deposit & 39,000,000 6,540,000 entrance deposit as at year end Interest payable for Member Firms’ liquidity deposit as 295,977 79,180 at year end Order Management systems & 1,000,000 1,000,000 Broker Back office Systems - Subsidy Order Management systems & Broker Back office 333,336 166,670 Systems - Subsidy payable Sponsorship - Invest Sri Lanka - 1,000,000 Access to Media Room - 60,000 CDS Sale of CDS Forms 1,746 7,158 Amount Receivable for Sale of CDS Forms 909 909 Payment of interest for Member Firm’s 174,103 181,699 Margin Requirement 15% Margin deposit as at year end 11,994,607 - 133
2020 2019 Company Relationship Nature of Transaction Amount Rs. Amount Rs. Union Assurance PLC Director CSE Annual listing fee 630,064 720,483 Registration for CSE Media Room, CSE Quiz, ISIN and 103,160 133,300 My CSE Payment for Electricity and Rent 2,090,859 2,320,041 Amount Receivable for CSE Media Room, 1,080 1,127 My CSE and ISIN Fee Amount payable for Electricity and Rent - 36,247 CDS Charges for Computer information charges and Daily 18,360 21,029 weekly Charges CDS Service Charges 25,000 30,660 Amount Receivable for computer 5,400 8,121 information charges Amount Receivable for service charges - 30,660 d) Mr. Dimuthu Abeyesekera Asha Securities Director CSE Photocopy Charges, Broker Fees,SLT Relocation 1,683,882 1,858,603 Limited charges, My CSE, Mastermind Reg fee and WAN Charges Payment of interest for Member Firms’ 592,591 251,822 liquidity deposit Payment for broker Order Management Systems and 1,000,000 1,000,000 Broker Back office Amount receivable for Photocopy Charges, Broker 111,388 340,372 Fees,SLT Relocation charges, My CSE, Mastermind Reg fee and WAN Charges Interest payable for Member Firms’ 239,704 59,254 liquidity deposit Member Firms’ liquidity deposit & entrance deposit as 30,500,000 5,040,000 at year end Order Management systems & Broker Back office 416,669 250,000 Systems - Subsidy payable CDS CDS Forms 27,551 33,750 Payment of interest for Member Firms’ 36,921 8,624 Margin Requirement Amount Receivable for Sale of CDS Forms 3,294 16,208 e) Mr. Murtaza Jafferjee (Untill 16th July 2020 (CSE) & 4th August 2020 (CDS)) Nations Trust Bank Director CSE Annual listing fees and ISIN Fee - 1,116,229 Quotation Fee, My CSE and Masterminds Registration - 450,162 Fee Amount Receivable for ISIN Fee - 3,780 CDS Custodian Printouts, Direct deposit charges, Charges - 1,074,411 new listings, Transaction fees for Custodian Bank, CDS Daily Transactions & Entitlements Reports Charges, Participants Fees, CDS Computer information Amount receivable for Custodian Printouts, Direct - 438,302 deposit charges, Charges new listings, Transaction fees for Custodian Bank, CDS Daily Transactions & Entitlements Reports Charges, Participants Fees, CDS Computer information CDS Service Charges - 33,405 Amount Receivable for service charges - 7,895 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 134
Notes to the Financial Statements
31.2 Transactions with Group Companies and Director Related Entities contd. 2020 2019 Company Relationship Nature of Transaction Amount Rs. Amount Rs. Serendib Hotels PLC Director CSE Annual listing fees and ISIN Fee 118,422 238,903 Amount Receivable for ISIN Fee 1,080 2,253 CDS Computer information charges 16,200 46,845 CDS Service Charges 25,000 25,510 Amount Receivable for Computer information charges 2,160 18,682 Amount Receivable for CDS Service Charges 25,000 - JB Securities (Pvt) Director CSE Member fees and Mastermind Registration 211,680 388,811 Limited Order Management systems & Broker Back office 583,331 1,000,000 Systems Interest paid for Member Firms’ liquidity deposit 71,161 - Interest payable for Member Firms’ liquidity deposit as 6,952 - at 31st July 2020 Member Firms’ liquidity deposit & entrance deposit as 1,750,000 - at 31st July 2020 Order Management systems & Broker Back office 83,333 - Systems - Subsidy payable CDS Forms 3,294 - CDS Interest paid for Member Firms’ liquidity deposit 46,906 6,994 J B Financial (Pvt) Ltd Director CSE ISIN Fee 8,640 16,837 Amount Receivable for ISIN Fee 4,320 - Investment in Unit Trust - 25,000,000 Investmentas at 31st July 2020 29,449,380 27,465,383 CDS Investment in Unit Trust - 200,000,000 Investment as at 31st July 2020 325,360,820 303,441,339 f) Mr. Arjuna Herath (From 21st February 2020 (CSE) From 25th June 2020 (CDS)) Ernst & Young Partner CSE ISO 27001 Management Systems Internal Audit 582,460 - g) Central Depository Fully owned Fund Transfer In (261,282,767) (335,591,407) Systems (Pvt) Ltd Subsidiary Fund Transfer Out 146,485,682 102,149,687 Expenses transferred 120,600,675 119,073,275 Cheque received on behalf of CDS (1,891,535) (1,246,966) Cheque received on behalf of CSE 1,440,677 466,494 Interest Expense (81,119) (170,333) CDS Rental Income & Management Fee 49,001,118 48,906,806
32. Events Occurring after the Reporting Period There were no material events after the Reporting Period, which require adjustments to or disclosure in the Financial Statements.
33. Directors’ Responsibility Statement The Board of Directors of the Company and its subsidiary is responsible for the preparation and fair presentation of these Financial Statements in accordance with LKASs and SLFRSs.
34. Comparative Figures To facilitate comparison, relevant balances pertaining to the previous year have been reclassified to confirm to current year classification and presentation where necessary. 135
10 Year Summary
Rs. ‘000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Income Statement Revenue 1,175,767 490,944 456,190 732,878 641,617 481,837 557,827 535,554 492,237 964,510 Other Income 22,525 35,847 28,047 37,808 52,888 46,369 56,065 83,327 75,871 76,931 Staff Cost 186,753 205,431 219,060 272,069 293,414 291,687 291,131 327,420 332,961 389,424 Depreciation & Amortisation 37,734 75,319 116,386 127,220 98,434 99,688 85,295 72,475 163,535 158,010 Other Operating Expenses 423,054 344,448 408,406 483,915 467,295 471,231 493,095 498,178 358,913 313,472 Impairment Charges and other (204) 566 203 2,565 1,336 1,380 984 5,219 3,814 1,903 credit Losses on Financial Assets Net Finance Income 183,000 247,257 277,984 175,107 158,258 220,988 269,250 275,228 252,045 279,378 Profit/(Loss) before Taxation 733,955 148,283 18,167 60,025 (7,715) (114,792) 12,637 (9,183) (39,071) 458,010 Income Tax Expense 165,041 17,752 22,073 18,848 2,154 4,732 23,705 - 3,893 40,772 Profit/(Loss) for the year 568,914 130,531 (3,906) 41,177 (9,869) (119,524) (11,068) (9,183) (42,964) 417,239 Other Comprehensive Income/ - - 5,693 (11,042) 2,213 24,708 (7,450) 14,542 (10,569) (24,908) (Expense) Total Comprehensive Income/ 568,914 130,531 1,787 30,136 (7,657) (94,816) (18,518) 5,359 (53,533) 392,331 (Expense) for the Year
Statement of Financial Position Assets Property & Equipment 75,406 211,474 297,210 241,280 210,038 154,852 134,242 128,892 275,151 327,486 Intangible Assets 15,008 161,110 149,408 248,818 218,754 207,264 186,493 174,701 144,070 133,971 Capital Work in Progress 118,821 60,701 111,705 38,894 56,418 73,570 78,096 78,096 81,034 125,136 Financial Investments at 97,750 - - - 185,824 779,979 779,969 779,623 755,805 760,602 Amortized Cost Investments in LFSB 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,166 1,166 1,166 Settlement Guarantee Fund 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 Deferred Tax Assets 3,104 3,104 ------Inventories 4,770 4,426 4,059 3,860 4,017 4,777 2,123 2,325 2,847 2,325 Trade and Other Receivables 126,691 197,068 204,163 250,804 273,932 245,830 262,426 271,049 255,616 318,129 Tax Assets 5,274 12,228 8,887 18,963 24,171 23,699 10,386 23,788 37,908 35,075 Financial Assets at FVTPL 2,648,143 1,653,183 2,283,472 2,386,225 2,152,111 793,240 539,982 154,407 842,015 1,081,243 Other Investments - 750,000 - - - 152,980 1,031,247 1,376,477 769,407 625,199 Cash and Cash Equivalents 75,895 143,550 120,937 146,354 158,280 758,147 139,777 211,691 122,202 631,823 Total Assets 3,271,863 3,297,844 3,280,840 3,436,198 3,384,544 3,295,339 3,265,740 3,302,214 3,387,219 4,142,155
Equity Accumulated Fund 2,884,447 2,945,020 2,955,576 3,000,742 2,973,916 2,841,750 2,904,291 2,909,254 2,855,722 3,248,052 Capital Reserve 78,752 148,710 139,942 124,912 144,081 181,431 100,372 100,141 100,141 100,141
Liabilities Brokers’ Deposits in lieu of 128,677 96,230 95,770 105,982 115,020 124,799 89,770 113,902 91,678 380,174 Bank Guarantee Retirement Benefit Obligations 36,172 39,685 31,733 52,012 61,939 43,230 58,897 54,364 74,372 106,393 Lease Liabilities on Right-to------175,011 88,439 use of Asset Other Payables 142,315 57,805 52,046 127,425 88,818 87,594 103,833 116,741 87,752 190,786 Tax Liability - - - 15,130 - - - - - 28,171 Bank Overdraft 1,500 10,394 5,774 9,997 770 16,535 8,578 7,812 2,544 - Total Equity & Liabilities 3,271,863 3,297,844 3,280,840 3,436,198 3,384,544 3,295,339 3,265,740 3,302,214 3,387,219 4,142,155 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 136
Regional Branch Offices
• Jaffna Branch Jaffna 147-2/3, KKS Road, Jaffna. +94 21 222 1455 / +94 21 222 1466 [email protected] Mr. Shanmukananthan Sabananthan Acting Branch Manager
• Anuradhapura Branch 2nd Floor, 488/8/2 Town Hall Place, Maithripala Senanayake Mw, Anuradhapura. +94 25 223 5244/33 / +94 25 223 5233 [email protected] Mr. Tharaka Amarasena Branch Manager
• Kurunegala Branch 1st Floor, “Union Assurance Centre”, 6, Rajapihilla Mawatha, Kurunegala. +94 37 469 1802/04 / +94 37 469 1803 [email protected] Anuradhapura Mr. Thusitha Meegahakumbura Branch Manager
• Kandy Branch “Ceybank House”, No.88, Dalada Veediya, Kandy. +94 81 447 4407/09 / +94 81 447 4475 [email protected] Mr. Dhananjaya Abeysiriwardana Branch Manager
• Negombo Branch 72A, 2/1, Old Chilaw Road, Negombo. Kurunegala +94 31 222 7859/61 / +94 31 222 7860 [email protected] Kandy Mr. Nuwan Chathuranga Branch Manager Negombo • Ratnapura Branch Level 01, No 131, Colombo Road, Ratnapura. +94 45 223 2388 / +94 45 223 2399 [email protected] Mr. Sivananthan Raman Muthukrishnan Branch Manager Ratnapura • Ambalantota Branch 52, Hambantota Road, Ambalantota. +94 47 222 5462 / +94 47 222 5464 [email protected] Mr. Kamal Jayaweera Branch Manager Ambalantota • Matara Branch 1st Floor, E.H. Cooray Tower, Matara 24, Anagarika Dharmapala Mawatha, Matara. +94 41 222 0094/95 / +94 41 439 0546 [email protected] Mr. Nirodha Abeygunawardena Branch Manager 137
Member Firms
Members 6. Somerville Stockbrokers (Pvt) Ltd 11. S C Securities (Pvt) Ltd 1. Bartleet Religare Securities (Pvt) Ltd 1A, Park Way, Park Road, Colombo 5. 5th Floor, 26 B, Alwis Place, Level “G”, “Bartleet House”, +94 11 2 502 852, +94 11 2 502 854 Colombo 3. 65, Braybrooke Place, Colombo 2. +94 11 2 502 858, +94 11 2 502 862 +94 11 4 711 000, +94 11 5 220 200 0112502852 +94 11 47 11 001 +94 11 2 434 985 [email protected] +94 11 2 394 405 [email protected] [email protected] Ms. Shalini Dias http://www.sampathsecurities.lk/ http://www.bartleetreligare.com Director / CEO Mr. Sujeewa Peiris Mr. Roshantha Fernando Director / CEO 7. J B Securities (Pvt) Ltd Chief Executive Officer 150, St. Joseph Street, Colombo 14. 2. Acuity Stockbrokers (Pvt) Ltd +94 11 2 490 900 12. CT CLSA Securities (Pvt) Ltd 53, Dharmapala Mawatha, Colombo 3. +94 11 2 430070 4-14, Majestic City, 10, Station Road, +94 11 2 206 206 [email protected] Colombo 4. +94 11 2 206 298 / 9 https://www.jbs.lk/ +94 11 2 552 290 - 4 +94 11 2 552 289 [email protected] Mr. Murtaza Jafferjee [email protected] http://www.acuity.lk/ Managing Director http://www.ctclsa.lk/ Mr. Prashan Fernando Director / CEO 8. Lanka Securities (Pvt) Ltd Mr. Kanishka Hewage 228/1, Galle Road, Colombo 04. Chief Executive Officer 3. John Keells Stock Brokers (Pvt) Ltd +94 11 4 706 757, 2 554 942 186, Vauxhall Street, Colombo 2. +94 11 4 706 767 13. First Capital Equities (Pvt) Ltd +94 11 2 306 250 [email protected] 2, Deal Place, Colombo 03. +94 11 2 342 068 http://www.lankasecurities.com/ +94 11 2639898 +94 11 5 736 264 [email protected] Mr. Kosala Gamage [email protected] http://www.jksb.com/ Managing Director / CEO http://www.firstcapital.lk/ Mr. Tivanka Ratnayake Chief Executive Officer 9. Asia Securities (Pvt) Ltd Mr. Jaliya Wijeratne 4th Floor, Lee Hedges Tower, Chief Executive Officer 4. Asha Securities Ltd 349, Galle Road, Colombo 3. 60, 5th Lane, Colombo 03. +94 11 7 722 000 14. NDB Securities (Pvt) Ltd +94 11 2 429 100 +94 11 258 4864 Level 2, NDB Capital Building, +94 11 2 429 199 [email protected] 135, Bauddhaloka Mawatha, [email protected] http://asiasecurities.net/ Colombo 4. +94 11 2 131 000 http://www.ashasecurities.net Mr. U.L.B. Ariyaratna +94 11 2 314 181 Chief Executive Officer Mr. Dimuthu Abeysekera [email protected] Director / CEO http://www.ndbs.lk/ 10. Capital Trust Securities (Pvt) Ltd 5. Assetline Securities (Pvt) Ltd* 42, Mohamed Macan Markar Mawatha, Mr. Gihan Cooray 120, 120A, Pannipitiya Road, Colombo 3. Chief Executive Officer Battaramulla. +94 11 2 174 174, +94 11 2 174 175 +94 11 4 700 100 +94 11 2 174 173 15. Nation Lanka +94 11 4 700 101, +94 11 4 700 112 [email protected] Equities (Pvt) Ltd [email protected] http://www.capitaltrust.lk/ 44, Guildford Crescent, Colombo 07. http://assetline.lk/product/stockbroking/ +94 11 488 9061 - 3, Mr. Tushan Wickramasinghe +94 11 789 8302 Mr. Kishan Vairavanathan Managing Director +94 11 268 8899 Managing Director / CEO [email protected] http://www.nlequities.com Mr. Ralph Wijesinghe Chief Executive Officer
* Inactivated Operations as per Stockbroker Rules. COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 138
Member Firms
Trading Members 6. TKS Securities (Pvt) Ltd* Trading Members - Debt 1. Capital Alliance 4th Floor, 245, Dharmapala Mawatha, 1. Capital Alliance Ltd Securities (Pvt) Ltd Colombo 7. Level 5, “Millenium House” Level 5, “Millennium House”, +94 11 7 857 799 46/58, Nawam Mawatha, Colombo 2. 46/58, Navam Mawatha, Colombo 2. +94 11 7 857 857 +94 11 2 317 777 +94 11 2 317 777 [email protected] +94 11 2 317 788 +94 11 2 3177 88 www.tks.lk [email protected] [email protected] Mr. Tiong Yong Kang Mr. Gihan Hemachandra www.capitalalliance.lk Acting Chief Executive Officer Managing Director Mr. Harinlal Aturupane Managing Director / CEO 7. Richard Pieris Securities (Pvt) Ltd 2. Wealthtrust Securities Ltd 310, High Level Road, Nawinna, 102/1, Dr. N.M. Perera Mawatha, 2. SMB Securities (Pvt) Ltd Maharagama. Colombo 08. 02, Gower Street, Colombo 5. +94 11 4310500 +94 11 2 675 091 - 4 0115388138 +94 11 2 802 385 +94 11 2 689 605 0112550100 [email protected] [email protected] [email protected] http://www.arpico.com/ Mr. D.H.B. Ranawana www.smbsecurities.lk Mr. Reshan Kurukulasuriya Managing Director Mr. N.N. Jayatillake Acting Chief Executive Officer Chief Executive Officer 3. NSB Fund Management Ltd 8. Navara Securities (Pvt) Ltd* 400, Galle Road, Colombo 3. 3. Candor Equities Ltd 12B Gregory’s Road, Colombo 7. +94 11 242 5010 46/58 Nawam Mawatha, Colombo 02. +94 11 2 358 700 / 20 +94 11 2 574 387 +94 11 2 359 100 +94 11 5 005 551 Mr. D.L.P. Abayasinghe +94 11 2 305 522 [email protected] Chief Executive Officer [email protected] www.navarasecurities.lk http://www.candor-holdings.com Mr. Vedisa Jayasankha Alahendra 4. Seylan Bank PLC Mr. Ravindra Abeysuriya Chief Executive Officer Level 3, Seylan Towers, Chief Executive Officer 90, Galle Road, Colombo 03. 9. Softlogic Stockbrokers (Pvt) Ltd +94 11 245 6300 4. First Guardian Equities (Pvt) Ltd Level 16, One Galle Face Tower, +94 11 245 2215 32nd Floor, East Tower, Colombo 02. [email protected] World Trade Centre, Colombo 1. +94 11 7 277 000 https://www.seylan.lk/ +94 11 5 884 400 (Hunting) +94 11 7 277 099 Mr. K. Shanaka C Perera +94 11 5 884 401 [email protected] Deputy General Manager - Treasury [email protected] www.softlogicequity.lk www.fge.lk Mr. Dihan Dedigama Mr. Rohan Goonewardene Chief Executive Officer Managing Director / CEO 10. LOLC Securities Ltd 5. Enterprise Ceylon 481, T.B. Jayah Mawatha, Capital (Pvt) Ltd Colombo 10. 73/1, Dharmapala Mawatha, +94 11 5 889 889 Colombo 7 +94 11 2 662 883 +94 11 2445644 [email protected] +94 11 2 301 861 / 2 https://www.lolcsecurities.com [email protected] Mr. Sriyan Gurusinghe http://ecc.lk Managing Director/CEO Ms. Priyani Ratna-Gopal Managing Director / CEO
* Inactivated Operations as per Stockbroker Rules. 139
GRI Index GRI 102-55
Organisational Profile Page No. GRI 102 General Disclosures 102-1 Name of the organisation 5 GRI 102 General Disclosures 102-2 Activities, brands, products, and services 6 GRI 102 General Disclosures 102-3 Location of headquarters IBC GRI 102 General Disclosures 102-4 Location of operations IBC GRI 102 General Disclosures 102-5 Ownership and legal form IBC GRI 102 General Disclosures 102-6 Markets served 6 GRI 102 General Disclosures 102-7 Scale of the organisation 69 GRI 102 General Disclosures 102-8 Information on employees and other workers 59 GRI 102 General Disclosures 102-12 External initiatives 2 GRI 102 General Disclosures 102-13 Membership of associations 5
Strategy GRI 102 General Disclosures 102-14 Statement from senior decision-maker 25
Ethics and Integrity GRI 102 General Disclosures 102-16 Values, principles, standards, and norms of behaviour 5
Governance GRI 102 General Disclosures 102-18 Governance structure 74
Stakeholder Engagement GRI 102 General Disclosures 102-40 List of stakeholder groups 36 GRI 102 General Disclosures 102-42 Identifying and selecting stakeholders 36 GRI 102 General Disclosures 102-43 Approach to stakeholder engagement 36 GRI 102 General Disclosures 102-44 Key topics and concerns raised 36
Reporting Practice GRI 102 General Disclosures 102-45 Entities included in the consolidated financial statements 2 GRI 102 General Disclosures 102-46 Defining report content and topic Boundaries 2 GRI 102 General Disclosures 102-47 List of material topics 38 GRI 102 General Disclosures 102-48 Restatements of information 2 GRI 102 General Disclosures 102-49 Changes in reporting 2 GRI 102 General Disclosures 102-50 Reporting period 2 GRI 102 General Disclosures 102-51 Date of most recent report 2 GRI 102 General Disclosures 102-52 Reporting cycle 2 GRI 102 General Disclosures 102-53 Contact point for questions regarding the report 2 GRI 102 General Disclosures 102-54 Claims of reporting in accordance with the GRI Standards 2 COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 140
GRI Index
Reporting Practice Page No. GRI 102 General Disclosures 102-55 GRI content index 139 GRI 102 General Disclosures 102-56 External assurance 2 GRI 201 Economic Performance 201-1 Direct economic value generated and distributed 14 GRI 401 Employment 401-1 New employee hires and employee turnover, by age, gender 60 and region GRI 401 Employment 401-2 Benefits provided to full-time employees that are not provided 62 to temporary or part-time employees GRI 401 Employment 401-3 Parental leave 63 GRI 404 Training and Education 404-1 Average hours of training per year per employee by gender 63 and category GRI 404 Training and Education 404-2 Programs for upgrading employee skills and transition 63 assistance programs GRI 404 Training and Education 404-3 Percentage of employees receiving regular performance and 62 career development reviews GRI 405 Diversity and Equal Opportunity 405-1 Diversity of governance bodies and employees 60 GRI 413 Local Communities 413-1 Operations with local community engagement, impact 64 assessments, and development programs 141
Notes COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 142
Notes 143
Notice of Meeting
The 36th Annual General Meeting of the Colombo Stock Exchange will be held on 23rd June 2021 at 4.30 pm at the Colombo Stock Exchange, Auditorium, 4-1, West Block, World Trade Center, Colombo 01 for the following purposes.
AGENDA 1. To receive and consider the Annual Report of the Directors and Financial Statement of the Company for the year ended 31st December 2020 together with the Report of the Auditors thereon.
2. Election/Re-election of Directors a. To re-elect Mr. Dilshan Wirasekara who retires in terms of Article 50 of the Articles of Association. (Mr. Dilshan Wirasekara being eligible is offering himself for re-election). b. To re-elect Mr. Dimuthu Abeyesekera who retires in terms of Article 50 of the Articles of Association. (Mr. Dimuthu Abeyesekera being eligible is offering himself for re-election).
3. To re-appoint the retiring Auditors Messrs. KPMG, Chartered Accountants, as the Auditors of the Company, to hold office until the conclusion of the next Annual General Meeting of the Company, to audit the Financial Statements of the Company for the ensuing year and authorise the Directors to determine their remuneration.
4. To authorise the Directors to determine donations for the year ending 31st December 2021 and up to the date of the next Annual General Meeting.
By order of the Board
Secretary JACEY AND COMPANY Secretaries to Colombo Stock Exchange
22 March 2021.
NOTE Any member entitled to attend, and vote is entitled to appoint corporate representative instead (please see attached form of resolution). COLOMBO STOCK EXCHANGE | ANNUAL REPORT 2020 144
Corporate Representation
Colombo Stock Exchange In terms of Article 46 of the Articles of Association of the Colombo Stock Exchange a body corporate, which is a member of the Exchange, may by resolution of its Board authorise any such person to act as its representative at a general meeting of the Exchange.
Specimen Resolution A certified true copy of a Resolution passed by the Board of Directors of ...... on ...... day of ...... 2021.
IT IS HEREBY RESOLVED that pursuant to Article 46 of the Articles of Association of Colombo Stock Exchange to appoint ...... (holder of National Identity Card No...... ) of ...... to act as our representative, to vote for us and to speak on our behalf and to exercise the same powers on our behalf which we would exercise if we were individual Members of the Colombo Stock Exchange, at the Annual General Meeting of the Colombo Stock Exchange to be held on ...... 2021, and at any adjournment thereof.
...... Director Director/Secretary
NOTE A copy of the Board Resolution as set out above, certified as specified by the Articles of the Member Firm should be deposited at the Office of the Colombo Stock Exchange, 04 - 01, West Block, World Trade Centre, Echelon Square, Colombo 1, either before or at the time of the meeting. Corporate Information GRI 102-3, 4, 5
Name Colombo Stock Exchange
Legal Status A Company Incorporated in Sri Lanka and Limited by Guarantee
Company Registration Number GL12
Subsidiary Central Depository Systems (Private) Limited.
Registered Office # 04-01, West Block, World Trade Center, Echelon Square, Colombo 1, Sri Lanka.
Secretaries Jacey and Company
Auditors KPMG
Lawyers M/s Julius & Creasy, Attorneys-at-Law M/s FJ and G de Saram, Attorneys-at-Law
Bankers/ Settlement Banks Bank of Ceylon Commercial Bank of Ceylon PLC Hatton National Bank PLC Sampath Bank PLC
Colombo Stock Exchange Contact Tel : +94 11 2356456 Email : [email protected] Website : www.cse.lk www.cse.lk