Annual Report 2008 Seylan Merchant Bank PLC
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SEYLAN MERCHANT BANK PLC Annual Report 2008 Seylan Merchant Bank PLC Annual Report SEYLAN MERCHANT BANK PLC 2008 385 Landmark Building Galle Road Colombo 03 Sri Lanka www.smblk.com Corporate Information Statutory Status Bankers A Public Limited Liability Company incorporated in Seylan Bank PLC Sri Lanka on 3/9/1992 under the Companies Act Sampath Bank Ltd No. 07 of 2007 and quoted on the Colombo Stock People’s Bank Exchange in 1993. Head Office Registered as a Finance Leasing Establishment under Landmark Building, 385, Galle Road, the provisions of the Finance Leasing Act No. 56 of Colombo-3 2000 Telephone +94-11-2573363 Company Re-registration No. PQ 91 Fax +94-11-2573366 Place of Incorporation – Colombo Parent Company Registered Office Seylan Bank PLC 69, Janadhipathi Mawatha Colombo-1 Subsidiary Companies SMB Money Brokers (Pvt) Ltd Board of Directors Deputy Chairman Associate Companies Mr. R S W Senanayake SMB Real Estate Ltd ACMA (UK), FSCMA (SL) SMB Securities (Pvt.) Ltd. SMB Kenenga Investment Corporation Ltd 2008 Mr. M.S.I.Peiris AICM (SL) Over the past year, Seylan Merchant R. Renganathan Bank has operated in a very difficult FCA environment. We have had to face Mr. P. A. Jayawardena a range of challenges - from intense FCA, FSCMA (SL), FMAAT competition and reduced market share Mr. E T L Ranasinghe to an unstable economic environment MBA (Sri J’pura), Dip in MKT (UK), MCIM (UK), and general investor caution. Chartered Marketer (UK) Deshamanya Dr P.R. Anthonis D.Sc., FRCS (Eng), FICS, FSCS Secretaries International Consultancy & Corporate Services (Pvt) Ltd., 29/23 , Vishaka Lane , Colombo 04. Auditors M/s. KPMG Ford, Rhodes, Thornton & Co. (Chartered Accountants) Lawyers M/s. De Livera Associates Attorneys-at-Law & Notary Public Colombo Ceylinco Consultancy & Allied Services (Pvt) Ltd., Financial Highlights 2 Deputy Chairman’s Review 4 Directors Profile 6 Subsidiaries and Equity Accounted Investees 8 Human Resources 9 Colombo Risk Management 10 Corporate Governance 11 Financial Statements 15 Annual Report of the Board of Directors on the Affairs of the Company 16 Directors’ Responsibility Statement 19 Audit Committee Report 19 Independent Auditor’s Report 20 Income Statement M/s Julius & Creasy 22 Balance Sheet 23 Statements of Changes in Equity 24 Cashflow Statement 25 Notes to the Financial Statements 26 Segment Attorneys-at-Law & Notaries Public Reporting - Group 63 Decade at a Glance - Bank 64 Five Year Summary - Group 65 Value Added Statement 66 Shareholders’ & Colombo Investors’ Information 67 Information on Debenture 72 Notice of Meeting 73 Note 74 Form of Proxy 75 Corporate Information Inner Back Cover Produced by: Copyline (Pvt) Ltd. Corporate Philosophy OUR MISSION “Our mission is to be an excellent provider of innovative financial products and services aimed at creating and enhancing the wealth of our society” OUR CORPORATE OBJECTIVES “To provide an excellent service to our customers. To enhance shareholder’s wealth by means of stable and attractive returns. To develop highly satisfied and motivated employees at all levels who will make an effective and efficient contribution towards our mission. To contribute towards the economic development of Sri Lanka.” Seylan Merchant Bank PLC Annual Report 2008 1 Financial Highlights GROUP BANK 2008 Change 2007 2008 Change 2007 % % Performance During the Year Income 949,473,173 0.57 944,078,997 334,660,987 (33.20) 500,997,793 Profit before Tax & VAT (652,565,669) (18332.12) 3,579,209 (581,932,694) (21662.22) 2,698,853 Taxation & VAT (44,513,298) 45116.41 (98,445) (36,742,835) 1410.84 (2,431,949) Profit after Tax (697,078,966) (19054.45) 3,677,654 (618,675,530) (231896.75) 266,904 At the Year End Lease / Loans portfolio 2,943,511,352 (16.81) 3,538,378,252 1,197,255,990 (38.59) 1,949,602,339 Other Assets 1,281,045,505 0.41 1,275,820,243 828,503,576 (15.76) 983,515,473 Total Assets 4,224,556,857 (12.25) 4,814,198,494 2,025,759,566 (30.93) 2,933,117,812 Shareholders’ Funds (152,279,542) (128.42) 535,821,023 (211,939,082) (152.11) 406,736,447 Minority Interest 74,326,806 0.96 73,620,541 - - - Deposits & Borrowings 3,317,799,674 5.96 3,131,188,744 1,661,522,591 (4.93) 1,747,761,950 Debentures & Other Liabilities 984,709,919 (8.28) 1,073,568,186 576,176,058 (26.00) 778,619,415 Total Liabilities & Shareholders’ Funds 4,224,556,857 (12.25) 4,814,198,494 2,025,759,566 (30.93) 2,933,117,812 Ratios Earning / (Loss) per Share - Voting (Rs.) (15.45) 25149.95 (0.05) (13.88) (113611.95) 0.01 Earning / (Loss) per Share – Non Voting (Rs.) (6.87) 12524.98 (0.01) (6.18) (231897.95) 0.00 Interest Cover 0.14 (85.66) 1.01 (0.42) (141.83) 1.00 Net Assets per Ratio (2.79) (128.42) 9.83 (3.89) (152.13) 7.46 Cost / Income Ratio 36.72% 20.20 30.55% (21.23%) (223.95) 17.15% Net Profit to Income Ratio (73.42%) (18946.76) 0.39% (184.87%) (369,832.69) 0.05% Interest Income - Group 2008 2007 31% 7% 0% 129% 5% Customer Advances T. Bills & Placements with Other banks & Finance Co’s Lease Interest Income Other Interest Income 13% 64% 64% Seylan Merchant Bank PLC Annual Report 2008 2 Other Income - Group 2008 2007 2% 1% 42% Dividend Income from Dealing 28% Securities - Quoted Dividend Income from Investment Securities - Unquoted Fee & Commission Income Profit on Sale of Property , Plant & Equipment 3% Profit on Sale of Investment Properties 2% Profit on Sale of Investment Securities Capital Gain on Government Securities 1% 66% 3% 3% 49% Others Interest Expenses 2008 2007 Borrowings & Refinance Treasury Bills Repurchased Interest expenses on Debentures 5% Other Interest expenses 14% 74% 14% 78% 7% 2% 7% Total Assets 2008 2007 1%0% 1% 1%7% 8% 12% 1% 0% Cash & Short Term Funds 28% Investments 23% Loans & advances Lease Rentals Receivables Investment in Associate Co. Interest Receivable 3% Investment Property 2% Property, Plant & Equipment Other Assets 66% 47% Intangible Assets Total Borrowings 2008 2007 2% 11% Shareholders’ Funds Minority Interest 2% Borrowings Group Balances Payable 8% 11% Other Liabilities Debentures 9% 65% 9% 77% 5% 3% Seylan Merchant Bank PLC Annual Report 2008 3 Deputy Chairman’s Review worst affected were fixed-price product Performance of Subsidiaries Companies such as ours. Interest costs Subsidiary SMB Real Estate Ltd posted a exceeded interest income and there was loss of Rs. 29.21 Million for the first time very little we could do as a Company. since its incorporation. This was due Mobilisation of debt instruments became to a drop in property sales, caused in difficult and we faced difficulties in part by the liquidity crisis in the market recovery of facilities extended. and the phenomenally high interest rates which made housing loans from During the year, we continued with Banks unaffordable to the public. There plans to transform SMB into a holding was also declining interest from the company and phase out our fund-based segment of the market that buys land as activities, handing it over to subsidiary an investment, due to other attractive Seylan Merchant Leasing PLC. investment options such as Treasury Bills, with interest rates as high as 22%. Company Performance Given plans to phase out its business Seylan Merchant Bank PLC sold 51% operations and convert into a holding shares of SMB Real Estate Ltd. out of company, SMB did not launch any new the 100% shares held by the Company products or engage in new business. in March 2009 to Ceylinco Capital The year 2008 was a tumultuous one In terms of operational costs, SMB has Market Ltd. A valuation report was for Seylan Merchant Bank PLC (SMB) as adopted a strategy of downsizing and obtained from NDB Investment Bank it began to phase out its operations and cost-reduction, which has been effective Ltd. in July 2009. The total purchase transform into a holding Company. in a very challenging market. Turnover consideration of this transaction was Rs. declined by Rs. 166.32 Million to Rs. 31,519,065.08 Several changes took place on the 334.67 Million, while incurring a loss of global front, with an economic Rs. 618.68 Million for the year. Performance of subsidiary Seylan recession that began in the United Merchant Leasing PLC (SML) was States and gradually spread to Europe The biggest factor, apart from the affected by high rates of taxation on and Asia. Sri Lanka’s export industries economic downturn, that affected vehicles which saw the costs of vehicle were affected by the global downturn performance was the problems with leases increasing, making it unaffordable due to a slump in demand from its main the Ceylinco Group. The association to the public. Sale of leases on dual consumer markets. Many Sri Lankan with the Ceylinco Group eroded public purpose vehicles for the plantation workers overseas were also laid off with confidence and impacted on SMB’s sector was also affected by the collapse many returning home although the job mobilisation of debt instruments as well of tea prices in the first half of the year, market locally was also restricted. On as other business interests such as real which prompted a default on payments the domestic front, tourism was also in estate. I anticipate a difficult year ahead by vehicle owners as a result of reduced decline as the local separatist conflict as well and it is unlikely that SMB will earnings.