Annual Report The Stock exchange of Mauritius Ltd (Member of the World Federation of Exchanges) (Member of the World Federation of Exchanges)

Transcription

1 Annual Report 2010 The Stock exchange of Mauritius Ltd (Member of the World Federation of Exchanges) THE STOCK EXCHANGE OF MAURITIUS LTD 4th Floor, One Cathedral Square Building 16, Jules Koenig Street Port Louis, Republic of Mauritius Tel : (230) Fax ; (230) stockex@sem.intnet.mu Website : The Stock Exchange of Mauritius Ltd (Member of the World Federation of Exchanges) Annual Report 2010

2 table of contents Group Financial Highlights 2 Performance Highlights 3 Corporate Review Directors Report 4-5 Board of Directors profile 6-8 Chief Executive s Report 9-13 Senior Management Profile 14 Corporate Governance Report Internal Control Statement Audit and Risk Management Committee Report Operating and Financial Review Financial Review Directors Responsibility Statement 66 Auditors Report to the Shareholders of the Stock Exchange of Mauritius Ltd Statements of Financial Position 69 Statements of Comprehensive Income 70 Statement of Changes in Equity - The Group 71 Statement of changes in Equity - The Company 72 Statements of Cash Flows Notes to the Financial Statements Additional Information Member Companies 102 Listed Companies - Official Market Development & Enterprise Market 104

3 The Stock exchange of mauritius Annual Report 2010 group financial highlights FINANCIAL YEAR (FY) For the year (Rs 000) Revenue 133, , ,622 Other Income 26,387 28,582 23,550 Administrative expenses (58,466) (52,906) (48,703) Operating profit 101,793 87,846 96,469 Net profit attributable to equity holders 68,276 58,439 63,578 Operating Cash flow 82,650 68,516 76,148 At year-end (Rs 000) Net Current assets 134, , ,353 Total assets 335, , ,271 Total liabilities 50,134 45,599 47,577 Shareholders' funds - Stated Capital 3,350 3,350 3,350 - Reserves 218, , ,494 Shares issued (thousand) For the Year (%) Revenue growth 19.3 (7.8) 35.7 Operating profit margin Net Profit Margin Cost-to-income ratio Return on Equity Per Share Data (Rs) Operating Cash Flow Basic earnings Net Tangible Assets Net Dividend Definitions Operating Profit Margin Operating profit of the group expressed as a percentage of revenue. Net Profit Margin Net profit attributable to equity holders, expressed as a percentage of total revenue of the group. Cost-to-Income ratio Ratio of total expenses to total revenue of the group. Return on Equity Profit attributable to equity holders, expressed as a percentage of shareholders' funds. Net Tangible assets Total assets less total liabilities of the group, divided by the number of shares issued. Net Dividend Dividends proposed divided by the number of shares issued.

4 The Stock exchange of mauritius Annual Report 2010 performance highlights Key Market Statistics Financial Year % Change Total Turnover (Value) Rs million - Official Market 11,825 9, Development & Enterprise Market 2,957 1, No of Sessions Average Daily Turnover (Value) Rs million - Official Market Development & Enterprise Market Total No of Shares Traded - Official Market 322 million 193 million 67 - Development & Enterprise Market 452 million 156 million 189 No of Sessions Accounts held with the Central Depository & Settlement Co Ltd Number of Securities accounts opened in CDS 252, ,669 8 Number of shares deposited in CDS 3.8 billion 3.3 billion 15 Aggregate value of shares held in CDS billion billion 24 Number of Listed Companies - Official Market (5) - Development & Enterprise Market Total Market Capitalisation Rs' billion - Official Market Development & Enterprise Market

5 The Stock exchange of mauritius Annual Report 2010 director's report INTRODUCTION The Board of Directors of the Stock Exchange of Mauritius Ltd (SEM) is pleased to present its twenty first Annual Report to the shareholders of the SEM, together with the audited financial statements of the Group and of the Company for the year ended 30 June PRINCIPAL ACTIVITIES OF THE SEM The principal activities of the SEM, as defined by its Constitution, include the following: - Operating and maintaining a securities exchange in accordance with law. - Providing facilities for the buying and selling and otherwise dealing in securities on a securities exchange. - Providing and maintaining, to the satisfaction of the Financial Services Commission, adequate and properly equipped premises for the conduct of its business. - Having operating rules for the markets it operates pursuant to law. PRINCIPAL ACTIVITIES OF THE CENTRAL DEPOSITORY & SETTLEMENT CO. LTD (CDS) The principal activities of the CDS, as defined by the Securities (Central Depository Clearing and Settlement) Act 1996, is to provide depository, clearing and settlement service in order to facilitate dealings in securities on the Exchange. GROUP FINANCIAL PERFORMANCE DURING THE YEAR 2010 Despite the worldwide economic slowdown and the financial turmoil affecting the securities industry worldwide, the Group has succeeded in achieving commendable results for the financial year The Group recorded revenue growth of 19.3% for the year 2010, with revenues reaching Rs133.9 million when compared with Rs112.2 million in Shareholders funds increased by more than 25% in 2010, to attain a total value of Rs221.7 million, against last year s figure of Rs176.6 million. FINANCIAL PERFORMANCE OF THE COMPANY DURING THE YEAR 2010 On the company s front, the SEM registered a revenue growth of 17.8 per cent, achieving a total value of Rs83.4 million in year 2010, compared with Rs70.8 million in year Total profit after tax increased by 18.4 per cent over last year to attain a total value of Rs58.1 million for the year Cash and Cash equivalents of the company, including long-term deposits, rose by 49 per cent to reach a total value of Rs162.7 million, against an amount of Rs109.2 million in year MAIN DEVELOPMENTS DURING THE YEAR 2010 The SEM strove to position itself as an attractive listing venue for global and specialised funds. In this connection, some significant changes were brought to Chapter 16 of our Listing Rules to align it with the spirit and content of the Securities (Collective Investment Schemes and closed-end Funds) Regulations 2008 and in enhancing our Exchange s competitiveness and appeal to a wide variety of funds. With a view to increasing our Exchange s visibility at the international level the SEM accelerated its links to Global Data Vendors and increased its data vendors to 4. We will continue to look for new Data Vendors in with a view to improving our profile at the international level and attracting more foreign investors interests in our market. The SEM has also been active on the Corporate Social Responsibility front. The project supported by SEM in is the Learn-to-Earn initiative for out-ofschool young people. This project aims at imparting school drop-outs with a wide variety of skills in the field of arts and crafts, with a view to securing them a job or making them become small entrepreneurs in the field of training. In April 2010 the SEM co-sponsored with GBOT the Annual General Meeting of the South Asian Federation of Exchanges (SAFE) and its Flag Ship conference on the following theme South Asian Capital Markets Conference. The event was well attended by a large number of delegates from the financial services sector in South East Asia as well as by international investors. This conference constituted an opportunity to share SEM s achievements and investment prospects to the audience and highlight the attractiveness of African Markets as the last frontier of growth in the world. DIVIDENDS On 17th June 2010, in line with the dividend policy of distributing 40 per cent of SEM s net profit after tax, the directors approved a final dividend payment amounting to Rs23,251,657 (Rs70.46 per share) in respect of the year ended 30 June For the year 2009, dividends amounting to Rs19,642,177 (Rs59.52 per share), were paid to the ordinary shareholders of the Company.

6 AUDITORS The Auditors, Messrs Kemp Chatteris Deloitte have expressed their willingness to continue in office and a resolution proposing their re-appointment will be submitted at the next Annual Meeting of the SEM. In accordance with Section 221(1)(h) of the Companies Act 2001, the remunerations of the Auditors of the SEM and of its subsidiary are disclosed in Note 17 of the audited financial statements. ACKNOWLEDGEMENTS The Board of Directors of the SEM wishes to extend its thanks to all its stakeholders, namely, the Ministry of Finance and Economic Development, the Financial Services Commission, the Listed Companies, the Investment Dealers, the Asset Management Companies and the investing public at large for their continuous contribution and support to the smooth running of the SEM during the course of the year. The Board also commends the management team and employees of the SEM for their hard work and dedication during the year Last, but not least, the Board of the SEM would like to express its heartfelt thanks to the SEM Shareholders for their continued support. By order of the Board of Directors of the Stock Exchange of Mauritius Ltd Gaëtan Lan Hun Kuen Chairman Raj Tapesar Vice Chairman 29 September, 2010

7 The Stock exchange of mauritius Annual Report 2010 corporate review Board of Directors Profile GAETAN LAN HUN KUEN, non-executive director, is a fellow member of the Institute of Chartered Accountants in England and Wales. He has been Chairman of the Stock Exchange of Mauritius Ltd since November He currently holds the position of Finance Director at Ireland Blyth Ltd and also serves as director of the Mauritian Eagle Insurance Co. Ltd. He is also a director of the Central Depository & Settlement Company Limited (CDS). RAJ TAPESAR, non-executive director, holds a MBA(Finance). He is a licensed investment dealer s representative and he currently occupies the position of Managing Director at MCB Stockbrokers Ltd. He is the Vice-Chairman of the Stock Exchange of Mauritius and is also a director of the Central Depository & Settlement Company Ltd (CDS). DONALD AH-CHUEN, non-executive director, is a fellow member of the Institute of Chartered Accountants in England and Wales. He holds a M.B.A. (Strathclyde),is a fellow member of the Institute Chartered Accountants in Australia and holds a M.C.I.P.D. (Member of Chartered Institute of Personnel & Development, U.K.). He is currently the Chief Executive of ABC Banking Corporation Ltd. He is also the Chairman of the Tertiary Education Commission of Mauritius, Council member of the Mauritius Chamber of Commerce and Industry, Executive Committee Member of the Chinese Chamber of Commerce, and a Director of the Central Depository and Settlement Co Ltd( CDS). SUNIL BENIMADHU, joined the SEM as Chief Executive in May He was appointed executive director of the SEM in October He holds a M.B.A. in Finance and Investment from the University of Illinois, United States. He also holds a D.E A. in Development Economics and a Maîtrise in Macro-Economics from the University of Aix-Marseille, France. He has recently been elected as President of the African Securities Exchanges Association (ASEA) for a period of two years. From 2002 to 2004, he was a member of the Executive Committee of the South Asian Federation of Exchanges (SAFE), which comprises twelve Stock Exchanges of the South Asian region. From 2001 to 2003, he chaired the SADC Committee of Stock Exchanges(COSSE), an association of stock exchanges which includes ten exchanges of the Southern African region.

8 Board of Directors Profile (Cont'd) REEDHEE BHUTTOO (MRS), non-executive director, holds a B.A. (Hons) Economics and an Advance Diploma in Marketing, CIM UK. She currently occupies the position of Officer at SBM Securities Ltd. She is also a director of the Central Depository & Settlement Company Limited (CDS) VINCENT LAMUSSE, non executive director, is a holder of a degree in Economics and a Master in Management Science. He is actually Senior Manager-Investment,of the Anglo Mauritius Financial Services Limited. He is also the Vice-Chairperson of the Central Depository & Settlement Company Limited (CDS). PEROOMAL GOPALLEN MOOROOGEN, non-executive director, is a fellow member of the Association of Chartered Certified Accountants and holds a MBA. He currently occupies the position of Team Leader at Mauritius Telecom. He is also director Swan Insurance Company Ltd and Anglo Mauritius Assurance Society Ltd. He is also a director of the Central Depository & Settlement Co. Ltd (CDS). NANDITA RAMDEWAR (MRS), non-executive director, is a fellow of the Association of Chartered Certified Accountants and holds a M.B.A Finance. She occupies the position of Senior Manager at the State Insurance Company of Mauritius Ltd, where she is also the Company Secretary. She is also director of Sicom Financial Services Ltd, Sicom Global Fund Ltd and Sicom Management Ltd and of the Central Depository & Settlement Co. Ltd (CDS).

9 The Stock exchange of mauritius Annual Report 2010 corporate review (Cont'd) Board of Directors Profile (Cont'd) BILAL IBRAHIM SASSA, non-executive director, holds a B.Com (Hons), University of Natal, South Africa and is a licensed Investment dealer s representative. He currently occupies the position of Chief Business Development Executive at CIM Group. VIKASH TULSIDAS, non-executive director, holds a B.A (Hons) Law and Business Studies from the University of Warwick,UK. He currently occupies the position of Managing Director at AXYS Stockbroking Ltd. He is also President of the Port Louis Stockbroking Association and a director of the Central Depository & Settlement Company Ltd (CDS).

10 The Stock exchange of mauritius Annual Report 2010 Chief Executive's Report Introduction The evolution of the stock market during financial year could be summarized as a tale of two halves. The July-December period was characterised by a strong rebound of the market indices, as a result of the unprecedented worldwide concerted efforts to contain the pernicious effects of the financial crisis, coupled with the implementation of a stimulus package and an aggressive slashing of interest rates by the authorities in Mauritius. The local stock market expressed a sign of relief to the resilience shown initially by the Mauritian economy with regard to the jitters from the western world. It also reacted positively to the assessment by leading economic and financial thought-leaders that the energetic and aggressive quantitative easing by the Federal Reserve Bank and the dwindling of key interest rates to near zero in the US and in Europe would save international financial markets from a total collapse. The January to June 2010 period saw renewed worries of a double-dip recession, following the bankruptcy of Greece and the threats of bankruptcy hanging over the other PIGS countries. After an early spurt at the beginning of January, the stock market in Mauritius embarked on a declining trend on the back of investors worries about the impact of the European crisis on a country whose growth is very much Eurocentric. In what follows, we undertake an analysis of the evolution of the stock market in Mauritius in , describe some of the key initiatives implemented by the SEM during this period and briefly outline the focus of the SEM in the coming year. A brief assessment of the evolution of the stock market in July 2009-June 2010 Between July 2009-December 2009, the SEMDEX and the DEMEX gained 17.2% and 4.92% respectively on the back of the following key factors: 1. The fiscal and monetary authorities swift reaction to the global financial crisis comforted investors that Mauritius would be able to fend-off the negative impact of the crisis. A stimulus package of Rs 14.5 billion, representing 5% of GDP, had been earmarked to undertake major infrastructure projects to modernise the country s infrastructure frame-work, supplement any decrease in Private Sector investment and provide equity financing to certain private sector firms in difficulty. The monetary authorities slashed key interest rates by 250 basis points within a six-month period to reduce borrowing costs and stimulate bank lending to private sector institutions. 2. The market s rebound also reflected investors sentiment that the Doom and Gloom scenario that had prevailed in the immediate aftermath of Lehman Brothers demise was probably overdone and that the world economy was not really on the brink of falling-off the cliff. 3. The September 2008-March 2009 period had seen the Mauritius stock market lose 50% of its value and investors felt that there were some bargain-hunting opportunities available in the market. After a gain of nearly 80% by the SEMDEX and of 33.7% by the DEMEX between March 2009 and December 2009, the stock market started 2010 on a rather nervous stance and the market s nervousness was further compounded as from end March 2010 in the light of the bankruptcy threats weighing on some European countries.the collapse of the Euro, coupled with the ensuing appreciation of the dollar against the Mauritian Rupee, underscored the threats of a double-whammy on those listed companies whose income are euro-dependent. In spite of this negative environment, foreign investors have been very active on our market during the period July 2009-June 2010 and have been net positive buyers of listed Mauritian Stocks to the tune of Rs 806 million. The Official market and the DEM recovered some of the lost ground in June 2010 following concerted efforts by the European authorities to contain the debt crisis affecting the PIGS countries.

11 The Stock exchange of mauritius Annual Report 2010 chief executive's report (Cont'd) The following tables capture the market s evolution during the two distinct phases described above and the activities of foreign investors on the official market during the same time frame. Table1: Market Evolution (1 July 31 December 2009) INDICES 1-Jul Dec-09 % change SEMDEX 1, , % SEM % SEMTRI (Rs) 3, , % SEMTRI (US$) 1, , % Market Capitalisation (Rs) 130,768,790, ,212,328, % Table 2: Market Evolution (1 January 30 June 2010) INDICES 1-Jan Jun-10 % change SEMDEX 1, , % SEM % SEMTRI (Rs) 4, , % SEMTRI (US$) 2, , % Market Capitalisation (Rs) 151,212,328, ,818,485, % Table 3: Foreign Investors Activity on the Official Market (1 July June 2010) Purchases Sales Net Investments (Rs) (Rs) (Rs) July December ,112,508,492 1,041,611,331 70,897,160 Jan June ,858,032,543 1,123,404, ,627,600 Total ( July 09 - June 2010 ) 2,970,541,036 2,165,016, ,524,761 Key Initiatives of the SEM in The initiatives of the SEM in were essentially centered around the development of new avenues of growth for the Exchange and endeavoured to overcome the structural constraints of a small economy where the number of new potential listings are inherently limited in scope. 1. Positioning the SEM as a Listing Venue for Global and Specialised Funds One of the key initiatives undertaken by the SEM in concerns a fundamental review of the listing rules with a view to 10

12 Key Initiatives of the SEM in (Cont'd) 1. Positioning the SEM as a Listing Venue for Global and Specialised Funds (Cont'd) positioning the SEM as an attractive venue for the Listing of Global and Specialised Funds and moving away from an equity based domestic exchange to a multi-product internationallyoriented exchange. The recent changes brought to the listing rules have not only enabled an alignment of these rules with the Securities (Collective Investment Schemes and closedend Funds) Regulations 2008 (CIS Regulations), but have more importantly created the space for the listing of a wide variety of funds and collective investment schemes on the SEM. Before these changes, our listing rules catered only for the listing of a restricted number of funds but today we are in a position to list a whole spectrum of funds including Professional Collective Investment Schemes, Specialised Funds, Expert Funds, Real Estate funds and many other types of Funds. The SEM is also committed to an aggressive turn-around time on the processing of listing applications which does not exceed two weeks. We have adopted a listing fee structure for funds which is very competitive, when compared with other jurisdictions like Dublin, Luxembourg, Bermuda, Cayman Islands etc. To sensitise the market and the management companies operating in the Global Business Sector about the flexibility and effectiveness of our rules, the SEM organized an informative meeting in early 2010 with more than 150 players from the financial services sector. 2. Extending our reach at the international level through Global data vendors and Index providers One of the key objectives of the SEM in recent years has been to enhance the visibility of the Exchange at the international level with a view to attracting more foreign investor interest on our market. In this connection, the SEM was connected to Bloomberg s network in the second part of 2009, enabling Bloomberg subscribers worldwide to follow our market on a live and real-time basis. SEM is one of the few Exchanges in Africa to be connected to Bloomberg on a real-time basis. We have also in extended our contractual relationship with Global Data Vendors by entering into a contractual agreement in May 2010 with Factset, a U.S based data vendor. These partnerships constitute a powerful medium to reach out to the international pool of institutional investors and extend SEM s visibility at the international level. 3. SEM s proactive role in furthering the national and regional agenda In , SEM has been very proactive in putting Mauritius and our stock market on the radar screen of International investors and in furthering ties with regional and international associations of Stock Exchanges. The SEM has been present and spoken at a number of international workshops on Emerging and African markets where we ve strived to explain the potential of the African/ Mauritian markets and demonstrated the operational and regulatory excellence of the SEM. We have also been very active at the level of Stock Exchange associations such as the World Federation of Exchanges (WFE), the African Stock Exchanges Association (ASEA) and the South Asian Federation of Exchanges (SAFE). In April 2010, we co-hosted with Global Board of Trade (GBOT) the Annual General Meeting of SAFE and its two-day flagship conference. The SAFE regroups the Exchanges of the Indian sub-continent and aims at promoting the development of capital markets in the region, while ensuring the harmonisation of the operational and regulatory standards of the member Exchanges. 4. Setting the stage for the trading and clearing of derivatives products In , the SEM and CDS have been working on the trading and clearing of derivative products. In this connection, the SEM has organized a number of workshops with brokers and institutional investors to explain the mechanics, operational features and risks associated with derivatives markets. The SEM and CDS have also participated in a number of radio programs and press interviews to sensitise investors about derivative products. Though the operational and regulatory frameworks for the launching of derivatives are ready, the first 11

13 The Stock exchange of mauritius Annual Report 2010 chief executive's report (Cont'd) Key Initiatives of the SEM in (Cont'd) Setting the stage for the trading and clearing of derivatives products (cont'd) derivative contract on the SEM 7 has not yet been launched as there are still some practical hurdles that need to be overcome before the launching of the first contract. One of the key characteristics of a successful derivatives market is the existence of market-makers who can ensure liquidity on the market. We need to enroll the support of market-makers, on the one hand, and brokers need to mobilize the interest of their clients in a meaningful way, on the other hand, before the rolling out of the first contract on the SEM. An overview of some initiatives earmarked for will be geared towards increasing listed products and attracting more players and participants on our market. 1. Investor Education SEM is a strong supporter of the drive to bring the stock market within the reach and understanding of the general public, and has a vision to develop an investment culture in Mauritius. We provide this support through a range of information and education services. The number of investors trading on our Exchange has increased in recent years on the back of the bull run that characterised our market during the early 2008 period, initiatives undertaken by investment dealers to reach out to potential investors, a number of international road shows in which the SEM and some listed companies have actively participated and the initiatives undertaken by the SEM to bring the stock market activities closer to Mauritian households. As at end May 2010, 56,000 investors holding nearly 251,000 securities accounts were registered with the CDS. These figures, though encouraging, indicate the growth potential that exists. Our target is to increase the number of registered investors to 100,000 by 2013, ensuring thereby that one in every five working Mauritians is a shareholder of the listed scrips traded on the SEM. In this context, the Exchange will launch in 2010 an Investor Education campaign under the theme Faire de Maurice une nation d actionnaires: 100,000 actionnaires d ici This campaign will comprise the launching of a series of in-house education courses at the SEM for the public at large, an educational brochure, radio programmes, press interviews and newspaper adverts. 2. Listing of multi-currency products on SEM The SEM has so far focused essentially on the listing of rupee-based products. The SEM and the CDS have recently held discussions with the Banks and the Central Bank to create the space for the listing of multi-currency denominated products on the SEM. We have made good progress on this front and this initiative opens up the space for the SEM to engage with international institutions to discuss about the feasibility of introducing foreign currency based products like exchange-traded funds (ETF s) and other products to list on the SEM. This initiative will further contribute to the internationalisation of the SEM and help to overcome the structural constraints of a small economy by operating up new listing avenues for the SEM. 3. Bridging regulatory and other gaps in the positioning process of the SEM as an attractive Listing Venue for Global and Specialised Funds In , we achieved an important step by reviewing our listing rules and rendering them flexible and adaptable to the specificities of a wide variety of funds. In , our focus will be on an aggressive marketing of this competitive framework, but we will also focus on initiatives to bridge regulatory and other gaps with a view to enhancing the competitiveness of SEM as listing venue for funds. In this connection, we have earmarked a specific number of international recognitions that the SEM need to obtain and we will work towards the obtention of these recognitions together with the FSC. 4. Moving up to an enhanced version of our trading system and implementing a new surveillance system to improve overall market surveillance. The SEM became the second African Stock Exchange in 2001 after the JSE to operate a fully automated stock market infrastructure from trading to settlement.this system revolutionised

14 An overview of some initiatives earmarked for (Cont'd) 4. Moving up to an enhanced version of our trading system and implementing a new surveillance system to improve overall market surveillance. (Cont'd) trading practices in Mauritius and empowered the investor in a significant manner by enabling him to follow the market in real-time and act upon market opportunities in real-time, while providing him with a number of market indicators to analyse the depth of the market on every single listed instrument. The time has now come for the SEM to move up to an enhanced version of the trading system and further empower the investor. We are currently engaged in discussions with the systems supplier to define the appropriate timing for the introduction of the new version of the trading software. We also intend to look into the introduction of a more sophisticated surveillance system at the SEM which will enable the surveillance department to carry out its functions more efficiently. currently characterising the exchange space. In this connection, will be geared towards identifying the strategic changes and partnerships that can be beneficial to the future of the SEM and of its different stockholders, including issuers and investors. The SEM has come a long way since The next 10 years will be very challenging due to the lack-luster growth scenario in countries on which Mauritius depends. However, challenges do represent opportunities and we are keen to capitalize on some of these opportunities to take the Exchange to the next stage of its development. We would like to express my appreciation to the Ministry of Finance and to the FSC for all their support during the year. Our thanks go to SEM s Chairman for his support and guidance and to the Board of Directors for its involvement and contribution. We owe the Management and staff of the SEM a word of appreciation for their drive and commitment. Last but not least, we would like to thank our key stakeholders, namely investment dealers, listed issuers, investors and all SEM Committee Members for supporting our initiatives. 5. Looking at partnership possibilities The stock exchange Industry has witnessed some major changes in recent years as exchanges try to boost up liquidity, attract more investors and position themselves as multi-product platforms. The SEM cannot be oblivious to these fundamental strategic shifts Sunil Benimadhu Chief Executive 22 September, 2010 Sunil BENIMADHU Chief Executive 13

15 The Stock exchange of mauritius Annual Report 2010 management profile Sunil Benimadhu joined the SEM as Chief Executive in May He was appointed Executive Director of the SEM in October He holds an M.B.A. in Finance and Investment from the University of Illinois, United States. He also holds a D.E A. in Development Economics and a Maîtrise in Macro- Economics from the University of Aix-Marseille, France.. He has recently been elected as President of the African Securities Exchanges Association (ASEA) for a period of two years. From 2002 to 2004, he was a member of the Executive Committee of the South Asian Federation of Exchanges (SAFE), which comprises twelve Stock Exchanges of the South Asian region. From 2001 to 2003, he chaired the SADC Committee of Stock Exchanges(COSSE), an association of stock exchanges which includes ten exchanges of the Southern African region. Darmanand VIRAHSAWMY Senior Manager/Head of Business Development Darmanand Virahsawmy holds a D.E.S.S in Economics of Information and a Maîtrise in Econometrics from the University of Montpellier, France. He joined the SEM since 1989 as Manager, and is currently Senior Manager/Head of Business Development. Shamin Ahmad SOOKIA Head of Listing Shamin Ahmad Sookia is a fellow member of the Association of Chartered Certified Accountants and a fellow member of the Chartered Institute of Management Accountants. He is also a holder of an MSc (I.T) and an MBA (Marketing). He joined the SEM in 2005, is currently the Head of the Listing Division. He is presently a member of the MIPA, ACCA Mauritius Branch & CIMA Mauritius Branch. He is also an active member of the Audit Committee of CIMA Southern Africa Region since September Institute of Chartered Secretaries and Administrators and he also holds an M.B.A. He joined the SEM in 1990 as Administrative Officer. He currently heads the Trading and Market Information Department and is also the Company Secretary. He is also a member of the ICSA Mauritius Branch. Shalini GOKHOOL Manager, Legal Affairs Shalini Gokhool holds an LLB (Hons) and she has also completed the Vocational Course for Barristers at the Mauritius Council of Legal Education in She joined the SEM in 2001 and currently heads the Legal Department. Nishan AUBEELUCK Manager, Marketing and Market Development Nishan Aubeeluck holds an MSc in International Business from the University of Melbourne, Australia. He joined the SEM in 2004, and currently heads the Marketing and Market Development Department. He is member of the Australian Centre for International Business (ACIB), the Financial Services Institute of Australia, and the Finance and Treasury Association of Australia (FTA). Vickram RAMFUL Corporate Finance Manager (Listing Division) Vickram Ramful is a Fellow of the Association of Chartered Certified Accountants. He is also a holder of a BA(Hons) in Accounting from the University of Lincolnshire and Homberside UK. and holds an MBA(Finance).He joined the SEM in 2005 and currently holds the position of Corporate Finance Manager in the Listing Division. He is currently a member of the MIPA and ACCA Mauritius Branch. Pamela LI CHUN FONG Manager, Finance and Administration Pamela Li Chun Fong is a fellow member of the Association of Chartered Certified Accountants and also holds a Diploma in Accountancy. She joined the SEM in 1995 as Accountant and currently heads the Finance and Administration Department. She is a member of the MIPA and ACCA Mauritius Branch. 14 Chaitanand JHEENGUN Manager, Trading and Market Information Chaitanand Jheengun is a fellow member of the

16 The Stock exchange of mauritius Annual Report 2010 corporate governance report CORPORATE GOVERNANCE PRAC- TICES The Board of Directors of the SEM reiterates its engagement in the promotion of the sustainable development of the Company, particularly in its roles as market operator and commercial entity, while ensuring that the interests of the shareholders and stakeholders are both promoted and protected. No Shares shall be transferred except with the approval of the FSC pursuant to Section 23 of the Financial Services Act BOARD'S RIGHT TO REFUSE OR DELAY REGISTRATION OF TRANSFER The SEM maintains a set of Corporate Governance principles and practices to ensure that the Company is in compliance with the relevant legislation, the Code of Corporate Governance for Mauritius and the Securities Act SEM S CONSTITUTION Section 25(1) of the Securities Act 2005 provides that: The SEM shall be a demutualised exchange constituted as a public company. A new Constitution for the conversion of the SEM into a public company has been approved by the Financial Services Commission in June The provision of the new Constitution complies with the provision of the Companies Act 2001 in relation to public companies and with the Securities Act SEM being a public company, the transfer of its shares are not subject to pre-emption rights. However, restrictions on ownership of shares as required by law are reflected in clauses 10.1 and 10.4 of the SEM Constitution as stipulated below: 10.1 TRANSFER OF SHARES TO BE SUBJECT TO BOARD AND FSC APPROVAL Notwithstanding the rights conferred upon the Board by clause hereof, all transfers and transmissions of Shares shall have to be approved by the Board. Any document relating to or affecting the title to any Shares shall be registered with the Company, after having been approved by the Board, without payment of any fee. (a) (b) The Board may, subject to compliance with sections 87 to 89 of the Act, refuse or delay the registration of any transfer of any Share to any person, whether that person be an existing Shareholder or not, where: (i) (ii) (iii) so required by law; a holder of any such Share has failed to pay on the due date any amount payable thereon either in terms of the issue thereof or in accordance with the Constitution (including any Call made thereon); the transfer is not accompanied by such proof as the Board reasonably requires of the right of the transferor to make the transfer; (iv) the Company is required or authorised to do so under the provisions of the Securities (Central Depository, Clearing and Settlement) Act or any other enactment. Notice of the decision of the Board refusing or delaying a transfer of any Share, stating the reasons for the refusal, shall be sent to the transferor and the transferee within twenty-eight (28) days of the date on which such transfer was delivered to the Board. 15

17 The Stock exchange of mauritius Annual Report 2010 corporate governance report (Cont'd) SEM SHAREHOLDERS FINANCIAL SERVICES COMMISSION Reporting Election of 10 Directors Two members of Industry One Executive Director Approval of appointment (pursuant to section 24 of the Financial Services Act 2007) Reporting BOARD OF DIRECTORS OF SEM Appointment Appointment Reporting Appointment Reporting Listing Executive Committee SEMBOARD COMMITTEES Other Stakeholders External Auditor Consultative Committee on the review of the listing Rules Committee Index Management Committee Consultative & Informative Committee Corporate Governance Committee - Nomination Committee - Remuneration Committee Audit & Risk Management Committee Overview Reporting Investors Investment Dealers Listed Companies Suppliers Employees Conduct Audit SEM MANAGEMENT COMMITTEE Supervise Reporting OPERATIONS OF THE COMPANY PROFILE OF MANAGEMENT TEAM The SEM Management Committee consists of the Chief Executive and the Managers of each department. The profile of each Member of the Management Team is disclosed on page 14 of the SEM Annual Report. COMPOSITION OF THE BOARD Clause 21.1 of the new Constitution provides for the new composition of the Board as follows: The Board shall consist of not more than ten directors, of whom: at least two shall be members of the Industry; and at least one shall be an Executive Director; No person shall be appointed as a Director without the prior approval of the FSC pursuant to Section 24 of the Financial Services Act The Directors are elected in accordance with the provisions of the Constitution of the Company. A Director, excluding the Executive Director, remains in office for a period of one year and at the annual meeting following the expiry of this period he retires from office, but he is eligible for re-election or re-appointment. DIRECTORS PROFILE The profile of each Member of the Board of Directors is disclosed on pages 6 and 7 of the SEM Annual Report. 16

18 SEM BOARD AND BOARD COMMITTEE MEMBERS During the financial year ended 30 June 2010, the following directors sat on the SEM Board and Board Committees: Corporate Audit & Risk Board of the Governance Management Name of Director SEM Committee Committee Professor Donald Ah-Chuen 4 Mr Sunil Dutt Benimadhu 4 4 Mrs Reedhee Bhuttoo 4 4 Mr Vishal Joyram 4 Mr Vincent Lamusse 4 Mr Gaëtan Lan Hun Kuen 4 4 Mr Peroomal Gopallen Mooroogen # 4 4 Mrs Nandita Ramdewar 4 4 Mr Bilal Ibrahim Sassa* 4 4 Mr André Tait@ 4 Mr Raj Tapesar Mr Vikash Tulsidas 4 4 Notes:- Mr Vishal Joyram was appointed alternate to Mrs Reedhee Bhuttoo on 10th March Mr Gaëtan Lan Hun Kuen was elected to sit as Chairman of the Board on 12th November # Mr Gopallen Mooroogen resigned from the Corporate Governance Committee on 12th November 2009 and was replaced by Mr Raj Tapesar. * Mr Bilal Ibrahim Sassa resigned from the Audit & Risk Management Committee and was replaced by Mrs Reedhee Bhuttoo on 12th November Mr André Tait was appointed alternate to Mr Bilal Ibrahim Sassa in April

19 The Stock exchange of mauritius Annual Report 2010 corporate governance report (Cont'd) DELEGATION BY THE BOARD While the Board has the specific responsibility for directing the long-term strategies and policies of the SEM and for approving yearly budgets of the Company, the day-to-day operational responsibilities are delegated to the Chief Executive and the SEM Management team. To assist in the execution of its responsibilities, and in line with Section 3.5 of the Code of Corporate Governance for Mauritius, the Board has established two Sub-Committees; namely, the Audit and Risk Management Committee and the Corporate Governance Committee, which also acts as the Remuneration Committee and the Nomination Committee. TERMS OF REFERENCE OF THE CORPORATE GOVERNANCE COMMITTEE The approved terms of reference of the Corporate Governance Committee are as follows: To ensure that the reporting requirements on Corporate Governance, on an ongoing basis, are in accordance with the principles of the Code; To determine, agree and develop the company s general policy on corporate governance in accordance with the principles of the Code; To ensure that disclosures are made in the annual report in compliance with the disclosure provisions in the code of Corporate Governance for Mauritius. TERMS OF REFERENCE OF THE NOMINATION COMMITTEE To make recommendations to the Board on the appointment of new executive and non-executive directors, including making recommendations on the composition of the Board in general and the balance between executive and non-executive directors appointed to the Board; To review regularly the Board structure, size and composition and make recommendations to the Board with regard to any adjustments that are deemed necessary; To identify and nominate candidates for the approval of the Board to fill Board vacancies as and when they arise, as well as to put into place plans for succession, in particular for the Chairperson and Chief Executive; To recommend directors who are retiring by rotation for re-election; To liaise with the Board in relation to the preparation of the Committee s report to shareholders, as required. TERMS OF REFERENCE OF THE REMUNERATION COMMITTEE Determine, agree and develop the company s general policy on executive and senior management remuneration; Determine specific remuneration packages for executive directors of the company, including but not limited to basic salary, benefits in kind, any annual bonuses, performance-based incentives, share incentives, pensions, and other benefits; Determine the level of non-executive and independent non-executive fees to be recommended to the shareholders at the meeting of the shareholders. During the financial year ended 30 June 2010, the Corporate Governance Committee met two times to discuss on the following main issues: To make proposals for the election of Directors for the year Sucession Plan - Chairman/Vice Chairman of the SEM To approve the Performance Bonuses of the Executive Director and the SEM staff for the financial year ended 30 June To review the salaries of the Executive Director and the SEM staff for the year TERMS OF REFERENCE AUDIT AND RISK MANAGEMENT COMMITTEE The terms of reference of the Audit and Risk Management Committee are disclosed in the Audit and Risk Management Committee Report. SEM RISK MANAGEMENT A report summarising the key risks for the SEM and the relative risk control mechanisms implemented by the company, is disclosed in the Internal Control Statement on page 28 of the Annual Report To make recommendations to the Board for the continuation (or not) in services of any director who has reached the age of 70;

20 ATTENDANCE OF THE BOARD AND BOARD COMMITTEES During the financial year 30 June 2010, the attendance record of the Board and Board Committees are given in the table below: AUDIT & RISK CORPORATE MANAGEMENT GOVERNANCE SEM BOARD COMMITTEE COMMITTEE Number of meetings held during the year Name of director Professor Donald Ah-Chuen 7/9 - - Mr Sunil Dutt Benimadhu 9/9-2/2 Mrs Reedhee Bhuttoo 5/6 2/3 - Mr Vincent Lamusse 7/9 - - Mr Gaëtan Lan Hun Kuen 7/9-2/2 Mr Peroomal Gopallen Mooroogen 7/9-1/1 Mrs Nandita Ramdewar 5/9 3/3 - Mr Bilal Ibrahim Sassa 1/9-1/2 Mr Raj Tapesar 7/9 2/3 1/1 Mr Vikash Tulsidas 9/9 1/3 - Mr Vishal Joyram(alternate) 3/3 - - Average Attendance Rate 74% 67% 88% REMUNERATION PHILOSOPHY The increase in remuneration of the employees and the performance bonuses which are paid to the employees of the SEM, are reviewed and approved each year by the Members of the SEM Remuneration Committee. The review is based on the performance assessment of each employee at the end of the financial year and takes into consideration, the rate of inflation for the year. 19

21 The Stock exchange of mauritius Annual Report 2010 corporate governance report (Cont'd) DIRECTORS REMUNERATION PAID BY SEM AND ITS SUBSIDIARY (CDS) Remuneration paid to the directors of the SEM and of the CDS for the years ended 30 June 2010 and 2009 are disclosed in the table below: Name of Sem Directors Rs 000 Rs 000 Professor Donald Ah-Chuen Mr Sunil Dutt Benimadhu * 6,302 4,860** Mrs Reedhee Bhuttoo Mr Marc Lagesse - 8 Mr Vincent Lamusse Mr Gaëtan Lan Hun Kuen Mr Peroomal Gopallen Mooroogen Mr Devanand Poonyth - 7 Mrs Nandita Ramdewar Mr Bilal Ibrahim Sassa Mr Ramanaidoo Sokappadu - 7 Mr Raj Tapesar Mr Vikash Tulsidas * Total remuneration for both years includes basic salaries, End-of-Year and Performance bonuses, pension contributions and passage benefits. ** In year 2009, the remuneration of the Executive Director relates to the period starting from 01 October 2008 to 30 June

22 DIRECTORS REMUNERATION PAID BY SEM AND ITS SUBSIDIARY (CDS) (Cont'd) Name of CDS Directors (RS 000) (RS 000) Mr Steve Leung Mr Peroomal Gopallen Mooroogen Mr Vikash Tulsidas 40 - Mr Javed Suhootoorah Mrs Nandita Ramdewar Mr Gaetan Lan Hun Kuen Mr Raj Tapesar Mrs Aruna Collendavelloo Mr Dhanesswurnath Thakoor Mr Ramanaidoo Sokappadu Professor Donald Ah Chuen Mr Vincent Lamusse Mr Vipin Mahabirsingh 2,701 2,503 Mrs Reedhee Bhuttoo Mr Suie Sen Hock Mine Ah Kine Mr Bilal Sassa POWERS DELEGATED BY SEM S BOARD TO THE LISTING EXECUTIVE COMMITTEE The power to act on certain listing matters resides in the Board of the SEM. Under the provisions of the Securities Act 2005, the Listing Executive Committee (LEC) previously the Listing Committee, deals with listing applications on the Official Market and other specific issues as provided in the SEM Listing Rules. Furthermore, under the rules of the Development & Enterprise Market (DEM), applications for the admission of companies on the DEM is also entertained by the LEC. 21

23 The Stock exchange of mauritius Annual Report 2010 corporate governance report (Cont'd) MEMBERS OF THE LISTING EXECUTIVE COM- MITTEE (LEC) The Listing Executive Committee is comprised of the following four Representatives of SEM and four External Members: SEM s Representatives: Sunil Dutt Benimadhu - Chief Executive Shamin Ahmad Sookia - Head of Listing Shalini Gokhool - Manager Legal Department Chaitanand Jheengun - Manager Trading and Market Information Department External Members: Nassir Ramtoola (Chairman) Prabha Chinien Sharda Dindoyal Margaret Wong Pin Lun TERMS OF REFERENCE OF THE LEC The LEC exercises the following responsibilities in respect to listing matters: To determine the suitability of applications made to the SEM for a listing after reviewing a comprehensive listing report prepared by the staff of the Listing Division in accordance with the requirements of the relevant rules and procedures. To recommend changes to Listing Rules and Rules of the Development & Enterprise Market to the Board, including the listing fee rates published by the Exchange from time to time. To assess cases of apparent breaches of the Listing Rules / rules of the Development & Enterprise Market and make recommendation to the Board, after their adjudication. To assess cases on the suspension or cancellation of a listing on the Exchange and to refer these to the Board for consideration. Twelve meetings of the LEC were held during the financial year 2010 whereby the following issues, inter alia, were considered : Applications for new listings on the Official Market Withdrawal of a company from the Official Market Applications for new listings on the DEM Cancellation of admissions from the DEM CONSULTATIVE COMMITTEE ON THE REVIEW OF THE LISTING RULES A Consultative Committee was set up by the Board of Directors of the SEM to review the Listing Rules governing the Official Market. The Committee comprises of executives of the SEM and representatives of the securities industry. The main purpose of the Committee is to align the Listing Rules with international standards of best practices. INDEX MANAGEMENT COMMITTEE The Index Management Committee composed, of stockbrokers, fund managers, academics, and officials from the Stock Exchange of Mauritius, ensures that the process of building and maintaining the SEM-7 is as interactive as possible. MANDATE OF THE INDEX MANAGEMENT COM- MITTEE The Index Management Committee: Establishes the criteria and procedures for selection of the constituents of the SEM-7. Determines the base period and value. Formulates a scientific and transparent methodology of index calculation. Reviews, monitors and maintains periodically the SEM-7. Considers the development of sectoral indices. The Index Management Committee meets quarterly to review the constituents of the SEM-7. These meetings are held on the first Tuesday (or nearest Mauritian business day after that day) of January, April, July and October. The inclusion or exclusion of a constituent in the SEM -7 is at the discretion of an independently constituted Index Management Committee. This discretion shall only be used in the spirit of furthering the objectives of the SEM-7. 22

24 MEMBERS OF THE INDEX MANAGEMENT COM- MITTEE The current members of the Index Management Committee are: Messrs: Vincent Lamusse (Chairman) Sunil Benimadhu Raj Tapesar Mathew Lamport Prem Beejan Bilal Sassa Darmanand Virahsawmy (Secretary) CONSULTATIVE AND INFORMATIVE COMMITTEE The Consultative and Informative Committee has been set up by the Board with the mandate to discuss issues related to trading activities, operational aspect of the ATS & CDS Systems, new products and development of the market. The Committee com prises of representative of SEM, CDS, Investment Dealers and Custodian Banks, and it does not have executive powers. The Chief Executive of SEM acts as Chairperson of the Committee. The Committee meets as and when the need arises and met six times during the financial year ended 30 June The main issues discussed by the committee include: Introduction of Futures Contracts on the Stock Exchange. Intra-day Reverse Turnaround Trades. CIS Regulations. Market Surveillance. Operational aspects of ATS and CDS Systems. GROUP STRUCTURE OF THE SEM SEM LTD 51% shareholding CDS LTD The SEM holds 51 per cent of the ordinary share capital of the Central Depository and Settlement Company Ltd (CDS). At 30 June 2010, the value of the ordinary share capital issued by the CDS Ltd was Rs15 million and its total reserves amounted to Rs102.4 million. The CDS Ltd is a private company incorporated in Mauritius. Its registered office is situated at One Cathedral Square, Level 4, Jules Koenig Street, Port Louis. The main activities of the company are to provide depository, clearing and settlement services in order to facilitate dealings in securities. 23

25 The Stock exchange of mauritius Annual Report 2010 corporate governance report (Cont'd) COMMON DIRECTORS AND THE SHAREHOLDING PERCENTAGES The names of the Directors who sat in both the Boards of the SEM Ltd and the CDS Ltd during the financial year ended 30 June 2010, together with the relative shareholding percentages in SEM and CDS, are given in the table below: Name of Director % Holding in CDS Ltd % Holding in SEM Ltd Professor Donald Ah-Chuen (ABC Group of Companies) % Mrs Reedhee Bhuttoo (SBM Securities Ltd) % Mr Gaëtan Lan Hun Kuen (Ireland Blyth Group) % Mr Vincent Lamusse (Anglo Mauritius Assurance Society Ltd) % Mr Gopallen P. Mooroogen (Mauritius Telecom) % Mrs Nandita Ramdewar (State Insurance Company of Mauritius Ltd) % Mr Bilal Sassa (Cim Stockbrokers Ltd) % Mr Raj Tapesar (MCB Stockbrokers Ltd) % The table below discloses the number of other directorships which the directors of the SEM hold in listed companies and the number of shares held by them, both directly and indirectly in the SEM. Name of Director Number of Number of shares Number of shares directorships held directly held indirectly in listed companies in SEM in SEM Professor Donald Ah-Chuen 1 Nil 0.46% Mr Sunil Dutt Benimadhu Nil Nil Nil Mrs Reedhee Bhuttoo Nil Nil Nil Mr Vincent Lamusse Nil Nil Nil Mr Gaëtan Lan Hun Kuen 2 Nil Nil Mr Peroomal Gopallen Mooroogen 2 Nil % Mrs Nandita Ramdewar Nil Nil Nil Mr Bilal Ibrahim Sassa 1 Nil Nil Mr Raj Tapesar Nil Nil Nil Mr Vikash Tulsidas Nil Nil Nil 24

26 SHAREHOLDERS OF THE SEM The table below discloses the list of shareholders and the relative number of ordinary shares being held by them as at 30 June 2010: List of shareholders Number of Shares held % Holding Bramer Securities Ltd 24, Cim Stockbrokers Ltd 24, Mauritius Telecom Ltd 24, State Insurance Company of Mauritius Ltd 24, The Anglo Mauritius Assurance Society Ltd 24, Mirabel Investments Ltd 22, Mauritian Eagle Insurance Co Ltd 20, Newton Securities Ltd 19, MCB Stockbrokers Ltd 17, Plasmo Ltd 16, Ramet Investment Ltee 16, Capital Markets Brokers Ltd 15, SBM Securities Ltd 15, Island Life Assurance Co Ltd 14, ABC Motor Co Ltd 12, Chue Wing & Co Ltd 12, Ireland Blyth Ltd 4, Compagnie D'Investissement et de Développement Limitée 4, Flacq United Estates Limited 2, Forward Investment And Development Enterprises Limited 2, Excelsior United Development Companies Limited 2, The Medine SE Ltd 2, Galvanising Co Ltd 2, Associated Brokers Ltd Ramet & Associes Ltee Total 330,

27 The Stock exchange of mauritius Annual Report 2010 corporate governance report (Cont'd) DEALINGS IN SHARES BY THE DIRECTORS There were no dealings in the shares of the SEM by the directors of the Company during the year ended 30 June The Company has no share option plans. The last transaction in the shares of SEM, in the context of a share transfer, was effected at a price of Rs550 in May There is no shareholders agreement which affects the governance of the Company by the board and the SEM does not have any management agreement with any third parties. RELATED PARTY TRANSACTIONS During the financial year ended 30 June 2010, the following transactions took place: Between the SEM and its subsidiary company: Rs 000 Purchase of goods and services IT services outsourced to CDS Ltd 1,114 Outstanding Balances Intercompany transactions due to CDS Ltd 459 Between the SEM and key management personnel Compensation of Key Management Personnel Short-term benefits 8,983 Post-employment benefits 697 Contributions to Pension Plans 1,063 DIVIDEND POLICY The dividend policy of the Company is disclosed in the Directors Report on page 4 of the SEM Annual Report IMPORTANT EVENTS The following table discloses the important events for the SEM: Dividend declaration 04 June 2010 Submission of annual reports and audited accounts to the Financial Services Commission 30 September 2010 Dividend payment 01 October 2010 Annual Meeting of Shareholders November

28 CORPORATE SOCIAL RESPONSIBILITY During the past two years, the SEM has been making small donations to several NGO s like the SACIM, the Mauritius Mental Health Association, APEIM and Childhope. Under Sections 50K and 50L of the Finance and Audit Act 2009, the SEM took the decision to set up a CSR fund to finance CSR activities that would help contribute to the social and environmental development of the country. After having considered the various areas of intervention available, the Company decided to contribute to the CSR projects listed under the Approved National Programme; namely, the Eradication of Absolute Poverty (EAP). During the financial year ended 30 June 2010, the SEM has contributed a total amount of Rs982,109 to finance the following three CSR projects: Rs 1. Project Learn to Earn for Out-of-School Youth Course 672, APEIM Upgrading of School 160, Gandhi Breedh Ashram Provision of Equipment & other amenities for the running of Charitable Home 150, ,109 POLITICAL DONATIONS No political donations was made by the SEM for the financial year ended 30 June Gaëtan Lan Hun Kuen Chairman 29 September,

29 The Stock exchange of mauritius Annual Report 2010 internal control statement Board Responsibility The Board of the SEM assumes its overall responsibility over the Group s system of internal control and risk management and for reviewing the adequacy and integrity of the systems already established within the Group. In order to comply with the principles of the Code on Corporate Governance for Mauritius, the Board of the SEM has set up an Audit and Risk Management Committee to identify, monitor and manage significant business risks of the Company. Likewise, in accordance with the CDS Rules, the Board of the CDS Ltd has set up a Business Conduct Committee (BCC) to review and control the business and operational risks of the CDS. The BCC also monitors the risk management framework established by the CDS to address the different types of risks that are inherent to clearing and settlement organisations, namely, counterparty, liquidity, systemic and operational risks. Key Risks for the SEM The main types of risks facing the Stock Exchange of Mauritius while conducting its business activities are enumerated in the table which follows: KEY RISKS EXPOSURES DESCRIPTION 1 Systemic Risk Systemic risk relates to the likelihood that financial difficulties experienced by an investment dealer may be transmitted or passed over to other investment dealers and through them, to the SEM. The SEM is subject to systemic risk, which is managed by the various stakeholders who participate in the financial markets. 2 Technology and Systems Risks The operation of the SEM s Automated Trading System (SEMATS), is being outsourced to the Central Depository & Settlement Company Ltd (CDS). The SEMATS is exposed to technology and systems risks such as system failure, which can result in loss of data. 3 Employee Fraud Risk This is the risk of employees or officers of the SEM individually, or in collusion defraud the company or commit an unauthorized activity, resulting in financial loss or unauthorized use of information assets, which can lead to: legal exposure, reputation risk and adverse impact on operations. 4 Negligence, Errors, Omissions This relates to the negligent acts, errors or omissions committed by the employees or the directors of the SEM, giving rise to claims from third parties who may have suffered financial losses as a result of the breach of professional duty. 5 Information for Decision Making Risk The risk that sensitive information used for decision making may not be accurate and known at the right time. 28

30 Key Risks for the SEM (Cont'd) KEY RISKS EXPOSURES DESCRIPTION 6 Integrity Risk Information Systems Infrastructure Management Process Integrity applies to: - application system development and maintenance; - logical security and security administration; - computer and network operations; and - business /data recovery. Without updated policies and procedures document, no terms of reference are available to follow when dealing with critical data and information systems at the SEM. Furthermore, such documentation provides a guideline for employees when dealing with critical data. 7 Information systems Infrastructure Management Process Integrity Risk This relates to the risk of a system failure occurring and data needs to be replaced on the system by means of backup, the backup data may be incomplete or unavailable. This also relates to the risk that confidential electronic mails could be accessed or tampered with by unauthorized persons without appropriate authority. 8 Business Interruption Risk Should a disaster occur (e.g. system failure) unnecessary financial losses and damage to the reputation of the SEM may occur as a result of the absence of a complete disaster recovery plan. 10 Operations Risk The risk that operations are not effectively and efficiently completed due to lack of properly established control procedures. 11 Relevance Risk - The risk that information is not relevant to the purposes, for which it is collected, maintained or distributed. - The risk associated with not getting the right data/ information to the right person /process / system at the right time to allow the right action to be taken. Often arises from a failure to fully understand information needs and a lack of attention to timeliness issues. 12 Performance Gap Risk The risk that a business process does not perform at a world class level because the practices designed into the process are ineffective. 13 Credit Risk Credit risk relates to the likelihood that clients will fail to meet their financial obligations as and when they fall due, thus exposing the SEM to a financial loss. 14 All Risk Computer Equipment This relates to the loss or damage to computer equipment caused by fire and allied perils and from accidental cause whilst it is at work or at rest or during cleaning, dismantling, movement or reassembly by the Company. 15 Personal injury of staff This relates to the liability at law to any employee for personal injury by accident whilst engaged in the service of the company. 29

31 The Stock exchange of mauritius Annual Report 2010 internal control statement (Cont'd) The risk management strategy of the SEM has been to have risk monitoring and risk management systems in place that attempt to minimize to the strict minimum risks that the Group may be confronted with in discharging its responsibilities. To achieve this objective, the Group has implemented the following risk control mechanisms: Capital Adequacy Requirements In accordance with the Financial Reporting of Investment Dealers Rules, all investment dealers have to submit on a quarterly basis, in addition to audited accounts, Capital Adequacy Requirements returns (CAR) returns by the tenth business day in the month following the previous three months. As per the Financial Reporting of Investment Dealers Rules, no investment dealer is allowed to have a shortfall in its capital, other than pursuant to a specific temporary exception granted by the SEM. The SEM has full discretion as to the necessity and sufficiency of special adjustments in any particular case, taking into consideration all factors pertaining to the market with regard to the financial resources or future contracts and the affairs as a whole of the investment dealer involved. Internal Control System The SEM s internal control system encompasses the following key control mechanisms: Delegation of responsibilities to committees of the Board through clearly defined terms of reference. Formal organizational structure, with clearly defined duties and responsibilities for each employee and well-defined lines of reporting. Formalized written internal procedures, detailing clearly the activities performed within each department. Segregation of duties whereby tasks are apportioned between different members of staff to reduce the scope for error and fraud. Annual Budgetary exercise requiring all departments to prepare budgets and business plans for the forthcoming year. The annual budget is being reviewed by the Audit and Risk Management Committee before being approved by the Board for implementation. Monthly monitoring of the SEM s actual performance against the approved budget with detailed explanations on variances. External Audit A statutory audit of the year-end financial statements is performed on an annual basis by external auditors and the results are being discussed at the Audit and Risk Management Committee before approval by the Board of the SEM. IT System The SEM has outsourced its IT function to its subsidiary CDS, which possesses the necessary IT expertise. The outsourcing agreement, which started since January 2001, also includes the technical management of the Automated Trading System (ATS). Any software enhancements, modifications and additions are thoroughly tested before implementation in the live environment. A formal Change Management Procedure has been implemented and during the year, minor changes have been made to the systems of the SEM and the CDS. IT Security Audit In order to assist the SEM and the CDS in identifying any IT risks and to undertake appropriate measures to address those risks, the whole IT system is being subject to a specialized independant IT audit once every two years. Objective of the IT Security Audit The objective of the IT Security Audit was to determine the state of security of the SEM and CDS IT infrastructure with the following goals: Reviewing the organization s IT Security Policies and Disaster Recovery Plan. Discovering the vulnerabilities/ Security issues in the critical information systems running in the network. Assessing the overall business impact arising from any identified vulnerability (if get exploited). Provide the remedial strategy and recommendations to assist in mitigating the identified vulnerabilities and risks during the activity and strengthen the organization s IT Security. 30

32 Scope of the IT Security Audit The IT Security audit covered the following areas: - Review of IT Security Policy - Review of Disaster Recovery Planning - Review of the Network Security Architecture - Security audit of the network components like routers, firewalls, switches etc. - Security audit of the Solaris Servers and Oracle Databases. - Internal vulnerability assessment. - Non-intrusive External Penetration Testing. - Verifications of PCs on LAN. The last IT security audit was conducted during April/May 2009 by Aujas Network Pvt Ltd, an Indian company specialized in high-end digital security services. The audit report was submitted to the SEM Audit Committee for examination. No security threats and vulnerabilities were detected during the audit but the auditors made some recommendations to enhance the overall information security framework at the SEM and CDS. All the recommendations made by the auditors were implemented by December One of the recommendations of the IT Security auditors was to implement a Web Content Filtering mechanism to scan and monitor the internet usage of users. Any unwanted site or contents can be filtered which is intended to improve the security level of the network. This recommendation has been implemented since December A Symantec Web Gateway has been procured and installed. The Symantec Web Gateway is an innovative Web security gateway appliance that protects against Web 2.0 threats, including malicious URLs, spyware, botnets, viruses, and other types of malware and performs web content filtering. The Gateway has been configured to ensure consistency with our IT Security Policy. Disaster Recovery Plan The SEM has a Disaster Recovery Plan (DRP) to cater for various possible scenarios. The DRP covers both preventive and corrective measures, which will enable it to deal with various types of disasters, which can disrupt normal ATS system operation. Prevention of loss of data in the event of media failures is achieved through the implementation of redundant and cyclical backup tapes that are stored both on-site and off-site. The ATS system is designed with High-Availability configuration with main and backup servers. The back-up database server maintains a mirror image of the database on the main server. In the event of a problem with the main database server, the backup server takes over without physical intervention required at client sites. Similarly, if one of the two trading engines goes down, the second trading engine takes over within 10 minutes. In the event of a major disaster site that causes the ATS site to be unavailable, systems and business operations will be restored at a back up site within 6 to 24 hours. During the year , three simulations of the DRP were performed on the following respective dates: 14th September 2009, 16th December 2009 and 30th April The simulation performed on 14th September 2009 involved the participation of the investment dealers, custodian banks as well as SEM and CDS personnel. No systems downtime was observed during Compensation Fund Section 148 of the Securities Act 2005 provides for the creation and maintenance of a Compensation fund to provide for the compensation of investors who suffer pecuniary loss as a result of: (a) (b) (c) the inability of a licensee under this Act or any collective investment scheme to satisfy claims arising from civil liability by it in connection with services provided; fraud or defalcation by a licensee, a collective investment scheme or any of its officers or employees; or the insolvency or bankruptcy of any licensee or collective investment scheme. The SEM Compensation Fund was established, maintained and administered by the SEM under the repealed Stock Exchange Act 1988 (now Section 148 of the Securities Act 2005). In 1999, the Board of Directors of the SEM approved that an initial amount of Rs2.75 million.- be transferred out of the SEM s retained earnings for the purpose of the Fund. The value of the Fund as at 30 June 2010 amounts to Rs3.9 million. In case of any shortfall in the Fund, as per the rules and regulations of the new Securities Act, the investment dealers would be called upon to contribute to the Compensation Fund. Professional Indemnity Insurance Cover In the past, the SEM took a professional indemnity insurance (P.I) cover for the amount of Rs15 million in the joint name of SEM and all registered investment dealers. In the light of the new provisions under the Securities Act 2005, and in view of the difference in 31

33 The Stock exchange of mauritius Annual Report 2010 internal control statement (Cont'd) Professional Indemnity Insurance Cover (Cont'd) the size of business of the relative risk exposure, it was recommended that each company should have its individual P.I cover. On the other hand, since both the SEM and the CDS have common interests and also common directors sitting on both Boards, the SEM and the CDS decided to take a combined insurance policy including Stock Exchange Professional Indemnity / Crime Insurance / Directors & Officers Liability for an amount of Rs15 million. This decision has also enabled both companies to achieve synergies and to reduce insurance costs. REPORT ON THE COMPLIANCE AUDIT (Rule of SEM Business Rules) Section 24(1)(a) of the Securities Act 2005 provides that in addition to its other functions, the SEM shall have regulatory functions and shall, inter alia, ensure that it adequately supervises the market operations and conduct of market participants. The SEM Business Rules have been implemented to enable the SEM discharge its regulatory functions vis-à-vis market participants under the law. These rules provide for the criteria and conditions for Investment Dealers to be admitted as Trading Members of the SEM, disciplinary action against Trading Members in the event of non-compliance with the rules, requirements on the business practices of Trading Members an a Code of Conduct which the Trading Members must observe when trading on SEM. The SEM Business Rules were approved by the FSC in October 2008 and came into force in January 2009, following a 3-month transition period given to the Investment Dealers to ensure compliance with the new rules. The SEM has set up a compliance unit which monitors on an on-going basis compliance of Trading Members with the requirements of the SEM Business Rules. With the adoption of the SEM Business Rules, the SEM monitors the following: Eligibility criteria for membership Continued compliance with Exchange requirements, including training and certification of participants and capital adequacy Trading operations of participants, including issue of contract notes to clients, brokerage charges, turnover limits, margin requirements Code of conduct for members and members responsibilities Maintenance of records, annual accounts and audit Inspection of participants Sanctions in cases of non-compliance with regulations, rules and procedures of the Exchange The SEM undertook investigation and compliance visits during the financial year 2008/2009 with the Investment Dealers, in virtue of Rule of SEM Business Rules to assess how the standards described in the Business Rules had been complied with. All Trading Members were informed in writing of the shortcomings observed during the Compliance Visit. A follow-up visit was carried out on the shortcomings in May-June 2009 and most of the members are adhered to the SEM Business Rules. A copy of the full report has been submitted to the Chief Executive. The next investigation and compliance visit will be held during the second quarter of the financial year

34 The Stock exchange of mauritius Annual Report 2010 audit and risk management committee report The Audit and Risk Management Committee is established to assist the Board in discharging its duties relating to the safeguarding of assets, the operation of adequate systems, control processes and the preparation of accurate financial reporting and statements in compliance with all applicable legal requirements and accounting standards. The Committee also covers the risk management functions. Main Responsibilities In relation to Auditors and External Audit: To recommend to the Board which firm(s) should be appointed as external auditor(s). To evaluate the independence, effectiveness and performance of the external auditor(s). To discuss and review, with the external auditor(s) before the audit commences, the auditor(s) engagement letter, the terms, nature and scope of the audit function, procedure and engagement and, the audit fee. To agree on the timing and nature of reports from the external auditor(s) and make suggestions as to problem areas that the audit can address. To review the overall audit role. In Relation to Financial Statements To examine and review the financial statements, the interim reports, the accompanying reports to shareowners, the preliminary announcement of results and any other announcement regarding the company s results or other financial information to be made public, prior to submission and approval by the Board. To ensure that the financial statements are in compliance with accounting standards, local and international, and with legal requirements; To review the annual report and accounts taken as a whole and, to ensure that they present a balanced and understandable assessment of the position, performance and prospectus of the company. To review the external auditor(s) proposed audit certificate, management letter and management response. In Relation to Internal Control and Internal Audit To monitor and supervise the effective functioning of the internal control systems so as to ensure that the roles and functions of the external audit and internal control are sufficiently clarified and co-ordinated so as to obtain an objective overview of the operational effectiveness of the company s systems of internal control and reporting. In Relation to Risk Management To receive from management information as to their processes for the identification, monitoring and management of significant business risks; To consider internal control and compliance structures; To review the adequacy of insurance coverage; To review any legal matters that could have a significant impact on the company s business; To make regular assessments of the internal controls existing within the organisation and to review summary reports and monitor managements response; To ensure compliance of investment dealers with the Financial Reporting Requirements of the Stock Exchange. Composition The Audit and Risk Management Committee comprises four non-executive directors. Members for the year were Mrs Nandita Ramdewar (Chairperson), Mrs Reedhee Bhuttoo, Messrs Raj Tapesar and Vikash Tulsidas. Reporting and Accountability The Audit and Risk Management Committee through its Chairperson is accountable to the Board for its activities and makes recommendations to the Board concerning matters arising from the Committee s responsibilities. The Chairperson of the Committee, or, in his/her absence, an alternate member attends the annual meeting to answer questions concerning matters falling within the ambit of the Committee. 33

35 The Stock exchange of mauritius Annual Report 2010 audit and risk management committee report (Cont'd) Main Responsibilities (cont'd) Meetings The Audit and Risk Management Committee meets as and when necessary and met three times during the financial year During its meetings the Committee carried out a follow up on the internal control functions and risk management carried out by management. Other issues discussed by the Committee included: (i). Review of audited financial statements and management letter. (ii) (iii) (iv) (v) The setting up of the terms and scope of the audit functions including the assessment of the reporting requirements under IAS/IFRS applicable accounting policies, audit fees, the time table in respect of the audit exercise and the annual report for the financial year Declaration of dividend for the year ending 30th June The 2010/2011 SEM Budget Appointment of SEM Auditors for the year 2010/

36 The Stock exchange of mauritius Annual Report 2010 operating and financial review LISTING DIVISION The global financial crisis has highlighted the importance of having reliable, well-operated and regulated markets that facilitate transparent price discovery and generate confidence to all stakeholders. SEM s objective to continuously review its listing rules without, however compromising on market transparency fits well within the perspective of creating a flexible but well-regulated market environment. Our efforts are aimed at striking the right balance between our regulatory duties and the commercial interests of our stakeholders. We are also committed to taking into account developments taking place on our domestic market as well as on the global front. Amendments brought to Chapter 16 of the Listing Rules The changes brought to Chapter 16 of SEM s Listing Rules in January 2010 were done with the dual objectives of aligning it with the provisions of the Securities (Collective Investment Schemes and Closed-end Funds) Regulations 2008 and positioning the SEM as a listing venue of choice for global and specialised funds. The new Chapter 16 allows a wider variety of funds and other investment entities to list on our Exchange and is based on a simplified regulatory environment which has the necessary ingredients to cater for the evolving nature of the funds industry worldwide. One key benefit for funds already operating in the global business sector and which are seeking a listing on the SEM is the flexibility brought to the conditions of entry. The admission requirements have thus been considerably alleviated for these types of entities based on the specificities of funds in general and international practice in the industry worldwide. Review of Related Party Transaction Rules including definition of relevant terms The SEM has embarked on the process of reviewing the definitions of "related party" and "related party transactions" under Chapter 13 of the Listing Rules with a view to simplifying the application of the above definitions in line with best international practice while taking into consideration the Mauritian context. Compliance and Monitoring The Listing Division continues to monitor listed issuers compliance with the Listing Rules by targeting its resources to a range of activities, including vetting of issuers documents for corporate actions, monitoring market activities through querying about unusual movements in share prices / volumes traded and providing guidance and rules interpretation to queries emanating from issuers or issuers' advisers. The above approach is intended to minimise delays in issuers dissemination of information to the public, and promotes a self-compliant culture among issuers. Improving listed issuers knowledge of the Listing Rules Occasionally and as the circumstances may warrant, the Listing Division issues guidance to all issuers on specific topics that need to be made more explicit. Also, to promote self-compliance with the Listing Rules by issuers, the SEM encourages issuers to improve their knowledge of the Listing Rules by attending seminars organized by the Exchange. During the year, the Exchange undertook two initiatives in this regard. An informative meeting was held in February 2010 with key representatives of the management companies operating in the Global Business Sector to explain to them the key changes that have recently been brought to Chapter 16 of the Listing Rules. The message that the Exchange wanted to get across was to show how these changes have created an enabling and conducive environment for the listing of global and specialised foreign funds on the SEM. A presentation was made in June 2010 on compliance with the Listing Rules and DEM Rules in the context of a one-day conference on Corporate Governance organized by the Institute of Chartered Secretaries and Administrators. Similar events with issuers and market practitioners help the SEM to ascertain their needs and to facilitate mutual understanding of regulatory issues through continuing dialogue. Admissions and withdrawals during the year As at 30 June 2010, there were 37 companies, 8 authorised mutual funds and 1 international issuer listed on the Official Market as compared to 48 companies and 1 close-ended fund listed on the DEM. The following funds were admitted to listing on the Official Market during the year:- Global Diversified Fund PCC - Cells Number 2 to 4 Shares Africa Sustainability Fund - Class A Shares Cerulean (Mauritius) PCC - Class A Shares Imara Portfolio Selector PCC - Imara Flame Lily Fund 35

37 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) LISTING DIVISION (Cont'd) Admissions and withdrawals during the year (cont'd) Mon Desert Alma Limited and The Mount Sugar Estates Company Limited were withdrawn from the Official Market during the year following amalgamations with The Savannah Sugar Estates Company Limited and Harel Frères Limited respectively. Société de Développement Industriel et Agricole Limitée (SODIA) was admitted to the DEM during the year while no cancellation of the admission of a DEM company was registered. Corporate actions and other transactions during the year Although the Mauritian economy has been showing a great deal of resilience in the face of a world economy which is labouring to get back on its feet, Mauritian companies listed on the SEM have been busy during the year reengineering their business processes and trying to find ways to face the future. During the last few years, we have been witnessing an increasing number of corporate actions by listed companies. The two tables below give an insight of the corporate actions and other transactions of major significance which took place during the year on both the Official Market and the DEM. Type of Transaction Number Name of listed Companies on the Official Market Disclosable Transaction 3 - British American Investment Co (Mtius) Ltd - Dale Capital Group Limited Status as at 30/06/2010 Completed Completed - Belle Mare Holding Ltd Completed Substantial Transaction 1 - The Mauritius Union Assurance Co Ltd Completed Related Party Transaction 2 - Omnicane Limited Completed - ENL Commercial Limited Completed Dividend in Specie 1 - Ireland Blyth Limited Completed Long Form Amalgamation 2 - The Savannah Sugar Estates Company Limited Completed - Harel Freres Limited Completed Share split 1 - Dale Capital Group Limited Placing 1 - Mauritius Stationery Manufacturers Ltd Bonus Issue 1 - The United Basalt Products Ltd Rights Issue 1 - Mauritius Stationery Manufacturers Ltd Offer by Seaton Investment Ltd to purchase minority shareholders 1 - British American Investment Co (Mtius) Ltd Completed In progress In progress Completed In progress 36

38 LISTING DIVISION (Cont'd) Corporate actions and other transactions during the year (cont'd) Type of Transaction Further issue of securities 3 - Triangle Real Estate Investment Fund Completed - Ascencia Ltd In progress - United Investments Ltd In progress Share Buy Back 1 - CIEL Investment Limited Completed Restructuring ( including conversion and bonus issue ) Significant Transactions 1 - Deep River Investment Limited Completed (acquisition & disposal ) 2 - CIEL Investment Limited Completed Dividend in Specie 1 - Medine Limited Completed Conversion of shares and reduction of stated capital Number Name of listed Companies on the DEM 1 - Southern Cross Tourist Co Ltd Status as at 30/06/2010 Completed Attracting new listings The SEM aims at attracting new listings from both the domestic and international markets. While it is being recognized that domestic enterprises are fairly well represented on SEM s markets both sectorwise and industry-wise, we believe that there is still scope for a number of private undertakings to seek a listing with a view to raise funds for future growth. To attract these companies, the SEM wishes to underscore the powerful value creation role it has played since its inception in A listing on SEM is believed to help the transformation of a company s way of doing business and facilitate its accession to yet another level of development in its growth cycle. With respect to international issuers, the SEM intends to pursue actively marketing initiatives to entice funds operating in the local global business sector and other entities incorporated abroad or listed on other securities exchanges to choose SEM as a listing venue. For the coming year, the Listing Division has been assigned with the task of having at least 2 new domestic companies listed on each of SEM s two markets and of attracting 20 funds on our listing platform. SEM Socially Responsible Investing Index (SEM SRI) Although the practice of Corporate Social Responsibility ( CSR ) is much debated and criticized, proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate short-term profits. In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions is increasing. Simultaneously, pressure is applied on the industry in general to improve business ethics through new public initiatives and laws. The SEM perfectly accords with the philosophy advocated by businesses which embrace responsibility for the impact of their activities on the environment, consumers and other stakeholders. As was announced in last year s Annual Report, the Listing Division has been contemplating to develop a new index, the SEM Socially Responsible Investing Index (SEM SRI), as a means of identifying companies listed on SEM s markets that incorporate the principles of corporate social responsibility into their business activities. The SEM SRI which will be a reflection of the deliberate inclusion of public interest into corporate decision-making is designed to display the performance of socially responsible shares traded on both the Official Market and the DEM. Exchange-traded funds ( ETFs ) The Listing Division has been entrusted with the task of developing the rules relating to the listing of exchange-traded funds (ETFs). An exchangetraded fund (ETF) is an investment fund traded on stock exchanges similarly to stocks. An ETF holds assets such as stocks, commodities, or bonds and 37

39 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) LISTING DIVISION (Cont'd) trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index and may be attractive as investments because of their low costs, tax efficiency, and stock-like features. Typically, the trading of ETFs is reserved to large institutional investors who actually buy or sell shares of an ETF directly from/to the fund manager. ETFs offer public investors an undivided interest in a pool of securities and other assets and thus are similar in many ways to traditional mutual funds. Share Split A share split or stock split is a decision by a company's board of directors to increase the number of shares that are outstanding by issuing more shares to current shareholders. A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. The primary motive is to make shares more affordable to small investors even though the underlying value of the company has not changed. The Listing Division believes that there is scope on both the Official Market and the DEM for companies whose share prices are relatively high to split their shares. The Division intends during the course of the coming year to meet with the top representatives of these companies and persuade them to proceed with a share split. This will have the effect of increasing liquidity in their shares and making investments in the underlying shares more attractive. 38

40 Trading Activities OFFICIAL MARKET Market Performance Market performance on the Official Market for the current financial year was positive, with the indices rebounding sharply from their relatively low levels of end June In the wake of the market rebound, market capitalization of the Official Market, which had dropped to Rs billion at end June 2009 increased by 15.3% during financial year 2009/2010 to reach Rs billion, i.e 54.4 % of GDP. Traded volumes and traded values also increased in 2009/2010. Foreign investors who had retreated from frontier markets in the aftermath of the crisis made their way back to the local stock market, generating positive investment flows on several listed companies. Official Market Indices The SEMDEX closed the financial year at points gaining 16.70% onto the previous financial year. The SEM-7 and the SEMTRI in rupee terms registered gains of 4% and 21% respectively. The following table depicts the comparative figures for the main indices and the market capitalization. 01-Jul Jun-10 Net Change (%) SEMDEX 1, , SEM SEMTRI (RS) 3, , SEMTRI (US) 1, , MARKET CAPITALISATION (RS bn) The graphs below highlight the monthly evolution of the main indices during the financial year under review. The SEMDEX and SEMTRI reached their highest level at the start of February 2010 whereas the blue chip index, SEM-7, topped in the month of October SEMDEX: FINANCIAL YEAR 2009 to 2010 SEMDEX 1,800 1,750 1,700 1,650 1,600 1,550 1,500 1,450 1,400 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Month 39

41 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) Trading Activities (Cont'd) OFFICIAL MARKET (Cont'd) Official Market Indices (cont'd) SEM - 7 FINANCIAL YEAR 2009 to SEM Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Month SEMTRI: FINANCIAL YEAR SEMTRI Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Month Turnover and Volume traded on the Official Market for the Financial Year trading sessions were held on the Official Market. Total market turnover reached at Rs billion representing an increase of 19.75% over the preceding financial year. The volume of shares exchanged during the financial year under review soared by 66,59% as measured against the preceding financial year. The number of shares traded at end of June 2010 stood at million. 40

42 Trading Activities (Cont'd) OFFICIAL MARKET (Cont'd) The following chart depicts monthly trading volume and value on the Official Market during the period under review. OFFICIAL MARKET - VALUE AND VOLUME FOR THE FINANCIAL YEAR , TURNOVER - Rs Million 1,700 1,500 1,300 1, VOLUME - Shares in Million 100 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 TURNOVER VOLUME - The highest volume and value traded were registered in the month of March A total volume of 84,52 million of shares representing a total turnover of Rs1.74 billion were traded on the market during that month. Five-Year Trend of Activities on the Official Market ( ) The following graph illustrates the market activities on the Official Market over a five-year period in terms of volume and value traded. OFFICIAL MARKET : VOLUME AND VALUE TRADED Turnover (Rs Million) ,566 10,765 11,806 9,875 11, Volume Traded (Million) Turnover Volume 41

43 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) Trading Activities (Cont'd) OFFICIAL MARKET (Cont'd) Investments by Foreign Investors In , net outflows by foreign investors represented Rs 1.33 billion witnessed a substantial improvement over last year s data. Net foreign investments for the financial year rose by a robust % and stood at Rs million at end of June The following chart depicts the net foreign investments on a monthly basis for the financial year NET INVESTMENTS FLOWS BY FOREIGN INVESTORS IN Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Net investments Flows - Rs - Million Apr-10 May-10 Jun-10 Month Market Capitalisation by Sector Following a steep drop in , market capitalization on the official market recovered during the financial under review in the wake of sharp increases in the prices of stocks constitutive of the different sectors underpinning the official market. At end of June 2010, market capitalisation on the Official Market stood at Rs billion showing a positive growth of 15.33% over the last year s figures. The following table displays comparative figures of market capitalisation by sector for the period Market capitalization by sector (Rs bn) SECTORS 1st July th June 2010 % Change BANKS & INSURANCE COMMERCE INDUSTRY INVESTMENTS LEISURE & HOTELS (6) SUGAR TRANSPORT FOREIGN (59) 42

44 Trading Activities (Cont'd) OFFICIAL MARKET (Cont'd) The chart below shows the share of market capitalization by category of companies listed on the Official Market as at 30th June MARKET CAPITALISATION OFFICIAL MARKET (RS) BY SECTOR - JUNE 2010 SUGAR 11% TRANSPORT 1% FOREIGN 0.23% BANKS, INSURANCE & OTHER FINANCE 43% LEISURE & HOTELS 18% INVESTMENTS 9% INDUSTRY 7% COMMERCE 11% SECTORIAL PERFORMANCE The table below shows the performance of Market Sectors in terms of value traded during the financial year under review. Value Traded % of Total Sector (Rs Million) Value Traded Bank & Insurance 5, Leisure & Hotels 2, Commerce 1, Investments 1, Sugar Industry Transport Foreign

45 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) Trading Activities (Cont'd) OFFICIAL MARKET (Cont'd) Top ten companies in terms of Total Return The following table shows the top ten companies in terms of total return for the financial year under review. COMPANIES Date of Listing TOTAL % on the SEM RETURN INDEX CHANGE 1-Jul Jun-10 Gamma Civic Ltd 30-Nov , United Basalt Products Ltd , , Plastic Industry (Mtius) Ltd Mauritius Union Assurance Co. Ltd , , Ireland Blyth Ltd 17-Aug Innodis Ltd Harel Mallac Ltd , , The Savannah Sugar Estates Co. Ltd , , Mauritius Oil Refineries Ltd , , Automatic Systems Ltd 12-Oct DEVELOPMENT & ENTERPRISE MARKET (DEM) Market Performance The performance of the DEM during the financial year has been very encouraging in terms of value and volume of transactions, gaining % and % respectively over the preceding period. For the 251 sessions held during the financial year , total turnover and volume amounted to Rs 3bn and million of shares respectively. 44

46 DEVELOPMENT & ENTERPRISE MARKET (DEM) (Cont'd) Market Performance (cont'd) The following graph shows the total turnover and volume traded on a monthly basis for the period July 2009 to June DEM - TURNOVER AND VOLUME FOR THE FINANCIAL YEAR TURNOVER - Rs Million VOLUME - Shares in Million Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Month TURNOVER VOLUME The highest level of volume and turnover traded were registered in the month of December A total volume of million of shares for a total value of Rs 1.3bn were traded. Market Indices The two indices namely DEMEX and DEMTRI (Rs) registered positive growth during the period under review. The DEMEX went up by 11.23% while the DEMTRI (Rs) rose by 13.82% in the same time frame. The table and graph below show the evolution of the indices during the period under review. DEM INDICES INDICES 1-Jul June-10 % Change DEMEX DEMTRI (Rs) DEMTRI (US $) Market Capitalisation (Rs million) 45,411 51,

47 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) DEVELOPMENT & ENTERPRISE MARKET (DEM) (Cont'd) DEMEX and DEMTRI: July 2009 to June 2010 DEMEX Jul-2009 Aug-2009 Sep-2009 Oct-2009 Nov-2009 Dec-2009 Jan-2010 Feb-2010 DEMTRI (RS) Mar-2010 Apr-2010 May-2010 Jun-2010 Month DEMEX DEMTRI Foreign Investment Foreign investors interest on the Development and Enterprise Market was reflected by a net investment of Rs million during the financial year under review. The following chart depicts the net foreign investments on a monthly basis for the financial year NET INVESTMENTS FLOWS BY FOREIGN INVESTORS IN Net Investments Flows (Rs Million) Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Month Market Capitalisation With 50 companies listed on the DEM, total market capitalization stood at Rs bn at the end of June 2010 representing a growth of 13.96% when compared against the previous financial year. 46

48 DEVELOPMENT & ENTERPRISE MARKET (DEM) (Cont'd) Market Capitalisation by Sector The following table and Pie chart show the comparative figures of sectorial market capitalization as at June MARKET CAPITALISATION BY SECTOR (RS BN) 1ST JULY 30TH JUNE SECTORS % CHANGE BANKS & INSURANCE COMMERCE INDUSTRY INVESTMENTS LEISURE AND HOTELS (4) OTHERS (12) SUGAR TRANSPORT MARKET CAPITALISATION (RS ) BY SECTOR - JUNE 2010 DEVELOPMENT & ENTERPRISE MARKET TRANSPORT 0.96% SUGAR 29.87% BANKS & INSURANCE 1.95% COMMERCE 2.09% INDUSTRY 6.37% OTHERS 9.23% LEISURE AND HOTELS 11.76% INVESTMENTS 37.77% 47

49 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) SECTORIAL PERFORMANCE The table below shows the performance of Market Sectors in terms of value traded during the financial year under review. Value Traded % of Total Sector (Rs Million) Value Traded Investments 1, Others Sugar Leisure & Hotels Industry Commerce Bank & Insurance Transport DEM Top ten companies in terms of Total Return The following table shows the top ten companies in terms of total return for the financial year under review. COMPANIES Date of Listing TOTAL RETURN on the SEM INDEX % CHANGE 1-Jul Jun-10 Associated Commercial Co Ltd 4-Aug Livestock Feed Limited (Ordinary) 4-Aug Forges Tardieu Limited 4-Aug Les Moulins de La Concorde Ltée (Ordinary) 4-Aug Soap & Allied Industries Limited 4-Aug United Bus Service Ltd 4-Aug Ciel Textile Ltd 4-Aug Mauritius Secondary Industries Ltd 4-Aug Compagnie Immobiliere Limitee 4-Aug The Anglo- Mauritius Assurance Society Limited 4-Aug

50 MARKETING AND MARKET DEVELOPMENT In a growingly competitive environment, an ongoing challenge for the SEM is to continuously reinvent itself on the marketing front to attract more investors, more participants and more eye-balls on our market. After a protracted spell of strong upward market movements during the period, our market was characterised by a reversal of fortune triggered by the demise of Lehman Brothers. In spite of the very difficult environment of the last two years, SEM has kept its focus on the marketing and market development fronts and achieved a commendable performance in the data business segment as well as in the number of securities accounts opened during the year under review, regardless of the sternly testing times confronting stock exchanges across the globe. The resilience depicted by the SEM in the face of tough conditions underscores its endeavours to scale to new heights by creating long-term value for its stakeholders by way of a well structured and coherent marketing and market development strategy. Concurrently, due emphasis is being laid on data business, investor education as well as investor service. Our quest for market development is driven by a willingness to move boundaries as well as broaden our local investor base by ensuring a wider spread of market information and knowledge, that can altogether potentially trigger more resource flows into the stock market. KEY UNDERTAKINGS DURING FY 2009/10 Data Business In our pursuit to expand the scope of data business, the Marketing Department of the Exchange has a mandate to secure and maintain business relationships with new subscribers locally and internationally as well as global data vendors. Since 2007, we have a new pricing and dissemination policy for market data services, in line with international best practice, as well as an ongoing relationship management programme in place. In early 2010, the SEM signed a contractual agreement with FactSet, a global data-vendor based in the United States. FactSet was named "Best Analytics Provider" at the Inside Market Data Awards in FactSet is a data analytics provider, that consolidates all the tools investors need to monitor global markets, public and private companies, and equity and fixed income portfolios on a single, intuitive interface. More recently, the SEM signed a contractual agreement with the Financial Times Ltd ( FT ) to utilise SEM delayed and end of day data for the purposes of display in hard copy in their newspapers (including the Financial Times) and in softcopy on their websites (including FT is one of the world s leading business news organisations, and provides essential news, comment, data and analysis for the global business community. By virtue of this agreement, FT will distribute SEM s: (i) end of day data for publication in hardcopy titles of any kind; and (ii) delayed data for publication in online, electronic and wireless products, applications and services of any kind. This coverage of SEM s data on FactSet and FT since 2010, constitute a positive step that will enhance SEM s visibility at the international level and accelerate the Exchange s integration within the international financial markets. This global coverage of SEM s data will also contribute towards putting the Exchange on the radar screen of a wider spectrum of international investors and attract more foreign investor interest for our listed stocks. Similar to global data vendors, SEM s Marketing Department pursued its efforts to work with more global index providers and maintain a long-term relationship management with these financial institutions, as such partnerships represent a powerful medium to reach out to the enormous pool of institutional investors internationally. Discussions have started since early 2010 with FTSE to build FTSE-SEM Indices, and are still underway at this time of writing. Investor Education SEM is a strong supporter of the drive for bringing the stock market within the reach and understanding of the general public, and has a vision to develop an investment culture in Mauritius. We provide this support through a range of information and education services. Understanding the sharemarket, the principles of investing are increasingly becoming important with more people over time getting the appetite of investing in shares owning shares either directly or through a managed fund. The SEM also entered into association with Radio One in plugging a daily air-time slot in the so-called Journal de L Economie for last day stock market news at 8:45 am, as well as a daily brief coverage of mid trading stock quotes at pm for the benefit of investors at large. A daily air-time slot at 16:50 is also available on Radio One, for major corporate announcements and release of published accounts by listed issuers on the SEM. 49

51 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) MARKETING AND MARKET DEVELOPMENT (Cont'd) SEM Young Investor Award 2010 All time high number of participants In a similar fashion, in line with its vision to develop an investment culture in Mauritius, the SEM organises the annual SEM Young Investor Award competition for lower-6 students from secondary institutions, giving them a close encounter with the exciting and challenging realities of investing in shares and managing money. Today s teenagers will be tomorrow s investors on the stock market, it is therefore vital that they be given the opportunity to learn about managing money. The Exchange launched the 18th edition of this competition in 17th March 2010, spreading over a period of 3 months till 18th June, and a Prize Giving Ceremony was held on 9th September This year s competition has attracted 176 teams of five students each from 95 colleges across the country, representing 880 students, which is an all-timehigh since the creation of this event in It is encouraging that a record number of students this year have seized the opportunity given by the SEM in association with all Investment Dealers, to get an early exposure to investment on the equity market. Over the years, this competition has allowed participants to become familiar with the mechanics of share trading and to develop an appreciation of the risks and benefits associated with investing in the sharemarket. Players are given a hypothetical amount of money, learn from Investment Dealers, and have access to a maze of educational tools from the SEM, such as newsletters, company announcements and historical publications to assist them in analysing the accounts and activities of listed companies, and making informed decisions about stock selection and managing their portfolios during the 3-month competition. International Marketing During the year, the Mauritius Bourse stepped up its efforts to make our market better known within the international community. Our marketing campaigns at the international level in Europe, Asia, and in the US in association with international institutions, was conducted through road shows and participation in international seminars and workshops where we strove to highlight the regulatory and operational features of our market and discussed about its performance. These road-shows aimed at show casing our stock market, explain to potential foreign institutional investors the investment opportunities available on our market, with a view to placing our listed companies and investment dealers on the radar screen of foreign institutional investors. FUTURE UNDERTAKINGS FOR FY 2010/11 Investor Education The number of investors trading on our Exchange has increased in recent years on the back of the bull run that characterised our market during the period, initiatives undertaken by investment dealers to reach out to potential investors, a number of international road shows in which the SEM and some listed companies have actively participated and the initiatives undertaken by the SEM to bring the stock market activities closer to Mauritian households. As at 30 June 2009, the number of securities accounts at the CDS stood at 233,669. As at 30 June 2010, 56,000 investors holding 252,842 securities accounts are registered with the CDS, therefore representing a year-on-year increase of 8% in the number of securities accounts during the last FY. These figures, though encouraging, indicate the growth potential that exists. Our target is to increase the number of registered investors to 100,000 in 2013, ensuring thereby that one in every two working Mauritians is a shareholder of the listed scrips traded on the SEM. In this context, the Exchange is planning to organise at least one national investor event in every year. SEM will start media by launching in partnership with a global partner an Investor Education campaign under the theme Faire de Maurice une nation d actionnaires: 100,000 actionnaires d ici Discussions between SEM and a global media partner are underway, at this time of writing. This national Event will take the form of a 2 - Info Day educational Event, where the first day will be geared to institutional investors namely brokerage houses and asset managers, and the second day will be for the public at large. Broadly speaking, the Event will comprise amongst others, the launching of an educational brochure, presentations on Investment Topics delivered by specialists from overseas, the SEM as well as selected local institutions from the finance and investment industry. At a more deep-seated level, the SEM is also planning to launch in 2011, a series of ongoing weekly in-house "train the trainer" courses as well as education courses for the public at large. The weekly 50

52 MARKETING AND MARKET DEVELOPMENT (Cont'd) FUTURE UNDERTAKINGS FOR FY 2010/11 (Cont'd)) Investor Education (Cont'd) in-house education courses will be via concise power-point presentations, surrounding the basics of stock market investment, the mechanics of buying and selling shares, risks of stock market investment as well as investor protection. Data Business In our pursuit to expand the scope of our data business, the Marketing Department at the Exchange has a mandate to develop more business with new and existing global data vendors, while ensuring proper relationship management with existing global data vendors and global index providers, as such partnerships represent a powerful medium to reach out to the enormous pool of institutional investors internationally. The SEM will strive to build on last financial year s positive results, that saw giants Financial Times from the UK and FactSet from USA, subscribe to SEM's data vending service, as this segment has a huge revenue potential and also constitutes at the same time a golden step that enhances SEM s visibility at the international level and accelerate the Exchange s integration within the international financial markets. SEM s Website SEM s website com continues to be a popular financial news and information website amongst financial institutions in Mauritius, and is revisited at regular intervals to provide up-to-date information to investors. Today, SEM s website allows investors, wherever they are, in Mauritius or anywhere else in the world, to follow the market in real-time and seize market opportunities in real-time by placing order to their brokers. SEM s website is fully up-to-date and provides a vast array of information for investors, including share prices, dividends, the latest company announcements and market statistics. The SEM is now in the process of redesigning a new website with a new homepage and enhanced programming features to help investors find the right information faster and easier. The new-look SEM website will retain the broad features of the present design while adding new elements and grouping information more efficiently. The new SEM homepage will have a modern look and feel, and will be more streamlined, showcasing SEM s investor products and services. With this website revamp in the pipeline, the Exchange will step up its efforts to provide users with a comprehensive online coverage of all market activities, attending to the requirements of different stakeholders and enhancing its visibility on the international front. This is in line with the commitment that the SEM website should remain a useful source of company information and data for local as well as international institutional and retail investors. 51

53 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) LEGAL ACTIVITIES The financial year was marked by two key initiatives by the Exchange towards the realization of its objective to widen its array of products so as to provide investors with a wider choice of investible products. The two projects namely: the positioning of the SEM as a listing venue for Global and specialized funds and the creation of a market segment to trade derivatives products entailed the setting up of the appropriate regulatory framework to enable their implementation. The drafting and adoption of new rules/ amendments to existing rules of the SEM in relation to these projects were some of the focal tasks undertaken by the Legal Department during the current year. On the compliance front, the SEM has also reviewed some important provisions of its Trading Rules and Procedures to ascertain that the Stock Exchange rules are in conformity with existing legal provisions and on-going corporate practices by listed companies. REVIEW OF RULES WITH REGARD TO FUNDS AND COLLECTIVE INVESTMENT SCHEMES The SEM has revamped its Listing Rules for the Official Market to bring those rules in alignment with the provisions of the Securities (Collective Investment Schemes and Closed-end Funds) Regulations The proposed amendments to the SEM Listing Rules were reviewed by a working committee set up by the SEM comprising staff members of the SEM and representatives of the Association of Trust and Management Companies (ATMC). The amendments to the Listing Rules have been approved by the Regulator and are effective since 28 th January The amended Listing Rules for the Official Market now cater for the different types of Collective Investment Schemes provided for in the Regulations, namely: closed-end funds, Global schemes, professional collective investment schemes, specialized collective investment schemes and expert funds. These different types of investment entities have distinct characteristics from investment companies and unit trusts generally admitted under the Listing Rules. A greater degree of flexibility has also been introduced in the Listing Rules with regard to the specific types of funds/ investment entities mentioned above in view of their particular characteristics to facilitate listing. At the same time, the rules confer upon the SEM the power to impose additional requirements in any particular case. As at date, the securities of 8 mutual funds are listed on the Official Market of the SEM. Amendments to the Listing Rules have necessitated consequential amendments to the SEM Trading Rules and Procedures, given that the shares of foreign companies and global business companies that can potentially list on the SEM are denominated in USD and their shareholders are foreigners. Technical amendments have been brought to the ATS Schedule of Procedures (Trading Procedures), more particularly in relation to the provisions on Tick Size, to allow trades effected in the shares of these companies to be settled in USD or other currency in which the shares are denominated. DRAFTING OF RULES WITH REGARD TO THE DERIVATIVES SEGMENT The Legal Department s focus during the year was also geared towards the drafting of trading, clearing and settlement rules and procedures for the Derivatives Segment. These rules and procedures have been approved by the FSC and will become operational following the launching of this new market segment once the SEM manages to gather sufficient market interest for the new product in terms of market makers and investors. OTHER REGULATORY CHANGES TO ENSURE COMPLIANCE WITH EXISTING LEGAL PROVISIONS AND CORPORATE PRACTICES The SEM has reviewed the Stock Exchange (Conduct of Trading Operations) Rules 2001 (Trading Rules) to ensure compliance with existing legal provisions and corporate practices by listed companies, more particularly under the Companies Act The Trading Rules have been amended to allow the SEM to waive the conditions for trading unit under the ATS Schedule of Procedures (Trading Procedures) in exceptional situations subject to the approval of the Regulator, to allow certain specific types of transactions to be done on the Crossing Board to give effect to the provisions of the law, for example the exercise of minority buy-out rights under Section 108 of the Companies Act The Trading Rules have also been amended to extend the scope of the power of the SEM to grant a waiver of certain provisions of the Trading Rules and ATS Schedule of Procedures in specific circumstances. However, this power can only be exercised with the approval of the Regulator, in exceptional situations. Certain situations have been encountered in practice where exemptions sought by stakeholders under the provisions of the Trading Rules and Procedures for practical reasons, could not be acceded to, as the SEM has no general power to waive any or part of the Trading Rules and Procedures. Given that the 52

54 LEGAL ACTIVITIES (Cont'd) Trading Rules and Procedures are not exhaustive and cannot cater for each and every situation, the amendments to the Rules allow the SEM, with the approval of the FSC, to waive certain provisions of the rules in exceptional situations where such waiver would be justified. FINANCIAL REVIEW FY2010 FY2009 % CHANGE REVENUE & OTHER INCOME Rs 000 Rs 000 REVENUE: - Transaction fees, service fees & Annual Membership fees (A) 67,802 54, Annual Listing fees (B) 15,607 15,867 (1.6) OTHER INCOME - Sale of Information (C) 2,065 1, Interest receivable (D) 13,513 12, Dividends receivable (E) 6,732 6, Miscellaneous income (F) TOTAL REVENUE & OTHER INCOME 106,688 92, TOTAL EXPENSES (G) 38,832 35,335 (9.9) PROFIT BEFORE TAXATION 67,856 56, TAXATION 9,557 7,761 (23.1) DIVIDENDS 23,252 19, PROFIT AFTER TAX & DIVIDENDS 34,877 29,

55 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) REVENUE AT A GLANCE Total revenue and other income rose by 15.6 per cent to reach at total value of Rs106.7 million as compared to last year figure of Rs92.3 million. The following graphs depict the different components of revenues and other income of the company and their respective percentages over the last two years: ANALYSIS OF REVENUE %7% 12% 15% 64% Transaction Fee Listing & Service Fees Investment Income Sale of Data & Publication Other ANALYSIS OF REVENUE % 8% 13% 18% 59% Transaction Fee Listing & Service Fees Investment Income Sale of Data & Publication Other 54

56 ANALYSIS OF EXPENSES Total expenses for the financial year 2010 were Rs38.8 million as compared to last year figure of Rs35.3 million. The graphs below gives a brief analysis of expenses of the company and their relative percentages over the past two years: ANALYSIS OF EXPENSES 2010 Audit fees & Professional Fees 1% Other Operating Expenses 14% Administration expenses & insurances 11% Depreciation 3% Staff costs and related expenses 58% Marketing & Development Expenses 4% ATS expenses 9% ANALYSIS OF EXPENSES 2009 Audit fees & Professional Fees 5% Other Operating Expenses 11% Administration expenses & insurances 12% Depreciation 4% Staff costs and related expenses 54% Marketing & Development Expenses 4% ATS expenses 10% 55

57 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) The value of Profit after tax and dividends increased by Rs5.4 million (18.4 per cent) to reach Rs34.9 million for the year ended 30 June This compares favourably well with last year s profit figure of Rs29.5 million. (A) REVENUE - TRANSACTION, SERVICE & MEMBERSHIP FEES FY 2010 FY2009 %CHANGE REVENUE: RS 000 RS Transaction fees 67,142 54, Service fees (3) - Annual Membership fees Total 67,802 54, KEY MARKET INDICATORS FY 2010 FY2009 %CHANGE Average daily turnover (value): - Official Market (Rs 000) 47,113 39, Development & Enterprise Market (Rs 000) 11,781 4, Average daily turnover (volume): - Official Market ( 000) 1, Development & Enterprise Market ( 000) 1, Notwithstanding the difficult local and international economic context, the SEM has sustained its growth momentum during the past financial year with activities and results pointing excellent performance. Revenues from transaction fees during the financial year 2010 grew by 23.5 per cent to reach a total value of Rs 67.8 million. The increase in the revenues from transaction costs is a direct result of an increase in the volume and the value of shares traded during the year on both markets, where there were some restructurings and other corporate actions on the SEM. The highest volume and value traded for the Official Market were noted in the month of March 2010, while for the DEM Market, the highest volume and turnover traded were recorded during the month of December

58 (B) ANNUAL LISTING FEES Annual listing fees dropped to Rs 15,6 million in year 2010, representing a 1.6 per cent decrease against Rs 15.9 million in the year This small reduction in revenue derived from listing fees, is mainly due to a decrease in the market capitalization of the companies listed on both the Official Market and the Development & Enterprise Market, and a lower number of listed companies listed as shown by the key drivers tabled below: FY 2010 FY2009 % CHANGE No. of listed companies on Official Market (5) No. of listed companies on DEM Market Total No. of listed companies on both Markets (1.1) (C) INCOME FROM SALE OF INFORMATION FY 2010 FY2009 % CHANGE Rs 000 Rs 000 Revenue from sale of information 2,065 1, Revenue derived from the sale of information increased significantly by 25.8 per cent to Rs2.1 million against Rs1.6 million in year This is due to the fact that during the financial year 2010, the SEM signed a new contract with a new information vendor for the provision of market information, as highlighted by the key indicators which are tabulated below: Key indicators: FY 2010 FY2009 %CHANGE Total number of Contracts signed with foreign Information Vendors (D) INCOME FORM INTERST RECEIVABLE FY 2010 FY2009 %CHANGE Rs 000 Rs 000 Income from interests receivable 13,513 12,656 7 Income from interests receivable increased by 6.8 per cent to reach a total figure of Rs13.5 million in financial year 2010, as compared to Rs 12.6 million in financial year The main reason for this increase, as shown in the key indicators table below, is the significant increase in the Cash which was deposited. However, the increase in the interests receivable was brought down by the continuous cuts in the interest rates as fixed deposits reaching maturity during the financial year, were renewed at relatively lower interest rates. Furthermore, with the prevailing worldwide economic downturn, interests receivable in foreign currency accounts were non existent. 57

59 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) Key indicators: FY 2010 FY2009 %CHANGE RS 000 RS 000 CASH DEPOSITS - NON CURRENT 84,900 56, CURRENT 67,100 44, (E) INCOME FROM DIVIDENDS RECEIVABLE FY 2010 FY2009 %CHANGE Rs 000 Rs 000 Income from dividends receivable 6,732 6, Dividends received from the CDS increased by 7.3% to reach Rs6.7 million as a direct result of an increase in the Net Profit After Tax of the CDS for the year ended 30 June 2010: Key indicators: CDS LTD FY 2010 FY2009 %CHANGE RS 000 RS 000 NET PROFIT AFTER TAX 33,096 30, DIVIDENDS (13,200) (12,300) 7.3 SEM S SHARE OF DIVIDENDS 51% 6,732 6, (F) OTHER INCOME MISCELLANEOUS INCOME FY 2010 FY2009 %CHANGE RS 000 RS 000 Advertising income Miscellaneous income Total Miscellaneous income rose by 1.5% to attain Rs1.0 million for the year 2010 as compared to last year. This increase is mainly due to an excess of revenue over expenditure from the organisation of the Seminar on Derivative Market by the SEM during the year

60 (G) TOTAL EXPENSES FY 2010 FY2009 %CHANGE Rs 000 Rs 000 Staff costs and related expenses 22,206 18,983 (17) ATS Expenses 3,526 3,433 (3) Marketing and Development Expenses 1,719 1,325 (30) Depreciation 1,310 1, Administration expenses and insurances 4,182 4,269 2 Audit fees and Professional fees 516 1, Other Operating Expenses 5,373 4,013 (33.8) Total Expenses 38,832 35,335 (9.9) Staff costs and related expenses rose by 17 per cent, mainly due to the salaries of SEM staff which was reviewed by 6.2 per cent over last year and to extra bonuses being paid to the SEM employees because of the good financial performance of the company for the year under review. Automated Trading expenses rose by 3 per cent over last year, primarily due to a small increase in the management fees paid to CDS Ltd, as per the terms of the IT outsourcing agreement. Marketing and Development expenses increased by 30 per cent, mainly because the SEM agreed to sponsor the SAFE conference which was held in Mauritius during the year under review. The total amount sponsored was Rs0.5 million. Administration expenses and insurances was reduced by 2 per cent as a result of a reduction in the cost of insurances incurred by the Company for the year under review. Audit fees & Professional fees was considerably reduced by 68.5 per cent, mainly because during the last financial year 2009, a big amount was paid by the SEM in respect of legal fees. Other operating expenses was increased by 33.8 per cent, primarily due to the an overall increase in the running costs, including repairs and maintenance and to the fact that the total contribution of the SEM towards the Corporate Social Activities for this year was increased by 391 per cent to Rs982,109 as compared to the amount of Rs200,000 which the SEM contributed in the year Depreciation was reduced by 11 per cent, as a result of reviewing the estimated useful lives of the company s assets during the year under review. 59

61 The Stock exchange of mauritius Annual Report 2010 operating and financial review (Cont'd) SHAREHOLDERS FUNDS AND RETURN ON EQUITY FY 2010 FY2009 %CHANGE Shareholders funds 169, , Shareholders funds at 30 June 2010 were increased by 26 per cent to reach a total figure of Rs169.5 million. This increase was directly attributable to the increase in the retained profit for the year under review, which amounted to Rs34.9 million. The graph below shows the trend in the shareholders funds and return on equity over the past three years: SHAREHOLDERS' FUNDS & RETURN ON EQUITY % Rs'million % 40.0% 30.0% 20.0% 10.0% Return on Equity FY 2008 FY 2009 FY % Shareholders' funds Return on equity DIVIDEND PER SHARE FY 2010 FY2009 %CHANGE Rs Rs Dividend per share Dividend per share increased by 18.4 per cent from Rs59.52 for financial year 2009 to Rs70.46 for financial year This increase in dividend per share is mainly attributable to the good financial performance this year and is in line with the Company s dividend policy of distributing 40 per cent of its net profit after tax to shareholders at each financial year-end. CASH FLOW AND LIQUIDITY FY 2010 FY2009 %CHANGE Rs 000 Rs 000 Cash and cash equivalents 162, , Cash and cash equivalents of the Company increased by 49 per cent to reach a total amount of Rs162.7 million in financial year This is mainly attributable to the good financial results achieved by the company. The graph below illustrates the positive movements of the Cash and Cash equivalents of the Company over the past three years. 60

62 CASH AND CASH EQUIVALENTS 200 Rs'million FY 2008 FY 2009 FY 2010 FINANCIAL REVIEW Wealth created by the Company Rs'000 % Rs'000 % Turnover 83,410 70,777 Other Income 23,279 21,526 Administrative Expenses (15,487) (14,981) TOTAL WEALTH CREATED 91, , DISTRIBUTED AS FOLLOWS: Members of Staff Salaries and other benefits 22, , Providers of Capital Dividends to Ordinary Shareholders 23, , Government - taxation 9, , Wealth reinvested in the Company to maintain and develop operations: 32, , Profit retained 34, , Depreciation 1, , , , TOTAL WEALTH DISTRIBUTED AND RETAINED 91, ,

63 The Stock exchange of mauritius Annual Report 2010 corporate governance WEALTH CREATED BY THE COMPANY Wealth reinvested in the Company Salaries and other benefits Dividend to Ordinary Shareholders Government & Taxation Percentage FY2010 FY

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66 The Stock Exchange of Mauritius Ltd (Member of the World Federation of Exchanges) Financial Review