Preamble
On behalf of the Board of Directors I have pleasure in presenting the Annual Report and Audited Accounts of your Company for the financial year ended 31st March 2014.
Over the last several years we have seen CDB being gradually transformed into a versatile corporate achieving sustained growth. Despite operating in a challenging economic environment both locally and globally, your Company succeeded in maintaining the momentum that was built up over the preceding years posting net profits exceeding Rs. 500 Mn. Your Company extended its market reach by adding 15 new outlets mostly in districts outside the Western Province.
The construction of CDB’s Head Office Building proceeded apace and is scheduled for completion in August 2014. A great deal of the Board’s attention during the year was focused on further improving its governance framework. Being committed to achieve long-term success for your Company, your Board firmly believes that good governance plays an integral part in maximising shareholder value over time.
The Changing Economic Landscape
The world economy grew at a reduced pace of 3% (compared to 3.1% in 2012) though signs of increased economic activity was evident in the second half of the year. The economic outlook for 2014 is however more promising as advanced economies begin to recover from their economic downturn.
The Sri Lankan economy recorded a healthy growth rate of 7.3%, up from 6.3% in 2012. Unemployment continued to remain low and inflation remained at single digit levels for the 5th successive year. The narrowing of the trade gap and improved foreign currency inflows mainly from worker remittances, services including tourism and long-term debt inflows to government, banks and other corporates, brought about significant improvements to the Balance of Payments (BOP) enabling a build up of foreign reserves and facilitating exchange rate stability. 2013 also witnessed the completion of several infrastructure projects which is expected to yield numerous economic and social benefits over time. It is hoped that these developments will also attract substantial FDIs and facilitate increased earnings from tourism and exports soon enough to match the rising foreign debt service payments.
The financial services sector experienced certain drawbacks in the period under review. The decline in gold prices from the early part of 2013 resulted in banks and NBFIs experiencing a decline in their asset quality with an increase in non-performing pawning loans. The negative impact of your Company’s exposure on gold backed loans has been recognised in full, in arriving at the Company’s financial results for 2013/14. With the reduction in policy interest rates by the Central Bank and its resulting impact, depositors found returns on their savings and fixed deposits reduced and most companies operating in the sector experienced a narrowing of their net interest margins.
Business Performance in 2013/14
Notwithstanding these impediments CDB continued to achieve impressive financial results. Your Company posted a turnover of Rs. 6.1 Bn in the year under review which represents an increase of 42% over last year’s result of Rs. 4.3 Bn PAT was Rs. 561 Mn, an increase of 15% over last year. Total assets increased by 38% and equity by 21%. It is also noteworthy that during the year under review, your Company was recognised nationally and internationally with several awards of excellence.
During the year your Company successfully raised its first foreign loan of US$ 6 Mn (Rs. 780 Mn) which has been hedged against exchange loss. Your Company also raised 5 year redeemable listed debentures of Rs. 1 Bn which was over-subscribed within hours of being offered. These funds will be applied to further expand and develop your Company.
“Notwithstanding these impediments CDB continued to achieve impressive financial results. Your Company posted a turnover of Rs. 6.1 Bn in the year under review which represents an increase of 42% over last year’s result of Rs. 4.3 Bn PAT was Rs. 561 Mn, an increase of 15% over last year and total assets increased by 38% and equity by 21%. It is also noteworthy that during the year under review, your Company was recognised nationally and internationally with several awards of excellence.”
Dividends
Nothing pleases me more than to announce on behalf of your Board, generous dividends to shareholders. Your Board is equally committed to build its core capital for greater sustainability of its growth objectives.
With this in view, I am happy to announce that your Board recommends a dividend of Rs. 3.00 per ordinary share which is an increase of 9% over last year.
Building a Stronger Enterprise
As mentioned earlier, our branch network continues to grow enabling us to offer our diverse financial services to a greater geographical spread.
Your Company’s management continues to inculcate and nurture socially responsible behaviour and sound ethical conduct amongst its employees.
As referred to earlier on in my report, your Board will continue to give due attention to good governance initiatives. As mentioned elsewhere in this report, your Board has strong sub-committees to deal with key areas of governance. In the year under review, an internal evaluation of the Board was carried out for the first time. Whilst this process revealed that Board members individually and collectively are performing effectively, it provided important insights that would enable us to achieve a higher level of performance.
Future Directions
With a view to securing long-term stability in the country’s financial system, the Central Bank of Sri Lanka (CBSL) has proposed a plan to restructure Sri Lanka’s NBFI sector during 2014. The process would entail consolidation of this sector through a series of acquisitions, mergers and/or absorptions which are aimed at reducing the number of NBFIs from its present 58 to around 20. The present NBFIs have been categorised into 3 clusters, namely, A, B and C. Your Company which has more than the minimum required core capital and asset base, with a high degree of compliance with the Directions issued by the Central Bank, is placed in the A category. Companies in the A category have the option of acquiring or absorbing a company from the B category. In order to facilitate the efforts of government to usher in a more robust financial services sector, CDB has responded positively to the consolidation plan in the expectation of the synergistic advantages it would bring to the Company. However the process is still in its early stages and shareholders will be kept informed of further developments as they unfold.
In recent times the banking sector which has access to primary funds, has made inroads into markets previously dominated by NBFIs, making the financial services industry, intensely competitive. CDB has however, good reason to be confident in the potency of its brand and the management’s in-depth market knowledge and professionalism to overcome challenges, mitigate risks and take advantage of profitable opportunities to surpass achievements year on year.
Commendations and Appreciations
I would like to extend my heartfelt thanks to my colleagues on the Board for their judicious stewardship and strategic guidance. I wish to express my appreciation to Mr. Mahesh Nanayakkara, the Company’s Managing Director and CEO for his leadership and commitment and also to our highly talented managers and other employees for their passion, loyalty and dedication which has seen the achievement of such noteworthy results.
The valuable advice and guidance extended by the Governor of the Central Bank, the Deputy Governor and other officials of the Central Bank and other regulatory and statutory institutions have greatly assisted us in ensuring compliance and good governance structures in the Company.
My special appreciation goes out to our shareholders and our customers who, over the years have continued to strengthen their confidence in CDB.
In closing, I wish to express my thanks to our Auditors, KPMG for their valuable advice and timely completion of the audit.
D H J Gunawardena
Chairman
2nd June 2014