Key financial indicators ---------------------------Restateda----------------------------- 2006 2005 2004 2003 2002 Earnings per Share (Cents) 406 366 346 284 262 Net Income before Tax (Rs M) 1,524 1,489 1,360 1,176 1,022 Net Income available to Shareholders (Rs M) 1,319 1,191 1,127 1,018 952 Economic Value Added (Rs M) 392 304 338 286 247 Capital to Risk Weighted Assets (%)b 20.77 21.78 17.79 18.16 20.55 Return on Average Risk Weighted Assets (%)c 4.22 4.01 4.11 4.23 4.46 Return on Average Assets (%)d 2.61 2.64 2.90 2.93 2.94 Return on Average Shareholders’ Funds (%)d 15.62 15.45 19.29 19.65 20.31 Return on Average Tier 1 Capital (%)d 22.36 22.41 24.13 20.29 21.34 Risk Adjusted Return on Capital (RAROC) (%)e 41.38 39.37 39.87 N/A N/A Cost to Income (%)f 41.11 38.91 40.15 39.17 38.24 Cost to Income excluding depreciation (%)f 30.94 28.55 31.55 28.88 27.01 Electronic to Total Transactions (%) 83.00 82.00 80.00 76.00 72.00 a Restated wherever applicable for comparative purposes. b Capital adequacy is computed as per regulatory requirement, based on credit as well as operational risks of the Group in line with Basel II Accord. c Average Risk Weighted Assets are calculated using year end balances. d Averages are based on daily balances as from 2003. 2002 average is based on monthly balances. e Indicative and restated wherever applicable for comparative purposes arising from refinements in methodology as per Basel II and Bank of Mauritius requirements. f Grossed up for tax exempt debenture interest income. SBM Annual Report 2006 Key financial charts 400 450 375 400 350 350 300 325 250 300 200 275 150 250 100 225 50 200 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 EVA (MRs Million) Earnings per Share (cents) Dividend per Share (cents) 10.00 40 36 8.00 32 28 6.00 24 20 4.00 16 12 2.00 8 4 0.00 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Price Earnings Ratio (Times) Market Share Price (Rs) 28 50.00 24 40.00 20 16 30.00 12 20.00 8 10.00 4 0 0.00 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Net Asset Value per Share (Rs) Cost to Income Ratio - Gross Up (%) 25 24 21 20 18 15 15 12 10 9 6 5 3 0 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Return on Average Shareholders’ Funds (%) Capital to Risk Weighted Assets (%) Statement of Management’s Responsibility for Financial Reporting Statement of management’s responsibility for financial reporting The financial statements of the Group and of the Bank have been prepared by management, which is responsible for their integrity, consistency, objectivity and reliability. International Financial Reporting Standards, as well as the requirements of the Banking Act 2004 and the guidelines issued thereunder, have been applied and management has exercised its judgement and made best estimates where deemed necessary. SBM Annual Report 2006 Statement of Management’s Responsibility for Financial Reporting The Bank has designed and maintained its accounting systems, related internal controls and supporting procedures, to provide reasonable assurance that fi nancial records are complete and accurate and that assets are safeguarded against loss from unauthorised use or disposal. These supporting procedures include careful selection and training of qualifi ed staff, the implementation of organisation and governance structures providing a well-defi ned division of responsibilities, authorisation levels and accountability for performance, and the communication of the Bank’s policies, procedures manuals and guidelines of the Bank of Mauritius throughout the Bank. The Bank’s Board of Directors, acting in part through the Audit Committee, Conduct Review Committee and Risk Committee, which are comprised mostly of independent directors who are not offi cers and employees of the Bank, oversees management’s responsibility for fi nancial reporting, internal controls, assessment and control of major risk areas, and assessment of signifi cant and related party transactions. The Bank’s Internal Auditor, who has full and free access to the Audit Committee, conducts a well designed program of internal audits in coordination with the Bank’s external auditors. Pursuant to the provisions of the Banking Act 2004, the Bank of Mauritius makes such examination and inquiry into the operations and affairs of the Bank as it deems necessary. The Bank’s external auditors, Kemp Chatteris Deloitte, have full and free access to the Board of Directors and its committees to discuss the audit and matters arising therefrom, such as their observations on the fairness of fi nancial reporting and the adequacy of internal controls. M. K. T. Reddy, G.O.S.K. Chairman M. Ng Thow Hing Director (Chairperson, Audit Committee) C. Gunness Chief Executive Date: September 26, 2006 Directors’ Report to the Shareholders Directors’ report to the shareholders The Board of Directors of State Bank of Mauritius Ltd (SBM) is pleased to present its thirty-fourth Annual Report for the Group and the Bank for the year ended June 30, 2006. OPERATING RESULTS The Mauritian economy experienced modest GDP growth during the Group’s financial year. Sugar production levels were on the low side due to poor prevailing climatic conditions and exports from the textiles and sugar industries were negatively impacted by the dismantling of the Multi-Fibre Agreement and the Lome Convention restructuring respectively. The tourism industry however remained resilient with tourist arrivals on an increasing trend, and together with a buoyant offshore financial services segment, contributed to a major extent to economic growth over the financial year. Against the above economic backdrop and the increasingly competitive banking environment brought about by the single banking licensing regime, income attributable to shareholders registered a satisfactory growth of 10.7% to Rs1,319M in 2006 from Rs1,191M in 2005. Earnings per share increased by 40cts to reach Rs4.06 for 2006. The Group continued to diversify its sources of income by leveraging on its superior technology to create new business activities and products, and benefited from a lower tax rate on its foreign source revenues under the new fiscal regime. The cost to income ratio of 41.1% in 2006 remained at an internationally enviable level, although having increased slightly. Net income was affected by a squeeze in interest and currency trading margins, a reassessment of the realisable value of collaterals, and increased costs. Consequently, the return on average shareholders’ funds only increased marginally in 2006. The Board of Directors is pleased to report that the Group continues to add year-on-year ‘’economic value” of Rs392M for the year ended June 30, 2006. Group assets reached Rs58.9Bn in 2006 as all lines of business contributed to a stronger balance sheet. Non-bank deposits grew by 14.8% to reach Rs40Bn, with substantial increase in foreign currency denominated deposits, while advances grew by 7.6% to reach Rs26.4Bn at the end of the year. The gross impaired advances have decreased by 7% to Rs636M in June 2006, reducing the percentage to gross advances from 2.72% in 2005 to 2.34% in 2006, thus reflecting a stronger loan book. SBM Annual Report 2006 Directors’ Report to the Shareholders DIVIDENDS AND CAPITAL RESOURCES magnetic to chip-enabled credit and The Board of Directors proposed a dividend of Rs2.00 per share of Re1.00 for debit cards with a view to providing a the financial year 2006, which was paid on August 16, 2006. This represents an safer and more secure card solution to increase in dividend of 70cts per share over last year and a dividend cover of 2 its clients transacting worldwide. times (2005: 2.8 times) in order to give a market driven competitive return to shareholders. The Board believes that the current and anticipated level of excess Through its asset management regulatory capital will be sufficient to fund future growth as well as allow the arm, the Group has introduced a higher dividend payment ratio. SBM remains committed to provide increased range of products with different value to its shareholders. risk characteristics. The “SBM Yield Fund” was successfully launched in In April 2006, it was formally agreed between Nedbank and SBM to terminate June 2006. Global products from the the Strategic Alliance Partnership given non-convergent strategy aspirations of the well-known investment arm of MAN two banks. As part of the exit process, SBM Global Investments Limited acquired Group Plc were also introduced Alliance Investments Ltd, which held Nedbank’s 20.1% equity shareholding in SBM and distributed during the year as and also acquired Nedbank’s stake in Banque SBM Madagascar. Consequently, an alternative investment range of upon consolidation of the group accounts, the shareholders’ funds are negatively products to cater to the needs of our impacted by Rs1.5Bn pending disposal of Alliance Investments Ltd. The Group also sophisticated corporate and high net- divested its stake in the joint ventures with Nedbank in global businesses thereby worth clients. The Group continues to realising a capital gain of Rs96M. invest in customer-centric technological enhancements, market intelligence The Group’s retained profit of Rs800M and gains on the re-measurement of and product research to better suit investments amounting to Rs383M were added to reserves during the year. The the ever-evolving requirements of its Group’s shareholders’ funds reached Rs7.8Bn as at June 30, 2006, reflecting a diversified client base.