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Annual Report 2007
www.cse.lk
Colom
bo Stock Exchange Annual Report 2007
44.6 bill
ion
In 2007, the Colombo Stock Exchange set twin records, despite several challenges, raising its highest ever capital of
NAMEColombo Stock Exchange
LEGAL STATUSA company incorporated in Sri LankaLimited by guarantee
SUBSIDIARYCentral Depository Systems (Pvt) Ltd.
REGISTERED OFFICE04-01 West Block, World Trade CentreEchelon SquareColombo 1, Sri Lanka.
SECRETARIESSecretarial Services Ltd.
AUDITORSKPMG Ford, Rhodes, Thornton & Co.
BANKERSSampath Bank Ltd.
COLOMBO STOCK EXCHANGETel: +94-11- 2356456Fax: Clearing & Settlement: +94-11-2440396 Finance & Administration: +94-11-2448921 Information Technology: +94-11-2440162 Listings & Surveillance: +94-11-2448925 Business Development: +94-11-2445279 Legal: +94-11-2391128E-Mail: [email protected]: www.cse.lk
BRANCHESMatara Branch38, Station Road, MataraTel: +94-41-2220094, +94-41-2220095Fax: +94-41-4390546
Kandy Branch“Ceybank House”, 88, Dalada Veediya, KandyTel: +94-81-4474407, +94-81-4474409Fax: +94-81-4474475
Kurunegala Branch1st Floor, Union Assurance Building 6, Rajapihilla Road, KurunegalaTel: +94-37-4691802, +94-37-4691804Fax: +94-37-4691803
Negombo Branch1st Floor, 142, Greens Road, NegomboTel: +94-31-2227859Fax: +94-31-2227860
Designed & Produced by: Copyline (Pvt) Ltd
Corporate Information
Annual Report 2007
�
11.2 billi
on
Rupees through Rights Issues by 21 listed companies as well as recording its highest ever Net Foreign Inflow of Rupees
The Colombo Stock Exchange has proved resilient despite challenges this past year. We are confident we will remain strong in the year ahead.
Annual Report 2007
�
ContentsVision & Mission 3Graphical Review 4Introduction 7Members of the CSE 9Board of Directors ��Board Committees �007-08 ��Chairman’s Message to Stakeholders �3Chief Executive Officer’s Review �5Operational Review �9Management Team �5Human Resource Indicators �6Financial Information �7Report of the Audit Committee for the Year �007 �8Statement of Directors’ Responsibilities �8Auditor’s Report �9Balance Sheet 30Income Statement 3�Statement of Changes in Equity 3�Consolidated Cash Flow Statement 33Notes to the Financial Statements 34Key Financial Indicators 45Notes 46Corporate Information IBC
Annual Report 2007
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The Colombo Stock Exchange shall contribute to the wealth of the nation by creating value through securities.
VisionMission&l Actively pursue strategies that
contribute to the growth of the Capital Market.
l Provide facilities to trade
Equities, Debt, Derivatives and Commodities.
l Promote a corporate culture that encourages employee commitment, creativity and teamwork.
l Maintain a balanced and responsive regulatory framework that will enhance market integrity and investor confidence.
l Focus on customer orientation, strive for organisational excellence and promote professionalism within the industry.
&
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Graphical Review
Annual Report 2007
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Annual Report 2007
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6.7B
illio
n
}Rs.
938.6Highest market capitalisation of
Bill
ion
Rs.
Highest turnoverfor a day
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Share trading in Sri Lanka commenced in the �9th century, when British Planters needed funds to set up Tea Plantations in Sri Lanka. The Colombo Share Brokers Association commenced trading of shares in limited liability companies in �896, involved in setting up plantations in the country.
The Colombo Share Market continued operations for almost a century, experiencing several vicissitudes due to political and economic factors during the period. A landmark event in the history of share trading in Sri Lanka was the formalisation of the market with the establishment of the “Colombo Securities Exchange (GTE) Limited” in �985, which took over the operations of the stock market from the Colombo Share Brokers’ Association. It was renamed ‘Colombo Stock Exchange’ (CSE) in �990.
The CSE is a company limited by guarantee, established under the Companies Act No. �7 of �98� and is licensed by the Securities & Exchange Commission of Sri Lanka (SEC). The CSE is a mutual exchange and has �5 full Members and 6 Trading Members licensed to trade both equity and debt securities. All members are licensed by the SEC to operate as stockbrokers. All members are corporate entities and some are subsidiaries of large financial institutions.
The policy making body of the CSE is the Board of Directors composed of nine members. Five directors are elected by the �5 member firms while the Minister of Finance nominates four.
The CSE Board has five sub committees appointed to administer the operations of the CSE. The Exchange Secretariat, headed by the Chief Executive Officer is responsible for the operations of the Exchange, and is accountable to the Board of Directors.
The Securities and Exchange Commission of Sri Lanka (SEC) was established under the Securities Council Act No.36 of �987 (now amended as the Securities Council Act), to regulate the securities market in Sri Lanka, grant licenses to stock exchanges, stockbrokers, stock dealers and unit trusts who engage in the business of trading in securities. The CSE operates as a Self Regulatory Organisation (SRO) subject to the regulation and supervision of the SEC. Sri Lanka was one of the first countries in South Asia to establish a capital markets regulator.
The CSE was one of the first Exchanges in the region to successfully automate its clearing and settlement functions in �99�, with the installation of a Central Depository and an electronic clearing and settlement system for share transactions, and an Automated Trading System (ATS) in �997. This has notably enhanced the transparency and efficiency of the securities market in Sri Lanka.
In recognition of the technology, systems and regulation, the CSE was admitted to the World Federation of Exchanges (WFE) in �998, becoming the first South Asian member. It was also a founding member of the South Asian Federation of Exchanges (SAFE) in �000.
At present the CSE offers advanced facilities for the secondary trading of equity and debt instruments. The Debt Securities Trading System (DEX) implemented in �003 enables the secondary trading of the Beneficial Interest in Government Securities. DEX provides investors an opportunity to diversify their portfolio and thereby reduce risk.
�35 companies are currently listed on the CSE, representing twenty (�0) business sectors with a market capitalisation of Rs. 8�7.7 billion (approx. US $ 7.7 billion) as at 3�st March �008.
The Exchange calculates two main Price Indices, namely, the All Share Price Index (ASPI) and the Milanka Price Index (MPI). Price indices are calculated for each of the �0 Business sectors. Total Return Indices (TRI) are also calculated to track the market performance on a Total Returns basis. The TRI exceeds the scope of existing price indices (ASPI, MPI) and incorporates returns from dividends into its computation. CSE publishes TRI based on the ASPI, MPI, and the �0 Sector Price Indices.
The CSE provides companies the opportunity to raise equity and debt capital required for their expansion through the primary and secondary markets while providing a mechanism for price discovery in an active secondary market. The equity and debt securities of a public company can be listed on either the Main or Second Board of the CSE; a Main Board for larger companies and a Second Board for medium to small companies and for start up companies.
Foreign institutions and individuals, including non-resident Sri Lankans are permitted to buy and/or sell shares in a listed company up to �00% of the issued capital except in the case of a few companies, where certain restrictions have been imposed. Investment in shares in Sri Lanka and repatriation of proceeds should take place through a Share Investment External Rupee Account (SIERA) opened with a licensed commercial bank. Income from investments such as interest, dividends and profit realised from such investments are not subject to Exchange Control Regulations.
Live market information is presently being disseminated through member firms, information vendors, CSE branches, print & electronic media and through a special local TV broadcast. International financial press such as Reuters and Bloomberg also provide daily online trading information to investors worldwide.
Introduction
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The new CSE website, www.cse.lk, launched in October �007, provides access to a comprehensive array of real time market information, order book information and includes charts and graphs of Market and Company performance to help existing and potential investors make informed investment decisions. The new website is designed to function as the primary communication channel of the CSE and most information on the website is downloadable in Excel, CSV and XTML formats. The CSE website also facilitates fast access to individual listed company profiles, as well as links to Online Trading platforms offered by stock broker firms. Other features such as My CSE and a Stock Market Game are scheduled to be launched in early �008.
The CSE has set up branch offices with the objective of broad basing the stock market and providing wider access. The CSE presently operates four branches in the Southern (Matara), Central (Kandy), North Western (Kurunegala) and the Western (Negombo) provinces. The Branch office in Negombo was opened in August �007.
The CSE has initiated activities to improve the market infrastructure and the regulatory framework to integrate and strengthen the securities market in Sri Lanka.
Introduction Contd.
Annual Report 2007
9
Members of the CSE
Bartleet Mallory Stockbrokers (Pvt) Ltd.Level “G”, “Bartleet House”65, Braybrooke Place, Colombo �.Tel: 5��0�00Fax: �434985E-mail: [email protected]: www.bartleetstock.comMr. R. MuralidaranManaging Director
DFCC Stockbrokers (Pvt) Ltd.3rd Floor73, W.A.D. Ramanayake MawathaColombo �.Tel: �4460��-�, �44603�-4Fax: �437�49E-mail: [email protected]. Ray AbeywardenaChief Executive Officer
John Keells Stockbrokers (Pvt) Ltd.�30, Glennie Street, Colombo �.Tel: �3�6003, �338066/7, �34�066/7, �446694/5, �439047/8, 4-7�07��-4Fax: �34�068, �3�6863E-mail: [email protected]: www.jksb.keells.lkMr. Tivanka RatnayakeChief Executive Officer
Asha Phillip Securities Ltd.Level 4, “Millennium House”46/58, Navam Mawatha, Colombo �.Tel: �4�9�00Fax: �4�9�99E-mail: [email protected]. Dimuthu AbeysekeraDirector/CEO
DP Global Securities (Pvt) Ltd.3rd Floor, Forbes & Walker Bldg.46/38, Navam Mawatha, Colombo �.Tel: 4700���, �307366Fax: �307365, 4700���E-mail: dpgs�@sltnet.lkMr. Travis WaasManaging Director
Somerville Stockbrokers (Pvt) Ltd.�37, Vauxhall Street, Colombo �.Tel: �3�9�0�-5, �33�8�7, �338�9�-3Fax: �338�9�E-Mail: [email protected]. Shalini DiasDirector
J B Securities (Pvt) Ltd.�50, St. Joseph Street, Colombo �4.Tel: �490900, 077-�490900, 077-�49090� Fax: �430070, �446085, �447875E-mail: [email protected]. Murtaza JafferjeeChairman & Managing Director
Lanka Securities (Pvt) Ltd.5th Floor, 86, Galle Road, Colombo 3.Tel: 5576757, �43��38Fax: 5576767E-mail: [email protected]: www.lsl.lkMr. Kosala GamageChief Operating Officer
Asia Securities (Pvt) Ltd.Level ��, West Tower, World Trade Centre Echelon Square, Colombo �.Tel: �4�3905, 53�0000Fax: �3360�8E-mail: [email protected]: www.asiacapital.lkMr. Dushyanth WijayasingheDirector
Ceylinco Stockbrokers (Pvt) Ltd.Ceylinco House, Level 969, Janadhipathi Mawatha, Colombo �.Tel: 4-7�4300, 4-7�4388, 4-7�4389, 0777-89�87�, 0777-896064Fax: �387��8E-mail: [email protected]: www.ecsbl.comMr. Sriyan GurusingheDirector/General Manager
Lanka Orix Securities (Pvt) Ltd.4�, Sir Mohamed Macan Markar MawathaColombo 3.Tel: 5-335��5,Fax: 5-3657�5E-mail: [email protected]. Tushan WickremasingheManaging Director
S C Securities (Pvt) Ltd.�nd Floor, 55 D.R. Wijewardena MawathaColombo �0.Tel: 47��000Fax: �394405E-mail: [email protected]: www.sampathsecurities.lkMr. Harsha FernandoDirector
CT Smith Stockbrokers (Pvt) Ltd.4-�4, Majestic City, �0, Station RoadColombo 4.Tel: �55��90 - 4Fax: �55��89E-mail: [email protected]: www.ctsmith.lkMrs. Cecilia MuttukumaruManaging Director
HNB Stockbrokers (Pvt) Ltd.Level 7, HNB Towers479, T.B. Jayah Mawatha, Colombo �0.Tel: �663663 (Hotline)Fax: �663698, �663699E-mail: [email protected]: www.hnbstock.comMr. Deva EllepolaGeneral Manager/CEO
NDB Stockbrokers (Pvt) Ltd.5th Floor, NDB Building40, Navam Mawatha, Colombo �.Tel: �3�4�70 to �3�4�78Fax: �3�4�80E-mail: [email protected]. Prasansini MendisActing Chief Executive Officer
Annual Report 2007
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TRADING MEMBERS - DEBT & EQUITY
Capital Alliance Securities (Pvt) Ltd.Level 5, “Millennium House”46/58, Navam Mawatha, Colombo �.Tel: �3�7777Fax: �3�7788E-mail: [email protected]: www.capitalalliance.lkMr. Ajith FernandoManaging Director/CEO
SMB Securities (Pvt) Ltd.Landmark Bldg, 385 Galle RoadColombo 3.Tel: 5539593Fax: 55�0750E-mail: [email protected]: www.smblk.comMr. Nandun JayatillakeChief Executive Officer
First Guardian Equities (Pvt) Ltd.3�nd Floor, East TowerWorld Trade Centre, Echelon SquareColombo �.Tel: 5884400Fax: 588440�E-mail: [email protected]. Rohan GoonewardeneManaging Director/CEO
Taprobane Securities (Pvt) Ltd.�0, Gothami Road, Colombo 08.Tel: 53�8�00Fax: 53�8�09E-mail: [email protected], [email protected]. Ashan DassanayakeChief Executive Officer
Amana Securities Ltd.53�/4F, Sirikotha Lane, Galle Road Colombo 3.Tel: �37�56�-4Fax: �37�565E-mail: [email protected]: www.asl.lkMr. Ishrat RauffChief Executive Officer
SKM Lanka Holdings (Pvt) Ltd377/3, Galle Road, Colombo 3.Tel: �37�4�5-6Fax: 537��39E-mail: [email protected]. Khalil MasoodChairman/CEO
Members of the CSE Contd.
��
Board of DirectorsMr. A.N. Fonseka (Chairman)
Mr. Anthony A. Page - resigned w.e.f. 3rd December 2007
Mr. M.M. Udeshi
Mr. J.H. Paul Ratnayeke
Mr. Murtaza Jafferjee
Mr. Krishan Balendra - appointed w.e.f. 7th March 2008
Mr. Ashroff Omar
Mr. Dhakshitha T.W. Thalgodapitiya
Mr. Gomin Dayasri - resigned w.e.f. 28th February 2008
Prof. Malik Ranasinghe
(As at 31st March 2008)
Annual Report 2007
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Board Committees 2007-08
Rules Committee
The Rules and By Laws Committee of the CSE approves rules and regulations of the CSE, which have wide implications on the conduct of the listed companies, member firms and investors. The Committee ensures that such rules will strike a sound balance between the market development and regulatory role of the CSE by ensuring a reasonably effective investor protection regime without imposing excessive regulatory burdens on the market.
Mr. A.N. Fonseka - ChairmanMr. J.H.P. RatnayekeMr. M. Jafferjee
� Representatives from the Colombo Stockbrokers Association
1.Audit Committee
The Board set up an Audit Committee comprising four non-executive Directors, which will assist the Board in discharging its responsibility in ensuring that all the systems and procedures adopted at the CSE provide reliable and accurate information as to the state of affairs of the stock market and the internal control systems of the Exchange are sound and well administered.
Mr. D. Thalgodapitiya - ChairmanMr. M.M. UdeshiMr. J.H.P. RatnayekeMr. M. Jafferjee
2.Arbitration & Disciplinary Committee
The Arbitration & Disciplinary Committee of the CSE is set up to carry out investigations and recommend appropriate disciplinary action against member firms which fail to comply with the Exchange rules and regulations for member firms, thus ensuring that the member firms adhere to good business practices and follow justice and fair principles of trade in the conduct of business, at all times.
Mr. A.Omar - ChairmanMr. A.N. FonsekaMr. G. Dayasri (Resigned w.e.f.28.2.08)Mr. M.M. UdeshiMr. D. Thalgodapitiya
3.
Dispute Resolution Committee
The Dispute Resolution Committee of the CSE is set up to resolve disputes arising between investors and member firms as well as any disputes among member firms, in order to maintain the professionalism of the member firms that, in turn, will reinforce the investor confidence and the integrity of the market-place as a whole. Mr. G. Dayasri - Chairman (Resigned w.e.f.28.2.08)Mr. A.N. FonsekaMr. M.M. UdeshiProf. M. Ranasinghe
4.
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Chairman’s Message to Stakeholders
Annual Report 2007
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The Chief Executive Officer’s Report provides detailed information on the performance of the Colombo Stock Exchange (CSE) in �007, a performance best described as mixed.
After several years of significant appreciation in the indices, the All Share Price Index registered a drop of 6.7% but on a rolling 5 year horizon still recorded an average compounded growth of �7% p.a. outstripping the return on fixed income securities during the same period by a comfortable margin. The turnover was practically unchanged but net foreign inflow of Rs ��,�54 million was more than double that of the previous year. For the first time in many years there were no new listings of equity although on the other hand, listed entities raised an all time record amount of Rs. 44.6 billion as new capital from rights issues during the year.
The CSE operated profitably although its profit after tax of Rs �4� million was 30% lower than in the previous year. This was mainly because of the absence of one off income of Rs ��5 million earned by the CSE in the previous year from entry fees paid by 5 new trading members.
The reasons for the mixed performance were external as well as internal. The external local macro environment of high interest rates resulted in investors preferring fixed income investments and securities. Investor sentiment was also dampened by concerns relating to the future profitability of some local industry sectors arising from high oil prices and high inflation. Internally, the CSE continued to be affected by several factors that I referred to last year.
In the last Annual Report, I identified several issues and shortcomings that have to be addressed and resolved to enable the CSE to ascend to its rightful place in Sri Lanka’s capital markets space. These were (a) the ownership structure and legal constitution (b) small number of
actively traded issues and the resultant low level of liquidity (c) long settlement cycle and related broker risk (d) insufficient attention to good principles of corporate governance especially by some closely held family owned issuers (e) insufficient variety of traded instruments (f) high transaction costs (f) low level of awareness of capital markets among the potential investor pool, and (g) relatively low level of analytical information on equities and an under developed fund management industry. In the past year, the only tangible improvement was the reduction of broker risk through the adoption of a uniform T + 3 settlement cycle abandoning the unique two tier settlement cycle that was previously practiced by the CSE. Some improvement to the level of disclosure relating to corporate governance among listed entities should be apparent in �008 consequent to the coming into operation of the comply or explain phase of mandatory corporate governance requirements stipulated in the listing rules. I wish to assure our stakeholders that action has been initiated to deal with most of the other outstanding issues, some of which are quite complex. Our efforts should come to fruition within the next few years. Another area that is being examined is whether our present indices reflect the true state of the market in the light of developments that have taken place after the indices were designed. External professionals are currently studying the various options to enable the CSE to take informed decisions.
The CSE is frequently criticized for not being able to increase the number of issuers because of stringent listing requirements for entry as well as for continued listing. While the Board has directed management to give priority to increase the number of listed equity issues, the relaxation of criteria must not leave room for small investors to be unduly exploited or unfairly treated. While the CSE works on a disclosure based regulatory regime, caveat emptor cannot be adopted
as the sole basis for investor protection in the current state of development of the Sri Lanka market. Incidents and events that could lead to any widespread loss of investor confidence arising from unsuitable issuers being permitted to raise public funds through the CSE will be extremely detrimental to the future of the CSE and the capital markets as a whole.
I thank my colleagues on the Board for their valuable contributions and support and am particularly appreciative of the enthusiasm with which they have embraced the need to take the CSE to the next level. Messrs Anthony Page and Gomin Dayasiri relinquished office as Directors and I thank them for their valuable contributions. I am sure that the wide ranging exposure to capital markets and youthful energy of Messrs Murtaza Jafferjee and Krishan Balendra who have joined the Board will enable them to participate with vigour in the CSE’s future endeavours. Ms Surekha Sellahewa, the CEO provided able leadership and has embarked on enhancing the skill base and expanding the human and technical capacity of the CSE to take on the challenges ahead.
I also sincerely thank the Chairman and the Senior Executives of the SEC and the Ministry of Finance who have remained committed to the development of the capital markets. I also wish to record my sincere appreciation of the efforts and contributions made by the issuers of securities, broker firms, other market intermediaries and the investors all of whom are key stakeholders of the CSE.
Nihal FonsekaChairman�3 June �008
Annual Report 2007
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Chief ExecutiveOfficer’s Review
Annual Report 2007
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A notable achievement for the CSE in the year �007 was the raising of Rs. 44.6 billion by �� listed companies through Rights Issues, which is the highest amount recorded in the history of the CSE. The largest ever net foreign inflow of Rs. ��.� billion was also recorded during the year �007.
Price IndicesHigh interest rates, high inflation and the current security situation, however, had a negative impact on the performance of the price indices during the year �007.
After a continuous Bullish trend since �00�, the CSE recorded a negative growth in both Price Indices for the first time in �007. The All Share Price Index (ASPI), which opened the year at �,7��.4 points, continued on an upward trend for the first two months and reached an all-time high of 3,0�6.4 points on �3th February. The downward movement of the ASPI, which commenced in March �007, continued through the year, to close at �,54�,
recording a decline of 6.7% for the year.
The Milanka Price Index (MPI) reached its highest point of 4,��4.8 on �6th February �007 but declined during the year to close at 3,�9�.9, recording a decrease of ��.3% for the year �007.
TurnoverDespite the decline in the Price Indices, market activity in �007 was comparable with that of �006. The average daily turnover for �007 was Rs. 435.6 million, 0.�% below the average daily turnover of Rs. 436 million recorded in �006. The average daily turnover at the end of February �007 was Rs. 789.4 million, the highest recorded, and remained above Rs. 500 million during the first half of the year.
Market CapitalisationMarket capitalisation of the Colombo Bourse has seen a significant growth over the past few years. The highest ever market capitalisation of Rs. 938.6 billion was recorded on �3th February �007. The
market capitalisation as at the end of �007 of Rs. 8�0.7 billion was �.7% lower than the year’s opening.
Interest Rates vs. Market PerformanceThe negative correlation between interest rates & share market return was clearly demonstrated in �007. As reflected in Figure �, during the period �00� to �006, while the ASPI return was 35.�% on average, the interest rates in the country were between 7%-�3%. The high rates of interest during the year �007 and the security situation in the country attributed to the negative return of the ASPI during the same period.
Foreign InvestmentA Net Foreign Flow of Rs. ��.� billion was recorded for the year �007, being the highest ever foreign inflow in history, surpassing its previous record of Rs. 6.� billion, in �005. Foreign investors accounted for 44.6% of the total purchases for �007, in comparison to 35.3% in
Figure 1: Annual Trading Statistics (Equity): 2001 to 2007 2007 2006 2005 2004 2003 2002 2001
ASPI �,54�.0 �,7��.4 �,9��.� �,506.9 �,06�.� 8�5.� 6��.0 % Change (6.7) 4�.6 �7.5 4�.9 30.3 3�.� 38.7 MPI 3,�9�.9 3,7��.8 �,45�.� �,073.7 �,897.8 �,374.6 �,03�.0 % Change (��.3) 5�.4 �8.� 9.3 38.0 33.3 47.6 Annual Turnover (Rs Mn) �04,985 �05,�54 ��4,599 59,05� 73,657 30,�83 �3,905 Foreign Purchases (Rs Mn) 46,797 37,�67 �7,7�� ��,�78 �3,944 7,478 �,��� Foreign Sales (Rs Mn) 35,543 3�,789 ��,568 �0,�7� �3,735 5,036 3,�37 Net Inflow (Rs. Mn.) ��,�54.3 5,377.3 6,�44.5 �,�06.3 �09.3 �,44�.5 (�,0�4.8)Daily Average Turnover (Rs Mn) 436 436 48� �46 307 ��7 58 Shares Traded (No Mn) �,887 3,9�� 5,��8 �,75� �,�55 �,��0 747 Trades (No) 876,9�8 95�,38� �,�00,45� 645,083 48�,�69 �80,68� �58,6�7 Market Cap (Rs Bn) 8�0.7 834.8 584.0 38�.� �6�.8 �6�.6 ��4.0 Market PER Year End (Times) ��.6 �4.0 ��.� �0.8 ��.� ��.� 7.5 Turnover to Average Market Cap (%) ��.7 �4.8 �3.7 �8.� 34.6 ��.0 �3.� Dividend Yield �.5 �.� �.7 3.� 3.� 4.3 6.8 Price to Book Value (Times) �.8 �.0 �.7 �.3 �.� 0.9 0.8Source: Colombo Stock Exchange
Annual Report 2007
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�006 and �4.�% in �005, reflecting an increasing interest in the local market (Figure 3).
The total purchases made by foreign investors during �007 amounted to Rs. 46.8 billion, while the total sales made by foreign investors was Rs. 35.5 billion. The largest foreign investments were made in the Diversified Holdings and Banks, Finance & Insurance sectors, recording net inflows of Rs. 5.5 billion and Rs. 5.� billion, respectively. The largest foreign outflows were in the Telecommunications and Beverage, Food & Tobacco sectors.
Capital FormationThere were no new listings during the year �007. However, the �� Rights Issues by listed companies during the year �007 raised more capital through the stock market than both the primary and secondary market issues raised in the history of the CSE (Figure 4).
CSE Contribution to Government RevenueThe Share Transaction levy of 0.�0%, imposed in January �005, is charged on all equity transactions (purchases and sales) executed on the CSE. This tax is recovered at the time of settlement of the transactions and sent directly to the Department of Inland Revenue by the CSE, ensuring �00% collection of the tax. It is noteworthy that Rs.4�9.9 million was collected in �007. Since the introduction of the Share Transaction Levy, a sum of Rs. �.�9 billion has been collected and remitted to the government as taxes.
This revenue excludes the 0.09% charged on every equity transaction by the Securities & Exchange Commission (SEC).
Introduction of a Single Tier Settlement CycleThe CSE made a far reaching change in the equity settlement with the introduction of a single tiered settlement for equities with effect from �0th December �007. Since inception the CSE had a two tiered
Figure 2: Interest Rates and the ASPI Growth: 2001 to 2007 2007 2006 2005 2004 2003 2002 2001
ASPI Annual Growth (%) (6.66) 4�.63 �7.56 4�.88 30.30 3�.�6 38.74 Average Weighted Fixed Deposit Rate (%) �5.49 ��.5 9.�5 7.67 7.�� �0.�7 �3.47364-day Treasury Bill Rate (%) �9.96 ��.96 �0.37 7.65 7.�4 9.9� �3.74Source: Colombo Stock Exchange and Central Bank of Sri Lanka
Figure 3: Contribution to Purchases and Sales: 2001 to 2007 2007 2006 2005 2004 2003 2002 2001
PURCHASES (%) Foreign Companies 40.3 �8.0 �7.4 �3.5 �4.7 �5.7 �3.9 Foreign Individuals 4.3 7.3 6.8 5.5 4.� 8.8 �.� Total Foreign 44.6 35.3 �4.� �9.0 �8.9 �4.5 �5.0 Local Individuals �8.7 3�.4 4�.9 47.� 36.8 34.3 37.8 Local Companies �6.7 3�.� 33.9 33.9 44.4 4�.� 47.� Total Local 55.4 64.7 75.8 8�.0 8�.� 75.5 85.0 SALES (%) Foreign Companies �7.3 �4.7 �3.� ��.3 �4.� �5.� ��.0 Foreign Individuals 6.6 5.6 5.6 4.9 4.5 �.3 �.4 Total Foreign 33.9 30.� �8.8 �7.� �8.6 �6.5 ��.3 Local Individuals 34.9 37.7 44.8 48.8 35.5 37.3 30.4 Local Companies 3�.3 3�.� 36.4 34.0 45.9 46.� 47.3 Total Local 66.� 69.8 8�.� 8�.8 8�.4 83.5 77.7 Source: Colombo Stock Exchange
settlement cycle. Moving to a single tiered settlement will facilitate the introduction of a Delivery vs Payment (DVP) system to the CSE. In the present system sellers face an Asset Commitment Risk (ACR), i.e that they lose control of the securities at the point of execution of the trade on Trade day (T) whereas the funds are received by them only on T +3. In contrast the buyer does not face any ACR. The buyer is better off since the buyer receives the securities on Trade day (T) but has 3 market days within which to make payment. DVP is a system that envisages the delivery of shares only when the buyer pays for it on the settlement date. Hence under a DVP system the buyer will receive shares only on the settlement date.
The reduction in the settlement for sellers from T +4 to T + 3 shortened the asset commitment period by one day and eliminated the settlement lag of one day between buyers and sellers. Accordingly this has a positive impact on ACR.
New Branch OpenedThe CSE opened a branch in Negombo in August �007 with the objective of broad basing the market to the region. Ten Stockbroker Firms operate at this branch and it has generated a turnover of Rs. 765.4 million during the four months of operation in �007.
Future InitiativesThe CSE has identified the urgent need to reduce systemic risk, increase market liquidity and offer new products to investors.
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Introducing a Delivery Versus Payment system and a clearing corporation (to eliminate counter party risk) are two key issues that are being considered for implementation to reduce the systemic risk in the market and increase investor confidence.
In an effort to improve market liquidity, price efficiency and transparency, the CSE is considering amendments to the current Automated Trading System (ATS) which was implemented in �997, in consultation with industry participants.
Development of new products such as financial and commodities derivatives and Exchange Traded Funds are also a key focus of the CSE to improve the breadth of the market.
As trading is highly concentrated amongst a limited number of investors, the CSE
has to concentrate on a more structured investor education programme in order to increase the critical mass of investors in the nation. Different mechanisms such as classroom method, TV programmes, distance learning and computer-based learning would be introduced to cater to the needs of the diverse potential investors in the economy.
Considering the importance of developing the knowledge and professionalism of the Investment Advisors of Stockbroker Firms dealing with clients, the CSE has commenced a series of Professional Development programmes. The programmes scheduled for �008 will include the New Companies Act, Financial & Equity Analysis, Portfolio Management, Ethics and Technical Analysis.
AppreciationI wish to express my appreciation to the Chairman and Board of Directors of the CSE for their invaluable advice and guidance at all times.
To the Chairman, Director General, Deputy Director General and staff of the Securities & Exchange Commission, the Member and Trading Member Firms and the listed companies, thank you very much for supporting the CSE in all our endeavours.
Last but not least, a very sincere thank you to the CSE Management and team for your untiring efforts.
Surekha SellahewaChief Executive Officer
Figure 4: Capital Formation: 2001 to 2007 2007 2006 2005 2004 2003 2002 2001
Voting Ordinary Share Issues No. Of Offers for Subscription - � 3 � 4 3 -Amount Raised (Rs. Mn.) - 500 9,698 3,878.3 �,045.8 79.7 -No. Of Offers for Sale - - - - � -Amount Raised (Rs. Mn.) - - - - 3,373.7 -No. of Introductions - � 3 3 3 4 �Total No. Of New Listings - Equity - � 6 5 9 7 � Non-voting Ordinary Share Issues - � � � � - -Amount Raised (Rs. Mn.) - �00 75 �.7 �,��7 - -Preference Share Issues - - - - � - �Amount Raised (Rs. Mn.) - - - - �,000 - 906 Right Issues No. of Rights issues (No.) �� �5 �8 �5 �8 9 5Amount Raised (Rs. Mn.) 44,6��.� 4,705.5 3,50�.� 5,�63.6 6,4�5.3 964.� ��3 Total Amount Raised through Equity Market (Rs. Mn.) 44,6�� 5,305 �3,�74 9,�44 ��,97� �,044 �,��9 Bonus Issues No. of Bonus issues (No.) �� �� �8 �5 �4 �8 9Source: Colombo Stock Exchange
Chief Executive Officer’s Review Contd.
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Operational Review
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Business DevelopmentBranch Network of the CSEThe CSE commenced operations of a branch office in Negombo in August �007. The largest of the CSE Branches, the Negombo Branch houses representatives of �0 Member Firms.
The CSE branch network has been successful in attracting a significant number of retail investors into the market. In �007, 3,399 new CDS accounts were opened through the four branches operating in Matara, Kandy, Kurunegala and Negombo. This accounts for �3% of the total CDS accounts opened during the year, a notable 5% increase compared to �006. A total of 3,��4 deposits (excluding Direct Deposits) were made through the 4 branches of which approximately 5�% was from the Kandy Branch.
The contribution of CSE Branches to total Local Individual turnover of the market has increased gradually since �999. In �007, the total contribution to the total Local Individual market turnover by branches is �7.�3% (Figure �).
CSE WebsiteThe changing needs of existing and potential investors prompted the CSE to develop a new website which would act as a portal for the capital market industry and also as the primary communication channel for the CSE.
The development, implementation, & maintenance of the new web site was awarded to E-Futures (Pvt) Ltd, based on the Technical & Commercial proposals, and the agreement for the development of the site was initiated in May �007.
The new web site, which was launched on 3�st October �007, uses state-of-the-art hardware & networking solutions to disseminate all stock market related information, both static & dynamic, in
a timely and accurate manner. The user friendly design captures and displays a comprehensive array of real time market statistics which will help existing & potential investors make well informed investment decisions.
Investor RelationsInvestor Education The CSE continued its awareness programmes throughout the year �007, through the Colombo office and the branch network. A total of �5 workshops and 43 public seminars were conducted in Colombo, which included special training & seminars for Media personnel and listed company Directors.
Branches conducted 3� public seminars, reaching over �,500 people, while Regional Market Educators at Branches
conducted �5� focused seminars for 5,400 participants. The Branches conducted two ‘Investor Day’ programmes in Galle and Anuradhapura, attracting approximately 800 participants. The CSE also conducted a successful Investor Day in Negombo, attracting over 500 participants, as publicity for the opening of a CSE Branch in Negombo.
The CSE continued to organise special educational seminars for schools during the year. Although the number of student visits to the CSE Public Gallery in Colombo continued its decline throughout �007 due to security reasons, 44 such programmes were conducted in Colombo while the branch offices conducted a total of 68 educational programmes for over 6,000 Ordinary and Advanced Level students.
Figure 2: Turnovers generated in 2007 through Seminars conducted by CSE from 2005 to 2007 2007 2006 2005 Rs. Mn Rs. Mn Rs. Mn
Colombo 4�5.3� �,334.�� �,5�6.43 Matara 49.69 �74.97 �60.4� Kandy �49.33 ��5.40 ��8.33 Kurunegala 3�.�0 �83.04 9�.46 Negombo �3.80 Total 760.34 1,907.63 1,886.63
Figure 1: Branch Contribution to Market Turnover: 2007 Ave. Daily Turnover as a % Contribution to No. of New Turnover % of Total Market Local Individual Accounts opened (Rs. Mn) Turnover Turnover
Matara 9�3 8.� �.9 5.9 Kandy �,��6 8.0 �.8 5.9 Kurunegala 8�5 4.3 �.0 3.� Negombo 445 7.4 �.8 �.3
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The Marketing Effectiveness Measurement System (MEMS)�, introduced to measure the impact of CSE events on turnover generated, evaluates the effectiveness of programmes conducted by the CSE. Given in Figure � is a summary of turnover generated in �007 by new and inactive investors who had not traded on the CSE for a considerable period before attending CSE seminars in Colombo and branches.
As evident in Figure �, participants of seminars conducted during �007 accounted for a turnover of Rs. 760.3 million. We also note that participants of seminars conducted in �005 and �006 have continued to invest in the market as a result of these awareness programmes. Participants of seminars conducted in �005 and �006 generated turnovers of Rs. �.88 billion and Rs.�.9 billion, respectively, in �007.
CSE Publications Handbook of Listed Companies is a publication that provides information regarding Listed Company Financials. Information provided in the publication was enhanced in �007 to include an unabridged Profit & Loss account, Balance Sheet and Cashflow statement, due to high demand for this information.
The Investor magazine, a monthly newsletter introduced in �004 with the intention of circulating among active investors, was converted to a subscription-based publication in �007. The magazine has become the most popular CSE publication due to its snippets and timely articles and currently has a subscriber base of over 800. Advertising space in the form of a strip has been allocated exclusively for Stockbroker firms.
Information DisseminationThe launch of the new CSE website has simplified the process of obtaining stock market related information, on a real-time basis. Existing and potential investors have access to real time and static data pertaining to the stock market. A section titled ‘Getting Started‘ with animated and text data has been developed for the benefit of new investors.
The CSE continued the transmission of a data Ticker of share prices and CSE price indices on ITN every trading day from 9.30 a.m. to �.30 p.m. Share price information is thereby available islandwide and free of cost, and is most valuable to those who are unable to access live market information through a broker office, the Internet or other means.
The CSE commenced a stock market update on Yes FM from �st November �007. The update includes a snapshot of the market at ��.55 a.m. and a daily market round-up at 5.55 p.m. The CSE also conducted weekly 5 minute interviews with Derana TV.
The CSE also published educational articles in selected Magazines and Newspapers. Stock Market information was published daily in the English Newspapers.
Broker RelationsInvestment Advisor CertificationThe Investment Advisor Certification is a mandatory requirement by the SEC for Investment Advisors of Member firms dealing with clients. Though the course is a requirement only for Investment Advisors, it has also attracted the interest of the general public.
During the year �007, the CSE commenced two English medium batches with a total of ��6 registrations for the first batch and 90 for the second. �� students successfully completed the first batch, and 86.4% of them were public participants, i.e. non broker students.
Broker TrainingThe CSE conducts continuous training programmes to enhance the knowledge and technical skills of the staff of Member Firms. In �007, the CSE conducted �0 training programmes in Colombo and the four CSE Branches. These included training on the Salient Features of the new Companies Act, understanding Financial Statements, Know Your Customer norms and CDS Procedures.
The CSE intends to further enhance the training programmes, especially for Investment Advisors at the CSE Branches.
Issuer RelationsThe Issuer Relations unit was set up in the latter part of �006 with the objective of creating awareness and assisting unlisted companies to consider the option of raising capital by listing on the Stock Exchange.
A team of CSE officials conducted visits to �6 companies during �007 to create awareness among chief officers and decision-makers of such companies about the benefits of listing and listing procedures etc.
The CSE also conducted a workshop titled ‘Family Businesses Going Public - What’s needed to make it work’, in association with the Ceylon Chamber of Commerce, for decision-makers of unquoted family-owned companies, in November �007. This interactive workshop was conducted
� NIC numbers of participants at CSE events or seminars are collected and entered into the MEMS and the turnover generated by such seminar participants is measured. However, all seminar participants do not submit their NIC details. Hence, what is measured in the MEMS is the minimum turnover generated and the exact turnover may be much higher than stated in the reports.
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by Mr. Albert Jan Thomassen, Associate of The Family Business Consulting Group Inc. Netherlands, and dealt with the issues of attracting and retaining talent, selection of non executive directors, working with non family executives and the changing role of the family in the business and developing effective family business governance. Approximately 80 key decision-makers of companies attended the seminar.
The CSE also published a booklet named ‘Unlocking Value’ which provides detailed information on benefits of listing and the Listing process.
Product DevelopmentIntroduction of DerivativesIn setting the ground work necessary for the introduction of Derivatives trading in Sri Lanka, the CSE continued its efforts of building awareness among market participants and market intermediaries on Derivatives.
A two-day workshop on ‘Market Micro Structures & Derivatives’ was conducted by the CSE in October �007, for potential market participants and market intermediaries. The workshop was conducted by Dr. Susan Thomas and Dr. Ajay Shah, professionals who were instrumental in introducing Derivatives to the Indian Stock Markets.
Regulatory Affairs Regulation of Member FirmsAmendments to the Member RegulationsThe following amendments were made to the Member Regulations of the CSE during the year �007:
Credit rules Pursuant to a directive issued by the SEC, new rules were incorporated to the Member Regulations to regulate the granting of credit by Brokers to their clients, since some Stockbroker Firms were over-extending credit to clients.
‘Fit and Proper’ RulesBased on a directive issued by the SEC, ‘Fit & Proper’ rules were introduced whereby Stockbroker Firms should not directly or indirectly obtain the services of any person to deal with clients, if such person has been:a) charged in a court of law with the
commission of offences of insider dealing, market manipulation and/or involving fraud or deception, until such person is discharged from liability by a court of competent jurisdiction on the charges brought against him;
orb) convicted by a court of law with the
commission of any offence involving fraud and/or dishonesty and/or identified as an offence under the SEC Act (as amended) or Rules or Regulations made thereunder;
orc) against whom an offence is
compounded in terms of the SEC Act (as amended), for a period of three years from the date of compounding, unless the CSE, in consultation with or upon a directive from the SEC, varies the duration of such period.
Settlement of fundsPursuant to the introduction of a single tier settlement of T+3 with effect from �0th December �007, the Buyer is required to ensure that cleared funds are made available to the Buyer’s Broker on T+3 and the Seller’s Broker shall make cleared funds available to the Seller on T+3. “Cleared Funds” mean funds that are realised and available for drawing in the payee’s bank account.
Net CapitalThe minimum net capital requirement of Broker Firms was increased from Rs. �5 million to Rs. 35 million from 3�st December �007.
Inspection of Stockbroker FirmsThe systems review process was revised with special focus on risk-based issues. Areas such as the extension of credit to Clients, Maintenance of the minimum Net Capital Requirement, Internal Controls and Business Practices were introduced to the Systems Review questionnaire.
ListingThe CSE introduced rules on Corporate Governance in March �007 to the Listing Rules to improve the Governance accountability of listed companies to its stakeholders. The Corporate Governance rules were drafted by the committee set up by the SEC. The following provisions were incorporated into the rules:
�. Non-executive Directors & Independent Directors
�. Remuneration committee - Composition, functions & disclosure in the Annual Report.
3. Audit committee - Composition, functions & disclosure in the Annual Report.
The Listing Rules were also amended to clearly specify what action the CSE would take against Companies that are transferred to the Default Board for non-compliance with the Listing Rules. If a company is on the Default Board in excess of one month, the CSE has the right to issue a press notice informing the public of the nature of the violation and if such company is on the Default Board for more than 3 months, the CSE may refer the matter to the SEC for necessary action.
Companies on the Default BoardIn terms of the Listing Rules, the CSE referred eight companies to the SEC, which were on the Default Board for a period of more than one year due to non-compliance with Listing Rules.
Operational Review Contd.
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Compliance with Financial Transactions Reporting Act (FTRA)l An internal control guideline for
account openings and reporting of suspicious transactions was introduced by the CDS, in compliance with section �4 of the Financial Transaction Reporting Act (FTRA) No. 6 of �006.
l The Assistant Manager CDS was also appointed as the Compliance Officer to ensure that the CDS complies with the FTRA.
Central Depository System (CDS)
Figure 3: Operational Activities of the CDS from 2001 to 2007 2007 2006 2005 2004 2003 2002 2001
Operational Highlights New Accounts (No.) �5,0�0 �4,8�3 56,465 ��,348 ��,440 ��,0�6 5,067 Deposits (No.) �06,080 7�,�54 �00,836 �04,870 95,878 6�,0�0 �4,7�8 Withdrawals (No.) �08 ��� �05 3�5 47� 447 404 Transfers (No.) �6,98� �8,535 �7,87� ��,877 �5,349 �4,��0 ��,�0� Trades (No.) 877,�9� 953,887 �,�03,09� 647,83� 484,09� �83,9�6 �60,094 Market Days (No.) �4� �4� �38 �4� �38 �38 �40 Listed Companies (No.) �35 �37 �39 �4� �44 �38 �38 Participants (No.) 36 37 35 34 3� 3� 3� Registration Status of Securities Accounts (as at 31st December) Local Individuals (No.) 353,�87 343,697 334,085 �90,340 3,��5,48� �60,�60 �5�,74�Foreign Individuals (No.) �,577 �,487 �,377 �,044 �0,�8� �,593 �,48�Local Companies (No.) 4,908 4,755 4,5�9 3,7�0 37,376 �,950 �,769Foreign Companies (No.) 3,468 3,305 3,�74 3,047 34,595 �,8�7 �,67�
(The above break-up excludes the number of multiple registrations sought by the same client through different participants)Total Number of Registrations 466,369 45�,349 436,5�6 380,050 4,�69,�4� 337,�73 3�6,�57 Value of Securities Held (as at 31st December) By Domestic Clients (Rs. Mn) �60,455 �48,693 �79,78� �40,380 �,055,643 66,474 50,9�4By Foreign Clients (Rs. Mn) �57,633 ���,383 79,999 54,65� 375,035 �9,470 ��,�43Total Market Value of Securities held (Rs. Mn) 4�8,088 370,076 �59,780 �95,03� �,430,678 85,944 63,�66Market Capitalisation (Equities) - (Rs. Mn) 8�0,65� 834,763 584,040 38�,665 �,897,7�� �6�,588 ��4,045Percentage Value held by the CDS 5�% 44% 44% 5�% 49% 53% 5�% Number of Shares in Custody (as at 31st December) By Domestic Clients (No. Mn) 7,680 6,746 5,854 4,043 �9,564 �,�65 �,879By Foreign Clients (No. Mn) 3,564 �,738 �,5�7 749 8,�60 633 5�4Total (No. Mn) ��,�44 8,484 7,38� 4,79� 37,7�4 �,799 �,393Source: Central Depository Systems
l Awareness programmes were conducted by the CDS for the �0 Broker Firms on the Compliance requirements under section �4 of the FTRA.
l The CDS commenced recommending applications for the opening of CDS Accounts from regional and global Funds to the SEC.
Single Tiered Settlement introducedOn a directive issued by the SEC, a single tier settlement for Equity transactions of Trade Day + 3 (T+3) was introduced with effect from �0th December �007.
Accordingly, the settlement for Buyers, Sellers and Inter Participants will take place on T+3. Previously, the settlement for Equity transactions was two tiered with T+3 for Buyers and T+4 for Sellers and for the Inter Participatory settlement.
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Operational Review Contd.
Information TechnologyThe Automated Trading System (ATS) uptime was �00% in �007, with no system breakdowns during the year. The CSE also launched an initiative to introduce a new Surveillance system to be better equipped to identify common market malpractices.
ATS Version 4Version 4 of the ATS has been very stable and system uptime has further improved from 99.85% in the previous year (�006) to �00% this year. The Wide Area Networks had a general failure resulting in an outage of the remote brokers for �0 minutes in August �007.
Access to Custodian BanksCSE implemented a special Wide Area Network for the Custodian Banks to provide access to the Central Depository System. A new application was developed for the Custodian Banks providing information on client details and balances of the custodian clients, market information, statistics and trade details.
Improved Physical Security in the IT DivisionThe physical security of the IT Division and the Server Room were enhanced by the implementation of a biometrics access control system. The system restricts access to the IT Division as well as the CPU room and logs all access information to an Oracle database. The system has been further enhanced to interface with the HR System such that the IT staff has the ability to mark their attendance through the system.
New Telephone SystemThe ten year old telephone system was replaced with a modern IP telephone system with enhanced facilities. An E� connection having 30 channels was also implemented easing contactability by dialling the pilot number with the extension.
CDS Forms and ReportsThe CDS is currently working on a client server Oracle environment. The CSE is in the process of upgrading the CDS application to a browser-based system, enabling users to access the CDS via a browser. This would improve the application security of the CDS. Oracle has moved from client server to application server technology where software developed in Oracle is accessed through a browser. Disaster Recovery Site CSE carried out two mock trading cycles from the Disaster Recovery (DR) site to ensure that on a site disaster the member firms could operate from their offices by connecting their Local Area Networks to the DR site. The DR site has a scaled-down server configuration that could handle the volumes of trades recorded by the CSE. A test system, which is identical to the production system, is also available at the DR site so that in a long term contingency, the test system could be easily converted to be the production system.
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ManagementTeamChief Executive Officer - Ms. Surekha Sellahewa
Assistant General Manager, Clearing & Settlement - Mr. Rajeeva Bandaranaike
Assistant General Manager, Information Technology - Mr. Lalin Paranavitana
Assistant General Manager, Regulatory Affairs - Mr. Renuke Wijayawardhane
Senior Manager, Human Resource - Ms. Nilanthi Jayatillake
Senior Manager, Security Administration - Mr. Charita Dumbukola
Manager, Business Development - Mr. Tushara Jayaratne
Manager, Finance & Administration - Mr. Kusal Nissanka
Manager, Legal - Ms. Renu Ranatunge
Manager, Systems Operation - Mr. Chatura Kulatilaka
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Human Resource Indicators
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Senior Mgmt 7 8 8 7 7 7 7 7 6 7Management 6 8 6 5 5 9 �0 �� �0 �0Executives �0 �4 �9 �6 30 3� 53 5� 56 58Clerical �9 �5 �0 9 8 8 9 �0 �0 �0Other 9 9 8 8 8 9 8 8 9 �0
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Financial Information
Annual Report 2007
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Report of the Audit Committee for the Year 2007
The Audit Committee of the Colombo Stock Exchange (CSE) comprises 3 elected directors and � appointed director. All 4 members of the Audit Committee are Non-Executive Directors. The Manager Finance & Administration attends the meetings of the Audit Committee on invitation.
The Committee is empowered to examine matters relating to the financial affairs of the CSE and its subsidiary Central Depository Systems (Private) Limited (CDS). Its duties include detailed reviews of the financial statements, internal control procedures, accounting policies, compliance with accounting standards and emerging accounting issues, and such other related functions as the Board may delegate to the Committee.
The financial statements for the year ended 3�st December �007 were discussed and approved by the Committee at the Audit Committee meeting held on �8th February �008 for submission to the Board. The Committee reviewed & approved the draft letter of representation to be given to the External Auditors for the year �007. The Committee recommended the inclusion of the Statement of Director’s Responsibilities in the �007 Annual Report.
Dhakshitha ThalgodapitiyaChairman - Audit Committee
�7th March �008
Statement of Directors’ Responsibilities
The Directors confirm that the Financial Statements of the Colombo Stock Exchange (CSE) and its subsidiary Central Depository Systems (Private) Limited (CDS) for the year ended 3�st December �007 presented in this report have been prepared in accordance with the Sri Lanka Accounting Standards and the Companies Act No: 07 of �007. In preparing the Financial Statements, the Directors have selected the appropriate accounting policies and have applied them consistently. Any material deviations have been disclosed and explained in the Financial Statements.
The Directors have adopted the going concern basis in preparing the Financial Statements.The Directors are of the view that the CSE & CDS have adequate resources to continue in operation.
The Directors have taken reasonable steps to safeguard the assets of the CSE and its subsidiary CDS.
The Directors have provided the Auditors with every opportunity to carry out any reviews and tests that were considered appropriate and necessary for providing the audit opinion on the Financial Statements.
By order of the Board,
Secretarial Services LimitedSecretariesColombo
�7th March �008
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Auditor’s Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COLOMBO STOCK EXCHANGE
Report on the Financial StatementsWe have audited the accompanying financial statements of Colombo Stock Exchange the consolidated financial statements of the Company and its subsidiary as at that date which comprise the balance sheet as at December 3�, �007, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Scope of Audit and Basis of OpinionOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.
OpinionIn our opinion so far as appears from our examination, the Company maintained proper accounting records for the year ended December 3�, �007 and the
financial statements give a true and fair view of the Company’s state of affairs as at December 3�, �007 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.
In our opinion consolidated financial statements give a true and fair view of the state of affairs as at December 3�, �007 and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiary dealt with thereby, so far as concerns the members of the Company.
Report on Other Legal and Regulatory RequirementsThese financial statements also comply with the requirements of Section �53(�) and Sections �53(7) of the Companies Act No. 07 of �007.
CHARTERED ACCOUNTANTSColombo.�7th March �008.
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Balance Sheet
Consolidated CSEAs at 31st December 2007 2007 2006 2007 2006 Note Rs. Rs. Rs. Rs.
ASSETSNon Current AssetsProperty and Equipment 3 98,493,�8� 80,370,358 98,493,�38 80,370,3�4Intangible Assets 4 38,886,489 �8,0��,776 38,886,489 �8,0��,776Capital Work in Progress 5 - �,66�,6�3 - �,66�,6�3Development Cost 6 � � � �Investments in Subsidiary 7 - - 50,0�5,000 50,0�5,000Investments in Treasury Bonds 59,�96,689 - 59,�96,689 -Investments in LFSB 8 �,000,000 - - -Total Non Current Assets �98,576,36� �0�,045,748 �46,60�,3�7 �5�,070,704
Current AssetsInventories 4,484,�96 5,�65,�4� 4,4�9,083 5,��3,640Investments in Treasury Bills and Repos 850,94�,049 �,06�,756,490 850,94�,049 �,06�,756,490Investments in Fixed Deposits 5�,830,60� - 5�,830,60� -Other Receivables 9 56,434,64� 46,4�6,8�8 50,�78,550 4�,40�,8�3Income Tax Recoverable 3,6�7,43� - - -Cash and Cash Equivalents �0 �6,44�,099 �7,477,5�6 �6,�90,7�� �7,3��,675Total Current Assets 993,750,0�8 �,�30,8�6,076 983,57�,005 �,��5,585,6�8
Total Assets �,�9�,3�6,379 �,�3�,86�,8�4 �,�30,�7�,3�� �,�76,656,3��
EQUITY AND LIABILITIESAccumulated Fund 889,76�,598 759,3�8,349 889,76�,598 759,3�8,349Revenue Reserve of CDS 46,735,�6� 45,��8,4�7 - -Capital Reserve �� 49,975,000 49,975,000 - -Capital Redemption Reserve �� 40,000,000 30,000,000 - -Conference Fund Account �� 558,7�3 558,7�3 558,7�3 558,7�3Total Capital and Reserves �,0�7,030,57� 884,990,479 890,3�0,3�� 759,887,06�
Non Current LiabilitiesBrokers’ Deposits in lieu of Bank Guarantee �� 5�,939,970 3�,439,970 5�,939,970 3�,439,970Employee Retirement Benefits �3 �7,5��,897 ��,699,944 �7,5��,897 ��,699,944Deferred Grants �4 �,603,��� �,�44,555 �,603,��� �,�44,555Deferred Tax Liabilities �5 9,�49,506 �,803,3�3 9,�49,506 �,803,3�3Total Non Current Liabilities 80,304,485 50,�87,79� 80,304,485 50,�87,79�
Current LiabilitiesBrokers’ Deposits in lieu of Bank Guarantee 30,645,000 �07,7�0,000 �4,�50,000 �0�,500,000Income Tax Payable �3,0��,�94 54,���,555 �3,0��,�94 49,70�,05�Other Payables �6 �8,583,73� �3,460,344 �09,534,936 �03,998,763Tsunami Fund Payable 6,754,470 6,��8,863 6,754,470 6,��8,863Bank Overdraft �0 5,986,8�6 5,�6�,79� 5,986,8�6 5,�6�,79�Total Current Liabilities 84,99�,3�� �96,683,553 �59,547,5�6 466,58�,468
Total Equity and Liabilities �,�9�,3�6,379 �,�3�,86�,8�4 �,�30,�7�,3�� �,�76,656,3��
The accounting policies & notes as set out in page 34 to 44 form an integral part of the Financial Statements.
These Financial Statements are in compliance with the requirements of the Companies Act No. 07 of �007.
Manager Finance & Administration
These Financial Statements were approved by the Board of Directors on �7th March �008.
A.N. Fonseka Ashroff OmarChairman Directors
�7th March �008.Colombo.
Annual Report 2007
3�
Income Statement
Consolidated CSEFor the Year Ended 31st December Note 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
Revenue �7 3�7,794,908 449,598,974 �47,8�7,758 368,�33,999Other Income �8 �79,4�3,4�9 84,�0�,657 �79,�68,348 83,�88,560 507,��8,337 533,700,63� 4�6,986,�06 45�,3��,559
Personnel Cost �9 (84,76�,887) (73,�67,894) (74,094,0�3) (60,�77,�79)Depreciation and Amortisation (4�,�57,935) (37,738,693) (4�,�57,935) (37,738,693)Other Operating Expenses �0 (�7�,970,�66) (���,836,�96) (���,400,68�) (90,6�3,�88)Profit before taxation �08,��8,349 �99,957,848 �89,�33,476 �6�,693,�99Taxation �� (66,�88,�56) (96,438,9�8) (58,800,��7) (83,0�6,768)
Net profit for the year �4�,040,093 �03,5�8,9�0 �30,433,�49 �79,676,53�
The accounting policies & notes as set out in page 34 to 44 form an integral part of the Financial Statements.
Annual Report 2007
3�
For the Year Ended 31st December 2007 Accumulated Revenue Capital Capital Conference Total Fund Reserve Reserve Redemption Fund of CDS Reserve Account Rs. Rs. Rs. Rs. Rs. Rs.
CONSOLIDATEDBalance as at �st January �006 579,65�,8�8 3�,�86,0�8 49,975,000 �0,000,000 558,7�3 68�,47�,559Net Profit for the year �03,5�8,9�0 - - - - �03,5�8,9�0Transferred to/(from) during the year - (�0,000,000) - �0,000,000 - -Revenue Profit of CDS for the year (�3,84�,389) �3,84�,389 - - - -Balance as at 31st December 2006 759,3�8,349 45,��8,4�7 49,975,000 30,000,000 558,7�3 884,990,479Net Profit for the year �4�,040,093 - - - - �4�,040,093Transferred to/(from) during the year - (�0,000,000) - �0,000,000 - -Revenue Profit of CDS for the year (��,606,844) ��,606,844 - - - -Balance as at 31st December 2007 889,76�,598 46,735,�6� 49,975,000 40,000,000 558,7�3 �,0�7,030,57�
Accumulated Conference Total Fund Fund Account Rs. Rs. Rs.
CSEBalance as at 1st January 2006 579,65�,8�8 558,7�3 580,��0,53�Net Profit for the year �79,676,53� - �79,676,53�Balance as at 31st December 2006 759,3�8,349 558,7�3 759,887,06�Net Profit for the year �30,433,�49 - �30,433,�49Balance as at 31st December 2007 889,76�,598 558,7�3 890,3�0,3��
The accounting policies & notes as set out in page 34 to 44 form an integral part of the Financial Statements.
Statement of Changes in Equity
Annual Report 2007
33
Consolidated CSEFor the Year Ended 31st December 2007 2006 2007 2006 Note Rs. Rs. Rs. Rs.
Cash Flows from Operating ActivitiesNet Profit before Taxation �08,��8,349 �99,957,848 �89,�33,476 �6�,693,�99
Adjustments For:Depreciation / Amortisation 3/4 4�,�57,936 37,438,45� 4�,�57,936 37,438,45�Interest Income �8 (�53,733,433) (78,�44,488) (�53,733,433) (78,�44,488)Amortisation of Deferred Grant �4 (�,8�4,776) (�,�34,5�4) (�,8�4,776) (�,�34,5�4)Amortisation of Development Cost 6 - 300,�4� - 300,�4�(Profit) / Loss on Sale of Property & Equipment (7,709,508) (60,839) (7,709,508) (60,839)Property & Equipment / Intangible Assets Written Off �,6�4,�39 - �,6�4,�39 -Gratuity Provision �3 5,7��,675 4,909,06� 4,796,59� 4,4�0,808Provision for Bad Debts 60,785 ���,40� 55,655 �09,5��Operating Profit before Working Capital Changes 94,636,�67 �63,�77,�63 74,7�0,�80 ��5,5��,47�
(Increase) / Decrease in Inventories 68�,046 (9�7,66�) 684,557 (9�3,480)(Increase) / Decrease in Other Receivables 9 (�0,078,609) (��,758,956) (8,83�,39�) (��,045,47�)Increase / (Decrease) in Other Payables �6 5,758,996 6,506,598 7,097,864 3�,5�9,537Increase / (Decrease) in Broker Deposits (�57,575,000) �07,�00,000 (�57,750,000) �0�,000,000Cash Generated from Operations (66,577,300) 364,�07,�43 (84,088,79�) 346,083,057Income Tax Paid (89,�69,48�) (55,769,909) (73,843,5�6) (37,8��,965)Gratuity Paid �3 (9�0,7��) (�,�4�,490) (9�0,7��) (�,�4�,490)Net Cash Flow from Operating Activities (�56,757,503) 306,�95,744 (�58,843,0�9) 306,0�9,60�
Cash Flow from Investing ActivitiesInterest Income ��3,630,78� 57,4�8,6�4 ��3,630,78� 57,4�8,6�4Purchase of Property & Equipment and Intangible Assets (8�,593,537) (�7,837,3�4) (8�,593,537) (�7,837,3�4)Proceeds from Sale of Property & Equipments 8,086,946 �09,774 8,086,946 �09,774(Increase) / Decrease in Deposits & Treasury Bills & Bonds ��4,699,5�7 (337,0�7,874) ��4,699,5�7 (337,0�7,874)Investment in LFSB (�,000,000) - - -Net Cash Flow from Investing Activities �6�,8�3,708 (307,3�6,800) �64,8�3,708 (307,3�6,800)
Cash Flow from Financing ActivitiesGrants Received �4 �,�73,333 �,880,000 �,�73,333 �,880,000 �,�73,333 �,880,000 �,�73,333 �,880,000Net Increase in Cash and Cash Equivalents 8,�39,538 �,758,944 8,�54,0�� �,58�,80�Cash and Cash Equivalents at beginning of the Year ��,��4,735 �0,455,79� ��,049,884 �0,467,08�Net Cash and Cash Equivalents at end of the Year �0 �0,454,�73 ��,��4,735 �0,�03,896 ��,049,884
Cash in hand �70,000 �70,000 �65,000 �65,000Cash at bank 6,940,�7� 67�,456 6,7��,075 539,045RTGS Account �6,�80 �7,440 - -Short term investment - overnight repo �9,304,647 �6,608,630 �9,304,647 �6,608,630Cash & Cash Equivalents �6,44�,099 �7,477,5�6 �6,�90,7�� �7,3��,675
Bank Overdraft (5,986,8�6) (5,�6�,79�) (5,986,8�6) (5,�6�,79�)Net Cash & Cash Equivalents �0,454,�73 ��,��4,735 �0,�03,896 ��,049,884
The accounting policies & notes as set out in page 34 to 44 form an integral part of the Financial Statements.
Consolidated Cash Flow Statement
Annual Report 2007
34
1 CORPORATE INFORMATION(A) Domicile and Legal FormColombo Stock Exchange is a Company Limited by Guarantee incorporated & domiciled in Sri Lanka. The registered office of the Company is located at 4 - 0�, West Block, World Trade Center, Echelon Square, Colombo �, and the principal place of business is also situated at the same place.
(B) Principal Activities and Nature of OperationsThe principal activity of the Company is the operation of a Stock Exchange. The subsidiary operates a clearing and settlement of securities traded in the Colombo Stock Exchange and act as a depository for such securities.
(C) Number of EmployeesThe number of employees at the end of the year was 9� (87 in �006).
2 SIGNIFICANT ACCOUNTING POLICIESThe consolidated financial statements of the company for the year ended 3�st December �007 comprise the Central Depository Systems (Private) Limited, a wholly owned subsidiary of the Colombo Stock Exchange which was incorporated on �nd September �99�. The financial statements were authorised for issue by the Directors on �7th March �008.
(A) Statement of ComplianceThe consolidated financial statements have been prepared in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka (ICASL) and the requirements of the Companies Act No. 7 of �007.
(B) Basis of preparationThe consolidated financial statements are presented in Sri Lankan rupees rounded to the nearest rupee and prepared on the historical cost basis.
The accounting policies are consistent
with those used in the previous year. The company balance sheet represents the assets, liabilities and reserves. The consolidated balance sheet includes the assets and liabilities of the company and its subsidiary Central Depository Systems (Private) Limited. The statement of income of the company comprises of commission on brokerage, listing fees, quotation fees, broker fees, trading member fees, charges for remote data link and charges for computer information. The consolidated statement of income includes listed company fees and custodian fees in addition to the above.
The accounting policies have been applied consistently by the company and its subsidiary. The preparation of the financial statements inconformity with SLAS require management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
(C) Basis of consolidation(i) SubsidiarySubsidiary, is an enterprise that is controlled by the company. Control exists when the company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiary are included in the consolidated financial statement.
(ii) Transactions eliminated on consolidationIntra-group balances and transactions, and any unrealised gains/losses arising from
intra-group transactions, are eliminated in preparing the consolidated financial statements.
(D) Foreign CurrencyTransactions in foreign currencies are translated to Rupees at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Rupees at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement.
(E) Property and EquipmentItems of property and equipment are stated at cost less accumulated depreciation.
(i) DepreciationDepreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property and equipment. Depreciation is provided on a pro-rata basis on the assets purchased/constructed/disposed during the year.
The estimated useful lives are as follows:Furniture & Fittings 6-7 yearsComputers & Office Equipment 5 yearsMotor Vehicles 5 yearsTelephones 4 years
The depreciation rate of motor vehicles has been changed from �5% to �0% with effect from the �st January �007.
(ii) Subsequent expenditureSubsequent expenditure on property and equipment is capitalised only when it increases the future economic benefits embodied in the specific assets to which it relates. All other expenditure is expensed as incurred.
Notes to the Financial Statements
Annual Report 2007
35
(F) Intangible AssetsAn Intangible Asset is recognized if it is probable that future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably in accordance with the Sri Lanka Accounting Standard No. 37 on Intangible Assets. Accordingly, these assets are stated in the Balance Sheet at cost less accumulated amortization.
(i) AmortisationIntangible Assets are amortised on a straight-line basis to the Income Statement, from the date when the asset is available for use, over the best estimated of its useful economic life.
The estimated useful lives are as follows:Computer Software 5 years
(ii) Subsequent expenditureSubsequent Expenditure on Intangible Assets is capitalized only when it increase the future economic benefits embodied in these assets. All other expenditure is expensed as incurred.
(G) Development CostsExpenditure on development activities, whereby a plan or design for the production of new or substantially improved processes is capitalised if the process is commercially feasible and the group has sufficient resources to complete the development. Capitalised development expenditure is stated at cost less accumulated amortisation over the five year period.
(H) InvestmentsInvestment in subsidiary is held at cost.Treasury Bills, Bonds and Fixed Deposits are stated at their cost plus accrued interest component.
(I) InventoriesInventories include stationeries, stamps and data wall spares. Realizable values of such items can be considered as cost.
(J) Cash and cash equivalentsCash and cash equivalents comprises cash balances and Treasury Bill over-night repos. For the purpose of the statement of cash flows, cash and cash equivalents are presented net of bank overdrafts. The consolidated cash flow statement is prepared using the indirect method prescribed in the Sri Lanka Accounting Standard No. 9, cash flow statement.
(K) Employee benefits(i) Defined contribution plans - Employees’ Provident Fund and Trust FundAll employees of the company are members of the Employee’s Provident Fund and Employees’ Trust Fund, to which the employer contributes ��% and 3% respectively of such employees’ basic salary, cost of living and other similar allowances under the Provident Fund Act No. �5 of �958 as amended and Trust Fund Act No. 46 of �980. The company contribution is recognized as an expense in the income statement as incurred.
(ii) Defined benefits plansProvision has been made for retiring gratuities from the first year of service for all the employees in conformity with SLAS �6 (Revised). However, under the payment of gratuity Act No. �� of �983, the liability of an employee arises only on the completion of 5 years of continued service.
Provision is not externally funded.
(L) ProvisionsA provision is recognized in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.
(M) Trade and other payablesTrade and other payables are stated at their cost.
(N) GrantsGrants that compensate the Group for expenses incurred are recognised as revenue in the income statement on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised in the income statement as other operating income on a systematic basis over the useful life of the asset.
(O) RevenueRevenue is principally recognised on an accrual basis.
(P) ExpensesExpenses incurred are charged to income and expenditure account in the year in which it is incurred.
(Q) Provision for Taxation(i) Income taxThe provision for income tax is based on the elements of income and expenditure as reported in the financial statements and computed in accordance with the provisions of the Inland Revenue Act No. �0 of �006 and amendments thereto.
(ii) Deferred TaxationDeferred Tax is provided using the liability method on temporary differences as at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
(R) Comparative informationWhen necessary comparative figures have been reclassified to confirm to the current year’s presentation.
Annual Report 2007
36
Furniture & Computers & Motor Total Total Fittings Office Vehicles Telephones 31.12.07 31.12.06 Equipment Rs. Rs. Rs. Rs. Rs. Rs.
3. PROPERTY & EQUIPMENT - CONSOLIDATEDCost as at 0�.0�.07 47,�73,�7� �58,680,��3 �3,077,5�3 4,9�5,539 ��3,856,556 ��9,994,476Additions �5,405,5�� ��,�79,0�4 �8,9�7,950 5,64�,633 6�,�54,��9 �3,336,984Assets Written Off (4,484,�45) (�86,�00) - (7,500) (4,677,945) -Disposals / Transfers (��4,�70) (�,675,433) (9,�8�,5��) (�4�,��3) (��,��3,�47) (�9,474,904)Cost as at 3�.��.07 57,970,378 �79,097,6�4 ��,8�3,95� �0,4�7,549 �70,309,493 ��3,856,556
Accumulated Depreciation as at 0�.0�.07 �9,50�,8�� 97,904,308 ��,967,�03 4,���,976 �43,486,�98 �4�,876,676Charge for the year 4,6�4,4�5 3�,453,54� 3,839,73� �,���,930 4�,��9,6�8 �9,947,989Assets Written Off (�,904,305) (�4�,��3) - (7,�88) (�,053,706) -Disposals/Transfers (40,5��) (�,387,567) (9,�8�,5�9) (�36,�0�) (�0,745,809) (�9,338,467)Accumulated Depreciation as at 3�.��.07 3�,�7�,409 ��7,8�8,069 6,6�5,3�6 5,�90,5�7 �7�,8�6,3�� �43,486,�98
Written Down Value as at 3�.��.07 �5,797,969 5�,�69,545 �6,�98,636 5,��7,03� 98,493,�8�Written Down Value as at 3�.��.06 �7,670,460 60,775,9�5 �,��0,4�0 8�3,563 80,370,358
PROPERTY & EQUIPMENT - CSECost as at 0�.0�.07 46,78�,954 �55,683,067 �3,077,5�3 4,864,689 ��0,407,�33 ��6,545,�53Additions �5,405,5�� ��,�79,0�4 �8,9�7,950 5,64�,633 6�,�54,��9 �3,336,984Assets Written Off (4,484,�45) (�86,�00) - (7,500) (4,677,945) -Disposals / Transfers (��4,�70) (�,675,433) (9,�8�,5��) (�4�,��3) (��,��3,�47) (�9,474,904)Cost as at 3�.��.07 57,579,06� �76,�00,458 ��,8�3,95� �0,356,699 �66,860,�70 ��0,407,�33
Accumulated Depreciation as at 0�.0�.07 �9,���,5�7 94,907,�7� ��,967,�03 4,05�,��8 �40,036,9�9 �39,4�7,397Charge for the year 4,6�4,4�5 3�,453,54� 3,839,73� �,���,930 4�,��9,6�8 �9,947,989Assets Written Off (�,904,305) (�4�,��3) - (7,�88) (�,053,706) -Disposals/Transfers (40,5��) (�,387,567) (9,�8�,5�9) (�36,�0�) (�0,745,809) (�9,338,467)Accumulated Depreciation as at 3�.��.07 3�,78�,��5 ��4,830,93� 6,6�5,3�6 5,��9,669 �68,367,03� �40,036,9�9
Written Down Value as at 3�.��.07 �5,797,946 5�,�69,5�6 �6,�98,636 5,��7,030 98,493,�38Written Down Value as at 3�.��.06 �7,670,437 60,775,896 �,��0,4�0 8�3,56� 80,370,3�4
Depreciation on Motor Vehicles has reduced by Rs �,05�,467 due to the change in the rate of depreciation.
Notes to the Financial Statements Contd.
Annual Report 2007
37
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
4 INTANGIBLE ASSETSCostAs at �.�.07 8�,0�7,663 77,905,960 8�,0�7,663 77,905,960Acquired/Incurred ��,00�,0�� 4,���,703 ��,00�,0�� 4,���,703As at 3�.��.07 �04,0�9,684 8�,0�7,663 �04,0�9,684 8�,0�7,663
AmortisationAmortisation as at �.�.07 64,004,887 56,5�4,4�4 64,004,887 56,5�4,4�4Provision for the year �,��8,308 7,490,463 �,��8,308 7,490,463Amortised as at 3�.��.07 65,�33,�95 64,004,887 65,�33,�95 64,004,887
Net Book Value 38,886,489 �8,0��,776 38,886,489 �8,0��,776
Intangible assets are the application software used in the trading, clearing, settlement, accounting, mail system and the website of the Colombo Stock Exchange.
Computers & Intangible Total Total Office Equipment Assets 31.12.07 31.12.06 Rs. Rs. Rs. Rs.
5 CAPITAL WORK IN PROGRESSCost as at 0�.0�.07 �,364,40� �,�98,��� �,66�,6�3 �,�4�,976Incurred during the year - - - 4,�88,888Transfers (�,364,40�) (�,�98,���) (�,66�,6�3) (3,768,�5�)Cost as at 3�.��.07 - - - �,66�,6�3
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
6 DEVELOPMENT COSTDevelopment Cost � 300,�4� � 300,�4�Charged during the Year - (300,�4�) - (300,�4�) � � 300,�4� �
This relates to the cost incurred in promoting the Debt Trading System (DEX) of the CSE with the participation of all its member firms.
7 INVESTMENTS IN SUBSIDIARYCentral Depository Systems (Pvt) Ltd.5,000,000 Ordinary Shares - - �5,000 �5,0005,000,000 Redeemable Preference Shares - - 50,000,000 50,000,000 - - 50,0�5,000 50,0�5,000
Annual Report 2007
38
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
8 INVESTMENT IN LFSBCapital Contribution �,000,000.00 - - - �,000,000.00 - - -
The Above amount represents the capital contribution made to the formation of Lanka Financial Services Bureau Limited. (LFSB)
9 OTHER RECEIVABLESTrade Debtors ��,577,6�� 9,755,56� 6,567,��7 5,�8�,798Provision for Doubtful Debts (787,636) (7�6,85�) (7�5,6��) (669,956)Commission on Brokerage Receivable 5,56�,347 �,5�8,448 4,�64,�04 �,9�0,3��Prepayments �0,099,6�0 �5,48�,475 �0,099,6�0 �5,48�,475Advance Payments 707,89� 395,7�3 707,89� 395,7�3Refundable Deposits 9,�4�,�64 9,�08,509 9,�4�,�64 9,�08,509Sundry Debtors �,694,��8 �,843,998 �,694,��8 �,843,998Other Receivable �,070,086 �,994,9�� �,059,497 �,994,9��Staff Loans 5,�70,330 5,945,053 5,�70,330 5,945,053 56,434,64� 46,4�6,8�8 50,�78,550 4�,40�,8�3
10 CASH AND CASH EQUIVALENTSTreasury Bill Overnight Repos �9,304,647 �6,608,630 �9,304,647 �6,608,630Cash at Bank 6,940,�7� 67�,456 6,7��,075 539,045RTGS Account �6,�80 �7,440 - -Cash in Hand �70,000 �70,000 �65,000 �65,000Cash & Cash Equivalents �6,44�,099 �7,477,5�6 �6,�90,7�� �7,3��,675Bank Overdraft (5,986,8�6) (5,�6�,79�) (5,986,8�6) (5,�6�,79�)Net Cash & Cash Equivalents �0,454,�73 ��,��4,735 �0,�03,896 ��,049,884
11 RESERVES & FUNDCapital ReserveThis represents 4,997,500 Ordinary Shares issued by CDS on capitalisation of its Revenue Reserves.
Capital Redemption ReserveThis represents the fund created in order to redeem the preference shares of CDS within a period of 5 years.
Conference Fund AccountThis represents the excess of Revenue over Expenditure on account of the Institutional Fund Managers Conference held in October �999 after netting off the excess of expenditure over Revenue on account of the Annual Assembly & Conference of the South Asian Federation of Stock Exchanges held in January �00�.
Notes to the Financial Statements Contd.
Annual Report 2007
39
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
12 BROKER DEPOSITS IN LIEU OF BANK GUARANTEEBroker Deposits (Note ��.�) 5�,000,000 3�,500,000 5�,000,000 3�,500,000Deposits for Computer Facility ���,670 ���,670 ���,670 ���,670Entrance Deposits 640,000 640,000 640,000 640,000Deposits for Telephones �88,300 �88,300 �88,300 �88,300 5�,939,970 3�,439,970 5�,939,970 3�,439,970
12.1 This is the minimum cash deposit that the brokers are required to maintain.
13 EMPLOYEE RETIREMENT BENEFITSBalance b/f as at �/�/�007 ��,699,944 �0,03�,373 ��,699,944 �0,03�,373Provision during the year 5,7��,675 4,909,06� 4,796,59� 4,4�0,808Transfer To CDS - - 9�6,084 488,�53Payments made during the year (9�0,7��) (�,�4�,490) (9�0,7��) (�,�4�,490)Balance c/f as at 3�/��/�007 �7,5��,897 ��,699,944 �7,5��,897 ��,699,944
13.1 The Gratuity liability is not externally funded. Sri Lanka Accounting Standard �6 requires the cost of providing retirement benefit to be determined on an Accrued Benefit/Projected benefit valuation method . The directors are of the view that charges on either basis will not be significantly different to what has been charged to the income and expenditure account, and have used the extention granted by the Accounting Standards Committee for the basis of computation of the liability.
Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
14 DEFERRED GRANTSGrant Received from USAID for Capital Market Development Received In �99� 9,�00,��3 9,�00,��3 9,�00,��3 9,�00,��3 Received In �995 38,�76,645 38,�76,645 38,�76,645 38,�76,645 Received In �996 8�,880 8�,880 8�,880 8�,880 Received In �997 340,000 340,000 340,000 340,000
Grant Received from Brokers Received in �99� 340,384 340,384 340,384 340,384
Computers from MIT (Note �4.�) Received in �998 �,980,000 �,980,000 �,980,000 �,980,000
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Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
14 DEFERRED GRANTS Contd.Grant Received from SEC for Trade Automation Received in �996 �0,000,000 �0,000,000 �0,000,000 �0,000,000 Received in �997 ��,86�,590 ��,86�,590 ��,86�,590 ��,86�,590 Received in �999 ��,60�,39� ��,60�,39� ��,60�,39� ��,60�,39�
Grant Received from SEC for Trade Automation Audit Received in �000 967,347 967,347 967,347 967,347
Grant Received from SEC for Video Documentary Received in �004 400,000 400,000 400,000 400,000
Grant Received from SEC for Matara Branch Received in �00� �,06�,59� �,06�,59� �,06�,59� �,06�,59�
Grant Received from SEC for Kandy Branch Received in �005 �,000,000 �,000,000 �,000,000 �,000,000
Grant Received from SEC for Australia & New Zealand Road Show Received in �005 3,500,000 3,500,000 3,500,000 3,500,000
Grant Received from SEC for Kurunegala Branch Received in �006 �,880,000 �,880,000 �,880,000 �,880,000
Grant Received from SEC for ITN Data Ticker Received in �007 �,�73,333 - �,�73,333 - �08,466,�75 �06,�9�,94� �08,466,�75 �06,�9�,94�
Amortisation of Deferred GrantBalance brought forward (�04,048,387) (�0�,9�3,873) (�04,048,387) (�0�,9�3,873)Write back during the year (�,8�4,776) (�,�34,5�4) (�,8�4,776) (�,�34,5�4) (�06,863,�63) (�04,048,387) (�06,863,�63) (�04,048,387)Balance carried forward �,603,��� �,�44,555 �,603,��� �,�44,555
14.1 Five Servers were provided by the Vendor (MIT) to operationalise the CSE’s Backup site as part of the Trade Automation Contract.
Notes to the Financial Statements Contd.
Annual Report 2007
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Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
15 DEFERRED TAX LIABILITIESRecognised deferred tax liabilitiesDeferred Tax Liabilities are attributable to following item:Property & Equipment �4,503,075 6,6�3,306 �4,503,075 6,6�3,306Employee Retirement Benefit (5,�53,569) (3,809,983) (5,�53,569) (3,809,983) 9,�49,506 �,803,3�3 9,�49,506 �,803,3�3
16 OTHER PAYABLESInterest Payable to Brokers �,�75,889 �,656,795 �,�75,889 �,656,795Current Account with CDS (Pvt) Ltd. - - �8�,��4,398 �80,808,730Payments Received in Advance 376,539 4��,388 376,539 4��,388Sundry Creditors & Accrued Expenses �6,93�,304 �0,38�,�6� �6,758,��0 �0,���,850 �8,583,73� �3,460,344 �09,534,936 �03,998,763
17 REVENUECommission on Brokerage �78,994,4�� �80,�37,3�3 ��5,�59,40� ��5,940,�43Listing Fees �4,808,750 �4,606,�50 �4,808,750 �4,606,�50Quotation Fees �,7�6,48� �,4��,70� �,7�6,48� �,4��,70�Brokers Fees �3,438,000 8,673,500 �3,438,000 8,673,500Trading Member Fees - ��5,000,000 - ��5,000,000Charges for Remote Data Link 7�0,000 56�,000 7�0,000 56�,000Charges for Computer Information �,965,��5 �,940,405 �,965,��5 �,940,405Listed Company Fees �3,�56,080 �4,�90,545 - -Custodian Bank Fees �,986,050 �,977,�50 - - 3�7,794,908 449,598,974 �47,8�7,758 368,�33,999
18 OTHER INCOMEInterest Income �53,733,433 78,�44,488 �53,733,433 78,�44,488Amortization of Deferred Grant �,8�4,776 �,�34,5�4 �,8�4,776 �,�34,5�4Profit/(Loss) on Disposal of Property & Equipment 7,709,508 60,839 7,709,508 60,839Miscellaneous Income �5,�65,7�� 4,66�,8�6 �4,9�0,63� 3,748,7�9 �79,4�3,4�9 84,�0�,657 �79,�68,348 83,�88,560
19 PERSONNEL COSTSalaries 60,�09,46� 49,54�,709 5�,9�9,73� 40,590,658Ex Gratia Payment ��,348,6�� ��,934,494 9,956,�7� 9,468,985Terminal Benefits (Gratuity) 5,86�,588 4,98�,�99 4,796,59� 4,4�0,808Staff Welfare 3,�96,036 3,���,637 �,666,�53 �,678,�34Medical Expenses �,4�4,953 �,5�6,855 �,��3,688 �,�60,955Transport & Traveling �,83�,��8 �,969,900 �,63�,577 �,857,739 84,76�,887 73,�67,894 74,094,0�3 60,�77,�79
Annual Report 2007
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Consolidated CSE 2007 2006 2007 2006 Rs. Rs. Rs. Rs.
20 OTHER OPERATING EXPENSESAdministration Expenses 45,4�7,040 �7,705,349 �5,880,69� �8,56�,8�3Rent �9,464,80� �3,667,63� �4,568,3�6 �9,50�,8��Stationery 5,703,68� 8,�53,008 �,9�7,9�5 �,978,49�Maintenance Costs 37,44�,6�7 30,844,079 �4,73�,5�8 �4,��0,580Local Training �,467,08� �,�56,5�� �,���,399 96�,4��Foreign Training / Foreign Traveling 5,�07,7�4 �,�95,490 4,537,54� �,856,57�Directors Fees �70,000 30,000 �70,000 30,000Auditors Remuneration 300,000 �60,000 �75,000 �50,000Marketing Expenses �0,�5�,586 �0,38�,730 �5,973,�66 8,064,�56Professional Charges & Subscription ��,7��,��� �0,�87,505 �7,78�,7�9 �0,09�,050Rebate on Internet Trading �,�70,0�7 7,866,757 �,695,�7� 5,���,�5�Stamp Duty 79,46� 75,7�3 67,��0 65,6�9Write Off / Provision for Bad Debts 60,785 ���,40� 55,655 �09,5��Property & Equipment Written Off �,6�4,�39 - �,6�4,�39 - �7�,970,�66 ���,836,�96 ���,400,68� 90,6�3,�88
21 TAXATIONCurrent Tax Expenses: Current year 57,654,�50 93,54�,��7 50,4��,774 80,363,��� Under/(Over) Provision in prior years �,087,9�3 �,939,988 �,93�,�70 �,696,9�3 59,74�,073 95,48�,�05 5�,354,044 8�,060,045Deferred Tax Expenses: Origination & Reversal of Temporary differences 6,446,�83 956,7�3 6,446,�83 956,7�3
Total Income Tax Expense in Income Statement 66,�88,�56 96,438,9�8 58,800,��7 83,0�6,768
Reconciliation of Effective Tax RatesAccounting Profit �08,��8,349 �99,957,848 �89,�33,476 �6�,693,�99Tax at the domestic rate (��.�) 63,4�8,�48 9�,850,58� 56,770,043 78,807,990
Tax effect of expenses that are not deductible for tax purposes ��,503,67� ��,9�8,053 ��,503,67� ��,9�8,053Effect of Tax on Capital Allowances (�9,307,6�5) (��,7��,0�7) (�9,307,6�5) (��,7��,0�7)Disallowed Provisions �,039,845 �,495,599 �,455,674 �,359,096Tax on profits for the period 57,654,�50 93,54�,��7 50,4��,774 80,363,���Effective Tax Rate (%) �8 3� �7 3�
21.1 Tax has been provided at the rate of 30% in respect of CSE (as per the Inland Revenue ruling) & at the rate of 35% in respect of CDS.
Notional Credit for WHT on Government Securities on Secondary Market TransactionsAs per the Inland Revenue Act No.38 of �000 any person who derived income from the secondary market transactions in Government securities issued after or outstanding at �st April �00� would be entitled to a notional credit in relation to tax payable by such person. Accordingly, the net interest earned by the CSE for the year, has been grossed up in the Financial Statements and the resulting notional credit is Rs. �5,�90,�83/- ( Rs. 7,8�4,449/- in �006)
Notes to the Financial Statements Contd.
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22 CONTINGENCIES & COMMITMENTSAction has been filed in the Labour tribunal by a former employee of the CSE claiming reinstatement. The CSE is contesting the action. The delivery of the order was fixed for �6th February �008 and however, as the President who heard the matteer has retired, the order was not delivered on the �6th. The president has been specially appointed to deliver the Order on ��nd April �008.
Case bearing No. 376�3/MR has been filed in the District Court of Colombo against the Colombo Stock Exchange by a member firm. Damages have been prayed for against the CSE and the matter is being contested. The Trial commenced on ��st October �005. Further hearing has been fixed for �8th March �008.
Case bearing No. 58365/MR has been filed in the District Court of Colombo against the CSE by Mr. Iqbal Bin Issac, a shareholder pertainnig to his shareholding of Touchwood Investment Ltd. Answer of the CSE is as due on ��nd April �008.
23 CAPITAL COMMITMENTSThere are no capital commitments as at the balance sheet date other than those disclosed under Note. 5 -Capital work in progress.
24 KEY MANAGEMENT PERSONNEL INFORMATION & RELATED PARTY TRANSACTIONS24.1. KEY MANAGEMENT PERSONNEL INFORMATIONKey management personnel include all the members of the Board of Directors of the Company & the CEO, AGMs and Senior Managers having authority and responsibility for planning, directing and controlling the activities of the Company as well as the subsidiary, directly or indirectly.
CSE Paid Rs. �70,000/- during the year as Directors’ Fees (Rs. 30,000/- in �006)
The Company has incurred following costs for the CEO, AGMs and Senior Managers during the year. 2007 2006 Rs. Rs.
Short term employee benefits ��,457,�4� ��,�4�,4�0Long term employee benefits 8,�86,500 5,896,500
Name of the Related party Name of Director Position Relationship Nature of Transaction
Bartleet Finance Ltd Mr. Eraj Wijesinghe Chairman Director CSE Paid Rs.�,564,639/- during the (Resigned w.e.f 3rd August �007) year on account of Rent & Electricity of the Matara Branch Premises.
Cargills (Ceylon) Ltd Mr.Anthony A Page Chairman Director CSE Paid Rs. 65,674/- on account of pantry (Resigned w.e.f 3rd December �007) provisions during the year.
Kalamazoo Systems Ltd Mr.Anthony A Page Director Director CSE Paid Rs. �,�48,390/- on account of (Resigned w.e.f 3rd December �007) printing CSE Publications.
Directories Lanka (Pvt) Ltd Mr.Anthony A Page Director Director CSE Paid Rs. �64,57�/- on account of (Resigned w.e.f 3rd December �007) listings in Yellow Pages during the year.
- Mr. Gomin Dayasiri - Director CSE Paid Rs. 75,900/- on account of professional services during the year.
Also refer note No. �4.� to the financial statements.
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24.2. RELATED PARTY TRANSACTIONSCentral Depository Systems (Pvt) Ltd is a fully owned subsidiary of the Colombo Stock Exchange. CSE apportioned Rs. 5�,038,0�9/- to Central Depository Systems (Pvt) Ltd as expenses during the year.
Also refer note No. �4.� to the financial statements.
25 SUBSEQUENT EVENTSNo circumstances have arisen since Balance Sheet date which would require adjustments to or disclosure in the financial statements.
26 DIRECTORS RESPONSIBILITY STATEMENTThe directors are responsible for the preparation and presentation of financial statements in accordance with Sri Lanka Accounting Standards.
Notes to the Financial Statements Contd.
Annual Report 2007
45
Key Financial Indicators
2007 % 2006 %
Value AddedGross Income 507,��8,337 533,700,63�Less: Cost of Providing Services (�7�,970,�66) (���,836,�96) 335,�48,�7� 4�0,864,435
Distribution of Value AddedTo Employees 84,76�,887 �5.3 73,�67,894 �7.8
To GovernmentTaxation 66,�88,�56 �9.7 96,438,9�8 �3.5
Retained in the OrganisationRetained Profits �4�,040,093 4�.4 �03,5�8,9�0 49.5Depreciation 4�,�57,935 ��.6 37,738,693 9.� 335,�48,�7� �00 4�0,864,435 �00
Annual Report 2007
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Notes
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Notes
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Notes
44.6 bill
ion
In 2007, the Colombo Stock Exchange set twin records, despite several challenges, raising its highest ever capital of
NAMEColombo Stock Exchange
LEGAL STATUSA company incorporated in Sri LankaLimited by guarantee
SUBSIDIARYCentral Depository Systems (Pvt) Ltd.
REGISTERED OFFICE04-01 West Block, World Trade CentreEchelon SquareColombo 1, Sri Lanka.
SECRETARIESSecretarial Services Ltd.
AUDITORSKPMG Ford, Rhodes, Thornton & Co.
BANKERSSampath Bank Ltd.
COLOMBO STOCK EXCHANGETel: +94-11- 2356456Fax: Clearing & Settlement: +94-11-2440396 Finance & Administration: +94-11-2448921 Information Technology: +94-11-2440162 Listings & Surveillance: +94-11-2448925 Business Development: +94-11-2445279 Legal: +94-11-2391128E-Mail: [email protected]: www.cse.lk
BRANCHESMatara Branch38, Station Road, MataraTel: +94-41-2220094, +94-41-2220095Fax: +94-41-4390546
Kandy Branch“Ceybank House”, 88, Dalada Veediya, KandyTel: +94-81-4474407, +94-81-4474409Fax: +94-81-4474475
Kurunegala Branch1st Floor, Union Assurance Building 6, Rajapihilla Road, KurunegalaTel: +94-37-4691802, +94-37-4691804Fax: +94-37-4691803
Negombo Branch1st Floor, 142, Greens Road, NegomboTel: +94-31-2227859Fax: +94-31-2227860
Designed & Produced by: Copyline (Pvt) Ltd
Corporate Information
Annual Report 2007
www.cse.lk
Colom
bo Stock Exchange Annual Report 2007
