ANNUAL REPORT

Transcription

1 ANNUAL REPORT

2 Contents About NAMAL Chairman's Review Board of Directors Management Team NAMAL Funds Investment Manager s Report NAMAL Acuity Value Fund Unit Information Corporate Information

3 About 1

4 About NAMAL National Asset Management Limited (NAMAL) is the pioneer Unit Trust management company in Sri Lanka established in Over 20 years of experience and a successful track record of investing in equity and fixed income markets, NAMAL launched the first Unit Trust to be licensed in Sri Lanka (National Equity Fund) and the first listed Unit Trust (NAMAL Acuity Value Fund). We operate eight Unit Trusts and offer private portfolio management services as well. A subsidiary of Union Bank of Colombo PLC, our shareholders include DFCC Bank and Ennid Capital (Pvt) Limited. We have a highly experienced and professional management team with widespread experience in domestic and international capital markets. Our Investment Philosophy Value Investing is an in-grained investment philosophy at NAMAL. It is a rigorous and disciplined investment management process involving Fundamental Research and Valuations, Asset Allocation, Portfolio Implementation, Monitoring and Reallocation Strategies. The core investment team is guided by the Investment Committee which includes eminent independent investment professionals. Our Unit Trusts Unit Trusts enable individual investors to benefit from professional fund management, investment performance, portfolio diversification, additional investment alternatives and risk management for a low minimum investment. In addition, investors have the ability to redeem their investments on a daily basis in the event of an emergency. Investing in Unit Trusts allows you to plan and invest for your future financial wealth, significant life milestones and your prosperous retirement while enjoying peace of mind. All NAMAL Unit Trusts are licensed and regulated by the Securities and Exchange Commission of Sri Lanka. 2

5 Chairman s Review 3

6 We remain committed to delivering long term capital appreciation and income to our investors by adopting conservative, fundamental based investment management. Dear Investors, It is my pleasure to send this Report and accounts of the Funds to our investors for the year ended 31st March The Company achieved an impressive 155% growth in Assets under Management (AUM) to Rs Bn from Rs. 5.1Bn during the year under review. The Company passed the Rs. 10Bn AUM level for the first time in its history. NAMAL was selected as the Best Investment Management Company in Sri Lanka by World Finance at the Investment Management Awards 2013 confirming our pre-eminent position in the country. The flagship, National Equity Fund, yet again ranked No 1 in the entire industry (46 Funds) with total returns of 17.1% in FY13. The NAMAL Growth Fund and NAMAL Acuity Value Fund also outperformed the All Share Price Index. Our fixed income funds, NAMAL High Yield Fund and NAMAL Income Fund continue to provide attractive tax adjusted returns. While foreseeing some near term challenges stemming from both global and domestic macro-economic issues, we are optimistic about the future growth trajectory of the Sri Lankan economy and the capital markets. We remain committed to delivering long term capital appreciation and income to our investors by adopting conservative, fundamental based investment management. I wish to take this opportunity to thank our staff, Securities and Exchange Commission, the Trustees and our market counterparties for their contribution. Most importantly I wish to extend my sincere appreciation to our loyal investors, many of whom have remained with NAMAL since inception, for the trust they have placed in us. I am confident NAMAL will repay your trust by continuing to deliver excellent performance in the future. Alexis Lovell, MBE Chairman 4

7 Board of Directors 5

8 Board of Directors Alexis Lovell Chairman Ajith Wijeyesekera Deputy Chairman Anil Amarasuriya Palitha Gamage Ms Khoo Siew Bee Avancka Herat Not in picture: Jitendrakumar Warnakulasuriya Tyrone De Silva 6

9 Profiles of the Board of Directors Alexis Lovell, MBE - Chairman Mr. Lovell is the Chairman of Union Bank of Colombo PLC. He counts over thirty years of experience in Finance and Investment Banking. Mr. Lovell is a Chartered Management Accountant, UK and holds a post graduate degree in Business Administration. He was awarded the MBE (Most Distinguished Order of the British Empire) by Her Majesty the Queen of England for services to Investment Banking. Ajith Wijeyesekera - Deputy Chairman Mr. Wijeyesekera is a renowned entrepreneur/ business leader with over 30 years experience in business management. An eminent personality in the Sri Lankan apparel industry, he is the Founder Chairman/Managing Director of Union Apparels (Pvt) Limited, a well established manufacturer of garments for export markets, consisting of five manufacturing units with a turnover of Rs. 4 billion and a workforce of over He is also the Founder Chairman/Managing Director of Union Resorts, the owning company of The Blue Water, Wadduwa, a luxury five star resort hotel, NorthStar Holdings an investment company, Union Industrial Washing (Pvt) Limited and the elite fashion store, Dilly's Fashions (Pvt) Ltd. Anil Amarasuriya Mr. Amarasuriya is the Director / Chief Executive Officer of Union Bank of Colombo PLC (UBC). A veteran banker and former Managing Director / Chief Executive Officer of Sampath Bank. His association with UBC dates back to 2003 when he spearheaded its restructure, when Sampath Bank and a group of investors infused capital to the Bank. He has been instrumental in the Bank's business re-engineering process through a new strategic direction to reposition UBC as the preferred Bank for the SME and Retail Banking Sectors. He is a Fellow of the Institute of Chartered Accountants, Sri Lanka and the Chartered Institute of Management Accountants, UK and an Honorary Fellow of the Institute of Bankers, Sri Lanka. He was a member of the Sri Lanka Accounting and Auditing Standards Monitoring Board. He is currently the vice chairman of the Sri Lanka Bank's Association and a Director of Financial Ombudsman Guarantee Ltd. Mr. Amarasuriya was also a former Chairman of the Sri Lanka Banks' Association and Financial Ombudsman Sri Lanka Guarantee Limited. He also served as a Director of Sampath Surakum Ltd, SC Securities Ltd, Sampath Trade Services (HK) Ltd and Lanka Bangla Finance Ltd. Jit Warnakulasuriya Mr. Warnakulasuriya is the Chairman of Just in Time Group and counts many years experience in management and over 25 years experience in the field of IT. Mr. Warnakulasuriya is a Fellow member of the Institute of Certified Professional Managers, Chartered Institute of Marketing. 7

10 Ms. Khoo Siew Bee Ms. Siew Bee has extensive experience in all aspects of corporate finance work in Asia, the US and Europe. Her previous positions include Director & Country Manager of Schroders Taiwan, Director of Schroders Hong Kong, Director of Schroders Singapore and Mergers & Acquisitions Director (Asia Pacific) of Monsanto Singapore Pte. Ltd. Ms. Siew Bee is a Director of BP De Silva Holdings Pte Ltd., and a number of its subsidiary and associate companies. Tyrone De Silva Mr. De Silva is a Senior Vice President and Head of the Corporate Banking and Investment Banking Departments at DFCC Bank. He joined the Bank in 1989 and has been involved throughout in the Bank's Corporate Finance and Capital Markets business. He serves as a member of Bank's Credit, Investment and Asset Liability Committees and as nominee Director on the Boards of some of the Bank's other subsidiary and associate companies. Mr. De Silva holds a Master's Degree in Business Administration from the University of Warwick, UK. He is also a Graduate Member of the Institute of Mechanical Engineers, UK. Palitha Gamage Mr. Palitha Gamage is a career banker with over 25 years of experience at DFCC Bank. He has served in several senior managerial positions in Corporate Banking, SME Banking, Investment Banking and Planning within the bank. In addition, he also served as Head of Corporate Credit at DFCC Vardhana Bank. Presently, he holds the position Executive Vice President (Planning and Operations) at DFCC Bank; a post he has held since Prior to joining DFCC Bank, he worked as a Civil Engineer at State Engineering Corporation of Sri Lanka. He served as a member of the Governing Board of the National Institute of Business Management for three years from During his career, Mr. Gamage has attended a multitude of local and foreign training programs and workshops covering various aspects of banking. Mr. Gamage holds a B. Sc (Engineering) Hons degree from the University of Moratuwa, Sri Lanka and a MBA from the Asian Institute of Technology, Thailand. He is an Associate of the Chartered Institute of Management Accounts (CIMA), UK and a Corporate Member of the Institute of Engineers, Sri Lanka. Avancka Herat Mr. Herat is the Executive Director of NAMAL. (Please refer management team profile.) 8

11 Management Team 9

12 Profiles of the Management Team Avancka Herat, Executive Director/Chief Investment Officer Mr. Herat has over 20 years experience in the financial services sector in the areas of investments banking, investment management and corporate finance. He has extensive regional experience having worked for investments banks and MNC s including Jardine Fleming, JP Morgan and Caltex. He has worked in Singapore, Hong Kong and Thailand specializing in key sectors such as Petroleum, Telecoms, Power and Energy, Cement, MNC s and Small Caps. Prior to joining NAMAL, Mr. Herat was the Chief Investment Officer/Director of Aegis Fund Management (Pvt) Ltd, managing the funds of DCSL Group, including Sri Lanka Insurance Corporation Ltd. Mr. Herat holds a BSc (Hon) Degree in Business Management from University of Swansea, Wales and MSc in Business Finance from University of London, Uxbridge. Charana Jayasuriya, Head Sales & Structuring Mr. Jayasuriya has more than 12 years experience in the capital markets of Sri Lanka and United Kingdom in asset management, investment banking and financial regulation. Prior to joining NAMAL, Mr. Jayasuriya was Fund Manager for Aegis Fund Management (Pvt) Ltd managing the funds of DCSL Group, including Sri Lanka Insurance Corporation Ltd specialising in fixed income and foreign currency. Mr. Jayasuriya holds a LLB (Hons) Law and LLM in Banking & Finance Law from University College, University of London. Mrs. Pushpika Jeevaratne, Head of Compliance Mrs. Jeevaratne has over 9 years of experience in the financial services sector including investment banking. She has worked for Vanik and DP Capital Management prior to joining NAMAL. Mrs. Jeevaratne holds a BSc. (Eng) from University of Moratuwa and is a member of the Chartered Institute of Management Accountants (UK) Dinesh Fernando, Fund Manager Mr. Fernando has 20 years experience in the financial services sector in the areas of equity research, investment banking and portfolio management. He has worked for HSBC, KPMG, DFCC Bank, NDB Investment Bank and First Guardian Equities in Sri Lanka and overseas. Prior to joining NAMAL he was with Standard Chartered Bank. Mr. Fernando is a CFA Charterholder and a member of the Association of Chartered Certified Accountants (UK) and Chartered Institute of Management Accountants (UK). 10

13 Tharaka Mudalige, Senior Sales Manager Retail Sales Mr. Mudalige has over 8 years experience in Financial Services Sales including Life Insurance and General Insurance specialising in Bancassurance. Prior to joining NAMAL, Mr. Mudalige was the Manager Sales - Bancassurance for AVIVA NDB Insurance PLC. Mr. Mudalige is an Associate Member of the Chartered Institute of Management Accountants (UK). Mrs. Menaka Fernando, Finance Manager Mrs. Fernando has more than six years experience in Accounting, Auditing and Advisory Services at Kreston MNS & Co. Mrs. Fernando is a member of the Institute of Chartered Accountants of Sri Lanka and the Association of Accounting Technicians of Sri Lanka. 11

14 Funds 12

15 NAMAL Funds Name of Fund National Equity Fund NAMAL Growth Fund NAMAL IPO Fund NAMAL Sharia Fund Fund Type Balanced Growth Growth Growth Objective Income and Long Term Growth Long Term Capital Growth Capital Growth Capital Growth Invest In Listed Equity & Fixed Income Securities Listed Equity Listed Equity & Fixed Income Securities Sharia Compliant Listed Equity & Income Securities Time Frame of Investment Medium to Long Term Medium to Long Term Medium to Long Term Medium to Long Term Risk-Return High to Moderate Risk / Return High Risk - High Return High to Moderate Risk / Return High to Moderate Risk/Return Dividends Annual No Set Pattern No Set Pattern - Minimum Investment Rs.1,000 Rs.5,000 Rs. 10,000 Rs.10,000 Front-End Fee 5.00% 5.00% 2.50% 3.50% Management Fee 1.50% 1.50% 1.25% (Additional 1.5% if Net Return exceeds 15% p.a in a Quarter) 1.75% (Additional 1.5% if Net Return exceeds 15% p.a in a Quarter) Exit Fee No No No No Registrar Fee 0.25% 0.25% No No Trustee Fee 0.20% 0.25% 0.20% 0.20% Advantages Provides current income and long term capital growth Flexibility to invest upto 80% in the stock market Invest in high quality handpicked stocks Flexibility to invest upto 90% in the stock market Invest in Professionally Selected IPO Securities Daily Liquidity Access the Colombo Stock Exchange in a Sharia Compliant Manner Minimum investment is low Ability to participate in a diversified portfolio of listed shares 13

16 Name of Fund NAMAL High Yield Fund NAMAL Money Market Fund NAMAL Income Fund Fund Type Fixed Income Money Market Income Objective Income Cash Management Income Invest In Short Term Commercial Papers, Trust Certificates & Corporate Debt Fixed Income Securities of less than 12 months Fixed Income Securities Time Frame of Investment Short Term Short Term Medium to Long Term Risk-Return Moderate to Low Risk - Returns Low Risk / Return Medium to Long Term Dividends Regular Quarterly Semi Annual Minimum Investment Rs. 10,000 Rs.1,000,000 Rs.10,000 Front-End Fee No No No Management Fee 0.50% 0.25% 1.25% Exit Fee No No 1.00% (If withdrawn prior to 1 year) Registrar Fee No 0.05% 0.25% Trustee Fee 0.15% 0.15% Rs.200,000 per annum Advantages Obtains Significantly Higher Yields than Treasury Bills & Fixed Deposits Provides current income at minimum risk Invest in high quality income producing instruments Daily Liquidity Dividends paid quarterly Receive regular dividend income 14

17 Highlights of NAMAL Funds National Equity Fund NAMAL Growth Fund NAMAL Acuity Value Fund NAMAL IPO Fund Fund Performance YoY Growth / (decline) 24.53% 19.46% 18.33% 13.03% Fund Size Rs Bn Mn 1.14 Bn 6.8 Mn Dividend (Rs. Per unit) 1.00 No dividend paid in line with fund objectives Return per unit holder (since inception) 15.06%* Rs. 100,000 invested at inception is worth Rs. 2.2 Mn today 16.82%** Rs. 100,000 invested at inception is worth Rs. 1.3 Mn today * assuming re-investment of dividends since 1991 and returns are annualised ** assuming re-investment of dividends since 1997 and returns are annualised 20.25%** (returns are annualised since 2009) 17.74% (returns are annualised since 2011) NAMAL Income Fund NAMAL Money Market Fund NAMAL High Yield Fund Fund Performance YoY Growth / (decline) 9.38% 7.92% 12.07% Fund Size Rs Mn Mn Dividend (Rs. Per unit) Tax Equivalent Yield 13.03%* 11.00%* 7.38 Bn %* * for institutional investors who pay 28% corporate tax 15

18 Investment Manager s Report 16

19 Investment Manager s Report Economic outlook Economic growth accelerates Sri Lanka s real GDP growth rebounded to 7.3% in 2013 from a moderate 6.3% in 2012, with growth accelerating across the four quarters of the year. Economic growth was broad based with strong growth in the Industry sector, continued expansion in Services sector. Agriculture sector showed dismal performance due to adverse weather conditions. Expansion in the Services sector (constituting 58.1% of GDP) has been key with sector posting a better than expected growth rate with 6.4% (compared to 4.6% 2012). The wholesale and retail subsector (23% of GDP in 2013) showed impressive turnaround while visible improvements in transport and telecommunication services sectors also helped. Increased contribution from fast growing hotels & restaurants sector was also visible (CAGR of 24% during ), though its contribution as the share of GDP was just 0.8% in Continued expansion in construction activities and the manufacturing sector supported by strong external demand from advanced economies, enabled the industry sector (constituting 31.1% of GDP) to record a growth of 9.9%. Adverse weather conditions affected the growth in Agricultural sector (constituting 10.8% of GDP) with its annual growth rate slowing to 4.7% in CY13, compared to 5.4% in the previous year. Sri Lanka continues to reap the benefits from the end of conflict with average GDP growth of 7.5% in the past five years compared to 4.7% GDP growth during the conflict period of 26 years. Per Capita GDP (US$) at market prices increased to US$3,280 in 2013, growth of 10.3% (CAGR) for last 5 years. Fig 01: GDP growth recovers to 7.3% in FY2013 % Source: CBSL Annual Report & Website 17

20 Fig 02: Services sector expansion the primary cause of higher GDP growth in CY2013 % Agriculture Industry Services Source: CBSL Annual Report & Website External sector improves The external sector performed well in 2013 supported by the gradual recovery in advanced economies and improved performance in domestic environment. Significant growth in export earnings together with a sharp decline in import expenditure resulted in a dramatic improvement in the country s external trade performance in Exports increased 6.4% YoY to US$ 10.3 Bn while imports declined 6.2% to US$ 18 Bn, resulting in a trade deficit of US$ 7.6 Bn (11.3% GDP) in CY13 compared to US$ 9.4 Bn in CY12 (15.8% of GDP). Export growth was driven by Industrial exports (primarily textiles and garments), and Agricultural exports (primarily from tea and spice exports) to advanced economies. The contraction in the import bill was aided by lower fuel bill, transport equipment, and textile and textile imports. Continued growth in worker remittances (6.6% YoY to US$ 6.4 Bn in CY13) together with increased earnings from tourism, transport and IT related services helped to narrow the current account deficit to US$ 2.6 Bn (3.8% of GDP) in CY13 from US$ 4 Bn (6.6% of GDP) from previous year. These developments together with increased inflow to financial account (both Portfolio and FDI) helped to improve the overall BOP surplus of US$ 1 Bn in CY13 compared to US$ 151 Mn in Gross official reserves rose to US$7.5 Bn by CY13, amounting five months of imports. Fig 03: Trade deficit improves in 2013 USD m 2,500 2,000 1,500 1, (500) (1,000) (1,500) Exports Imports Trade Deficit Source: CBSL Annual Report & Website 18

21 Stable Rupee during the year The improvement in BOP together with higher international reserve positions resulted in a stable rupee during the year despite currency volatility in other emerging market economies. The Sri Lanka Rupee depreciated by only 2.8% against US$ during the year to close the year at The currency came under some pressure in the middle of the year due to expectation of unwinding of positions by foreign investors (FII s) from the government securities market in anticipation of possible tapering of the US bond buying program. Such pressure was short lived as Sri Lanka showed resilience to tapering pressure and the currency recovered later in the year. FII s continued to be net buyers of rupee denominated government securities during the year, increasing their holdings from Rs. 476 Bn at the end of March 2013 to Rs. 491 Bn by March Fig 04: : Currency stable in 2013 despite a mid-year wobble LKR/USD Depreciation 20% 15% 10% 5% 0% -5% -10% 31-Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec-13 LKR/USD (LHS) Depreciation YTD (RHS) Source: CBSL Annual Report & Website Fig 05: FII Investments in Treasury Bills and Bonds USD m 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Foreign investments in treasury bills and bonds (USD Mn) Gross official reserve (USD m) FI as a % of gross official reserve % 70% 60% 50% 40% 30% 20% 10% 0% Source: CBSL Annual Report & Website 19

22 Inflation Inflation remained at single digit levels for the fifth consecutive year. Headline inflation was 4.7% YoY and 6.9% on annual average basis by year and supported by stable domestic supply conditions, due to favorable weather patterns and prudent demand management by policy makers. Core inflation stood at 2.1% YoY and 4.4% on annual average basis by December Fig 06: Inflation remains single digit 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% CCPI (Point to Point) CCPI (Annual Average) Source: CBSL Annual Report & Website Monetary policy easing to continue A stable economic environment coupled with benign inflation expectations allowed Central Bank to continue easing monetary policy during the year. Overall policy rates were reduced by further 100 points during 2013 with Repurchase and Reverse Repurchase rates coming down to 6.50% and 8.50% respectively in by October This was further supported by a 2% reduction in Statutory Reserve Requirement to improve the liquidity conditions in the market. Monetary policy easing coupled with lower credit demand by private sector led to excess rupee liquidity averaging around Rs. 23 Bn in the money market during the year. This led to downward adjustment in market rates, with the benchmark one year Treasury bill yield declining 400 basis points YoY to 7.05% by March Both prime lending and borrowing rates followed same trend, albeit with a considerable time lag. Yields on government securities across all maturities declined throughout the year, reflecting the clear trend in lower policy rates, excess liquidity and moderating inflation expatiations. The removal of credit growth ceilings in banks did not yield any positive impact on credit growth during the year. Fig 07: Policy rates reduced further in Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct-13 Source: CBSL Annual Report & Website Repurchase rate (%) Reverse Repurchase (%) SRR (%) 20

23 Fig 08: Banking sector credit growth was below potential in 2013 Rs. bn Loan-deposit gap Loan/deposits ratio Source: CBSL Annual Report & Website Fig 09: Real interest rates declines 14% 12% 10% 8% 6% 4% 2% 0% Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar Source: CBSL Annual Report & Website year T bill rate Inflation Real rate Budget deficit declines further but need improvement in revenue collection Steady progress on fiscal consolidation and reduction in public debt is key for macroeconomic stability in Sri Lanka. Fiscal deficit declined significantly to 5.9% of GDP in 2013 from 6.5% in 2012, the lowest since However further reforms are needed in government fiscal policy to meet the long term social and infrastructure development needs of the country. Government revenue collection as percentage of GDP declined further to 13.1% in 2013 and continues to fall short of the budgetary targets. Low tax revenue mobilization remains an issue especially given the high debt service levels (80% of GDP) as well as shift from concessional borrowings to commercial borrowing. Further reforms are needed in extending VAT coverage (while reducing the thresholds) and automation of tax collection. Reducing the debt levels of State run corporations and better public financial management will also help to improve countries lagging fiscal discipline. 21

24 Fig 10: Budget deficit continues to decline % of GDP Source: CBSL Annual Report Equity Market Review ASPI gathers momentum The ASPI gained 4.8% YoY to close the year at 5,912 while more liquid S&P SL20 gained 5.8% YoY to close the year at 3,264 in CY13. Daily average turnover fell 6.2% YoY to Rs Mn per day in CY13 compared to Rs Mn per day in CY12. Foreign Funds (FII s) were net buyers in CY13, continuing the momentum from CY12 although increased selling pressure was evident in the latter part of the year. Foreign participation improved to 36.1% in CY13 compared to 24.9% in the previous year but net FII fell by 40.9% YoY. Market was trading at 15.9X historical earnings in CY13 as per market earnings reported by the CSE. In terms of sector performance, Food & Beverages showed highest returns with 18.1%, followed by Power & energy (19.5%), Healthcare Sector (16.9%) and Land & property Sector (11.6%). Information Technology (-27.1%) and Trading (-21.4%) were worst sectors with negative returns. Despite aggregate market returns being weak in 2012 and 2013, the ASPI has performed well compared to regional markets in the recent times. The out performance is likely to be attributable for the returns during CY09-10 but in relative terms, market continues hold its momentum, despite some lackluster performance in the region. India (Sensex up 8.9% YoY), Singapore (Straits Times up 0.01% YoY) and Hong Kong (Hang Seng up 2.9% YoY) have shown weaker performance during the year. US markets continued its strong rally, gaining 29.6% YoY (S&P 500) in CY13. The removal of credit growth ceilings in banks did not yield any positive impact on credit growth during the year. ASPI continue to trade attractively valued around 10X-12X forward earnings (with assumption of 12% growth in corporate earnings in CY14) while the yield ratio has further narrowed due to falling interest rates signaling further upside in equities. 22

25 Fig 11: ASPI outperforms Regional Indices Index Hang Seng Sensex S&P 500 Straits Times ASPI Source: The Wall Street Journal Fig 12: Foreign Funds (FIIs) remain Net Buyers LKR m 20,000 15,000 10,000 5,000 - (5,000) (10,000) 1-Jan-93 1-Oct-93 1-Jul-94 1-Apr-95 1-Jan-96 1-Oct-96 1-Jul-97 1-Apr-98 1-Jan-99 1-Oct-99 1-Jul-00 1-Apr-01 1-Jan-02 1-Oct-02 1-Jul-03 1-Apr-04 1-Jan-05 1-Oct-05 1-Jul-06 1-Apr-07 1-Jan-08 1-Oct-08 1-Jul-09 1-Apr-10 1-Jan-11 1-Oct-11 1-Jul-12 1-Apr-13 1-Jan-14 (15,000) Source: CSE Fig 13: Yield Ratio improves % Post Tax TB Yield Post Tax Dividend Yield Source: CBSL Website & CSE 23

26 Fig 14: ASPI Data CY12-CY13 CY2013 CY2012 % Change ASPI 5,913 5, % S&P SL20 3,264 3, % Average Daily Turnover 828,381, ,583, % Net FII 22,878,501,584 38,681,213, % Foreign participation 36.09% 24.93% 44.7% Source: CSE Future market outlook Sri Lanka will continue to be amongst the most attractive frontier market due to economic growth. The investment in infrastructure and increased productivity will sustain higher growth rates relative to frontier market peers. Credit growth has been weak in the previous years but lower interest rates and a competitive currency will generate further growth momentum with the ongoing recovery in the global economic cycle. The biggest medium term risk is a slower than expected global recovery together with tightening of external liquidity which could affect borrowing costs. Nevertheless we believe Sri Lanka is likely to maintain current economic momentum in the next months with expectations of improved corporate earnings in the coming quarters. As institutional investors, we attempt to price macroeconomic risks into individual investments while maintaining our distinct investment philosophy and style. We continue to focus on identifying investments that are attractively valued which could outperform both in relative basis and absolute basis while looking at opportunities to exit from counters that we consider expensive relative to their underlying value. We continue to be bullish on Health Care, Food and beverage, Banking, Oil & Gas, and infrastructure services where we see lot of growth potential in the medium to long term. Fig 15: Market PER multiples attractive on forward earnings Log scale x x x x Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Source: CSE & NAMAL Estimates 24

27 Acuity Value Fund 25

28 Fund Performance Review Investment Strategy NAMAL Acuity Value Fund (NAVF) is a growth fund listed on Colombo Stock Exchange which aims to provide long term capital appreciation by investing in equity. The Fund can allocate a maximum of 100% to equity. The investment strategy is market neutral and based on fundamental research to identify stocks trading below intrinsic value. The Fund has invested in fundamentally strong companies that are exposed to the key sectors of the economy. These investments will enable the Fund to perform strongly notwithstanding any short-term market volatility. The Fund aims to deliver consistent capital appreciation to investors whilst ensuring preservation of capital. Asset Allocation The Fund invested 88.3% in Equities, 7.1% in Debentures, 2.6% in Repos with the balance invested in Fixed Deposits as at 31st March The main sector allocations in equity are Banks, Finance & Insurance (46.6%), Healthcare (30.7%) and Manufacturing (12.4%). Performance Review The All Share Price Index increased by 4.06% for the year ending 31st March The Fund outperformed the ASPI by 14.28% with the Fund s NAV increasing by 18.1% during the period under review. The Fund value was Rs. 1,135 million as at 31st March The Fund realized gains of Rs million during the year. Return to Investors The Fund has provided an annualised return of 20.25% to investors since inception in The Fund paid a dividend of Rs per unit for FY2014, bringing the cumulative dividends paid to Rs per unit since inception in Investment Management Team, National Asset Management Ltd 26

29 Fig 1: Fund Performance NAMAL Acuity Value Fund ASPI S & P SL20 Fund Performance and Market Returns as at 31st March months 24 months 18.33% 30.18% 4.06% 10.11% (0.41%) 9.86% 36 months 3.27% (17.41%) (15.75%) *Note 1) Performance up to 31st March 2014 as published by the Unit Trust Association of Sri Lanka 2) All returns are adjusted for dividends 3) Returns are not annualised 4) Past performance should not be taken as a guide to future performance Fig 2: Top Five Equity Holdings The Company Asiri Hospitals PLC Commercial Bank of Ceylon PLC Sampath Bank PLC Nations Trust Bank PLC Ceylon Hospitals PLC (Durdans) (Non-Voting) No of Shares Value (RS.) % of NAV 10,665,149 1,260, ,238 1,200, , ,766, ,980, ,504,040 77,880,000 61,600,000 21% 14% 11% 7% 5% Fig 3: Sector Allocation Constructions & Enginering 1.40% Power And Energy 1.55% Sector Hotel And Travels Trust & Investment 2.13% 2.56% Beverage Food And Tobacco 2.57% Manufacturing 12.42% Health Care 30.75% Banks Finance And Insurance 46.62% 0% 10% 20% 30% 40% 50% as a % of Total Equity 27

30 Ernst & Young Chartered Accountants 201 De Saram Place P.O. Box 101 Colombo 10 Sri Lanka Tel : Fax Gen : Tax : eysl@lk.ey.com ey.com ADBT/CPEG/KWS/JJ INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF NAMAL ACUITY VALUE FUND Report on the Financial Statements We have audited the accompanying financial statements of NAMAL Acuity Value Fund (the Fund ) which comprise the statement of financial position as at 31 March 2014 and statement of comprehensive income, statement of changes in unit holder s funds, statement of cash flows, for the year then ended and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements National Asset Management Limited, the Managers of the Unit Trust are responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Scope of Audit and Basis of Opinion Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, so far as appears from our examination, the Fund maintained proper accounting records for the year ended 31 March 2014 and the financial statements give a true and fair view of the Fund s financial position as at 31 March 2014 and its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. Report on Other Legal and Regulatory Requirements These financial statements also comply with the requirements of Section 151(2) of the Companies Act No. 07 of 2007 as required by Section 17 of the Unit Trust Deed between National Asset Management Limited and Deutsche Bank AG dated 3 September June 2014 Colombo Partners: A D B Talwatte FCA FCMA M P D Cooray FCA FCMA R N de Saram ACA FCMA Ms. N A De Silva ACA Ms. Y A de Silva ACA W R H Fernando FCA FCMA W K B S P Fernando FCA FCMA A P A Gunasekera FCA FCMA A Herath FCA D K Huhangamuwa FCA FCMA LLB (Lond) H M A Jayesinghe FCA FCMA Ms. A A Lodowyke FCA FCMA Ms. G G S Manatunga ACA N M Sulaiman ACA ACMA B E Wijesuriya ACA ACMA 28

31 NAMAL Acuity Value Fund STATEMENT OF FINANCIAL POSITION As at 31 March 2014 Notes ASSETS Rs. Rs. Cash and cash equivalents 816, ,111 Financial assets - Held for trading 4 1,069,984, ,172,656 Financial assets - Loans and receivables 5 51,799,832 92,245,890 Accrued income and other receivables 7 7,739,647 6,932,575 Income tax recoverable 6,167,766 4,944,161 Total Assets 1,136,508, ,952,393 UNIT HOLDERS' FUNDS & LIABILITIES LIABILITIES CDS payable - 22,569,691 Accrued expenses 8 1,289,734 1,123,955 Total Liabilities (Excluding net assets attributable to Unit Holders) 1,289,734 23,693,646 UNIT HOLDERS' FUNDS Net assets attributable to Unit Holders 1,135,218, ,258,747 1,136,508, ,952,393 These Financial Statements were approved by the Management Company, and adopted by the Trustees... Director Director Trustee Management Company Management Company 06 June 2014 Colombo *The Accounting Policies and Notes on pages 33 to 45 form an integral part of these Financial Statements. 29

32 NAMAL Acuity Value Fund STATEMENT OF COMPREHENSIVE INCOME Year ended 31 March Notes Rs. Rs. INVESTMENT INCOME Dividend income ,337,559 25,669,988 Interest income ,354,358 34,021,483 Net realised gains on financial assets held for trading ,680,999 52,141,890 Net change in unrealised gains/(losses) on financial assets held for trading ,811,147 (4,938,685) Total investment income 202,184, ,894,676 EXPENSES Management fees (10,575,906) (9,835,724) Trustee fees (2,321,632) (2,024,123) Custodian fees (268,800) (268,800) Audit fee and expenses (143,326) (149,050) Professional charges (62,093) (6,160) Brokerage charges (8,970,877) - Other expenses (504,916) (740,875) Total operating expenses (22,847,550) (13,024,732) Net operating profit 179,336,513 93,869,944 FINANCE COST Interest expense (925) (62,826) PROFIT AFTER DEDUCTIONS AND BEFORE TAX 179,335,588 93,807,118 Income tax expense 10 - (1,475,801) PROFIT AFTER TAX 179,335,588 92,331,317 INCREASE IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 179,335,588 92,331,317 *The Accounting Policies and Notes on pages 33 to 45 form an integral part of these Financial Statements. 30

33 NAMAL Acuity Value Fund STATEMENT OF CHANGES IN UNITHOLDERS' FUNDS Year ended 31 March Rs. Rs. UNIT HOLDERS' FUNDS AT THE BEGINNING OF THE YEAR 961,258, ,678,630 Increase in net assets attributable to Unit Holders 179,335,588 92,331,317 Income distribution to unit holders (5,375,600) (10,751,200) UNIT HOLDERS' FUNDS AT THE END OF THE YEAR 1,135,218, ,258,747 *The Accounting Policies and Notes on pages 33 to 45 form an integral part of these Financial Statements. 31

34 NAMAL Acuity Value Fund STATEMENT OF CASH FLOWS Year ended 31 March Rs. Rs. Cash flows from operating activities Dividend received 28,530,487 19,487,413 Interest received 14,506,064 34,186,810 Proceeds from sale of investments 4,897,695,270 1,654,976,741 Payments on purchase of investments (4,889,167,905) (1,681,440,976) Taxation paid (776,508) (2,831,104) Operating expenses paid (45,251,462) (13,023,634) Net cash generated from operating activities 5,535,947 11,355,250 Cash flows from financing activities Income distribution (5,375,600) (10,751,200) Interest paid on borrowings (925) (62,826) Proceeds from borrowings 5,000, ,363,759 Repayment of borrowings (5,000,925) (212,363,759) Net cash used in financing activities (5,376,525) (10,814,026) Net increase in cash and cash equivalents 159, ,224 Cash and cash equivalents at the beginning of the year 657, ,887 Cash and cash equivalents at the end of the year 816, ,111 *The Accounting Policies and Notes on pages 33 to 45 form an integral part of these Financial Statements. 32

35 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March GENERAL INFORMATION NAMAL Acuity Value Fund is a closed ended unit trust fund approved by the Securities and Exchange Commission of Sri Lanka. The fund was launched on 29th September The fund is managed by National Asset Management Limited, which is incorporated and domiciled in Sri Lanka. The registered office of the management company is located at 7th Floor, Union Bank Head Office, No. 64, Galle Road, Colombo 03. The Trustee of the fund is Deutsche Bank AG having its place of business at No. 86, Galle Road, Colombo 03. The investment objective of the fund is to achieve long term capital appreciation for the Unit Holders by adopting a dynamic asset allocation strategy for investments in listed and unlisted fixed income securities. 2. ACCOUNTING POLICIES 2.1 BASIS OF PREPARATION The financial statements are prepared in accordance with and comply with the Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka and adopted as directed by the Securities and Exchange Commission of Sri Lanka. The financial statements have been prepared on the historical cost basis except for the financial assets at fair value through profit or loss. The financial statements are presented in Sri Lankan rupees. The statement of financial position is presented broadly in order of a liquidity basis Statement of Compliance These financial statements have been prepared in accordance with Sri Lanka Accounting Standards comprising SLFRSs and LKASs (hereafter "SLFRS") which are effective from 01 January Comparative Information The accounting policies have been consistently applied by the Fund with those of the previous financial year in accordance with LKAS 01 Presentation of Financial Statements. Further, comparative information is reclassified wherever necessary to conform to the current presentation. 2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial instruments initial recognition and subsequent measurements Date of recognition All financial assets are initially recognized on the trade date, i.e the date that the fund becomes a party to the contractual provisions of the instrument. This includes purchases of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place Initial measurement of financial instruments The classification of financial instruments at initial recognition depends on their purpose and characteristics and the management intention in acquiring them. All financial assets are measured initially at the fair value plus transaction costs, except in the cases of financial assets recorded at fair value through profit or loss. 33

36 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March Financial assets - Loans and receivables Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted on an active market. Loans and receivables in the statement of financial position comprise of repurchase agreements, commercial papers and placements with other banks. After initial measurement, loans and receivables are subsequently measured at amortised cost using the effective interest rate, less allowance for impairment. The amortization is included in the interest income in the statement of comprehensive income. The losses arising from impairment is recognised in the statement of comprehensive income in credit loss expense. Interest income is recognized by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial Financial assets at fair value through profit or loss Financial assets are classified as fair value through profit or loss (FVTPL) if they are held for trading or are designated at fair value though profit or loss. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. Up on the initial recognition, transaction cost are directly attributable to the acquisition are recognized in profit or loss as incurred. Financial assets held for trading Financial assets, held for trading are recorded in the statement of financial position at fair value. Changes in fair value are recognised in the net change in financial assets held for trading in the statement of comprehensive income. Interest income or expense and dividend income are recorded in investment income according to the terms of the contract. Included in this classification are quoted equity securities and quoted debentures Determination of fair value The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison with similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note Derecognition of financial assets A financial asset is derecognised when, 1) The rights to receive cash flows from the asset have expired. 2) The fund has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass through arrangement; and either, The fund has transferred substantially all the risks and rewards of the asset or The fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. 34

37 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March Recognition of income Revenue is recognised to the extent that it is probable that the economic benefits will flow to the fund and the revenue can be reliably measured. Interest income For all financial instruments measured at amortised cost, interest income is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. Interest income from repurchase agreements and government treasury bills are recognised at gross of notional tax credit or withholding tax. Dividend income Income is recognised when the right to receive the dividend is established, normally being the ex-dividend date. Dividend income is recognized net of withholding tax, if any Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above Income tax Current tax assets and liabilities for the current and prior year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. The fund is liable to pay income tax at the rate 10% in accordance with the Inland Revenue Act No. 10 of Expenses The management participation fees of the fund is as follows: Management Fee - 1.0% of Net Asset Value of the Fund Trustee Fee - 0.2% of Net Asset Value of the Fund Custody Fee - Flat Fee of Rs. 20,000 per month Accrued expenses Payables are initially recognised at fair value, which is the fair value of the consideration to be paid in the future for service received, whether or not billed to the fund, and subsequently at amortised cost. 35

38 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March Unit Holders funds and net assets attributable to Unit Holders Unit Holders funds has been calculated as the difference between the carrying amounts of the assets and the carrying amounts of the liabilities, other than those due to Unit Holders as at the reporting date. Units can be issued and redeemed based on the fund s net asset value per unit, calculated by dividing the net assets of the fund calculated in accordance with the valuation guidelines issued by the Unit Trust Association of Sri Lanka and approved by the Securities and Exchange Commission of Sri Lanka, by the number of units in issue. Income not distributed is included in net assets attributable to Unit Holders SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS Fair value of financial instruments Management considers credit, liquidity and market risk and assesses the impact on valuation of investments when determining the fair value. Following are the key sources of estimation uncertainty at the statement of reporting date that have significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. a) Fair value of securities not quoted in an active market and over the-counter derivative instruments Management uses its judgment in determining the appropriate valuation technique for financial instruments that are not quoted in an active market. Valuation techniques commonly used by market practitioners are applied. Other financial instruments are valued using a discounted cash flow analysis based on the assumptions supported, where possible, by observable market prices or rates Impairment losses on financial assets Loans and receivables The fund reviews its financial investments classified as loans and receivables at each reporting date to assess whether they are impaired. In particular management judgment is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting future changes to the allowance. 2.4 NEW ACCOUNTING STANDARDS ISSUED BUT NOT EFFECTIVE AS AT STATEMENT OF FINANCIAL POSITION DATE Standards issued but not yet effective up to the date of the Fund s financial statements are given below. The company will adopt these standards when they become effective. Pending a detailed review the financial impact is not reasonably estimable as at the date of publication of these financial statements. SLFRS 9 Financial Instruments : Classification and Measurement SLFRS 10 Consolidated Financial Statements SLFRS 11 Joint Arrangements SLFRS 12 Disclosure of Interests in Other Entities SLFRS 13 Fair Value Measurements The Manager believes that there would be no impact on the financial statement of the Fund from SLFRS 10 and SLFRS 11 one such standard become effective. SLFRS 9 will be effective for financial periods beginning on or after 01 January 2015 whilst SLFRS 10, 11, 12 and 13 will be effective for financial periods beginning on or after 01 January

39 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (a) Financial instruments The fund s principal financial assets comprise investments in trading securities, repurchase agreements, fixed deposits and cash at bank. The main purpose of these financial instruments is to generate a return on the investment made by Unit Holders. The fund s principal financial liabilities comprise amounts attributable to Unit Holders, which are the amounts owed to Unit Holders of the fund. The fund also has other financial instruments such as receivables and payables which arise directly from its operations. In accordance with LKAS 39 Financial Instruments: Recognition and Measurement, the fund s bank balance, repurchase agreements and fixed deposits are classified as loans and receivables and valued at amortised cost. Trading securities are classified as held for trading, meaning they are valued at fair value through profit or loss. Amounts attributable to Unit Holders are classified as other financial liabilities and are carried at the redemption amount being net asset value. Payables are designated as other financial liabilities at amortised cost. (b) Financial risk management objectives, policies and processes Risks arising from holding financial instruments are inherent in the fund s activities, and are managed through a process of ongoing identification, measurement and monitoring. The fund is exposed to credit risk, market risk, and liquidity risk. Financial instruments of the fund comprise investments in trading securities for the purpose of generating a return on the investment made by Unit Holders, in addition to cash at bank, and other financial instruments such as receivables and payables, which arise directly from its operations. The manager is responsible for identifying and controlling the risk that arise from these financial instruments. The manager agrees policies for managing each of the risks identified below. The risks are measured using a method that reflects the expected impact on the statement of comprehensive income and statement of financial position of the fund from reasonably possible changes in the relevant risk variables. Information about these risk exposures at the reporting date, measured on this basis, is disclosed below. The manager also monitors information about the total fair value of financial instruments exposed to risk, as well as compliance with established investment mandate limits. These mandate limits reflect the investment strategy and market environment of the fund, as well as the level of risk that the fund is willing to accept, with additional emphasis on selected industries. This information is prepared and reported to relevant parties within the manager on a regular basis as deemed appropriate, including the Fund manager, other key management, Group s integrated risk management committee of the manager and ultimately the Trustees of the fund. Concentration of risk arises when a number of financial instruments or contracts are entered in to with the same counterparty, or where a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economics, political or other conditions. 37

40 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2014 (c) Credit risk Credit risk is the risk that the counterparty to the financial instrument will fail to discharge an obligation and cause the fund to incur a financial loss. The fund s exposure to credit risk from its financial assets arises from default of the counterparty, with the current exposure equal to the fair value of these instruments as detailed below. It is the fund s policy to enter into financial instruments with reputable counterparties. The details are as follows: Counter Party Credit Rating Rating Agency Softlogic Holdings PLC BBB+ Fitch Rating Union Bank of Colombo PLC BBB Ram Rating Risk concentration of credit risk exposure: Concentration of credit risk is managed by counterparty and by market sector. The fund is also subject to credit risk on its bank balance and receivables. The credit risk exposure on these instruments is not deemed to be significant. The fund s maximum exposure to credit risk can be analysed as follows: Rs. 000 Rs. 000 NAMAL Acuity Value Fund - Investments Conservative 29,064 44,261 Balanced 22,735 47,984 Growth 1,069, ,173 (d) Market risk Market risk represents the risk that the value of the fund s investments portfolios will fluctuate as a result of changes in market prices. This risk is managed by ensuring that all investment activities are undertaken in accordance with established mandate limits and investments strategies. As such, Unit Holders can manage this risk through their choices of which investment portfolios to participate in. The fund uses a range of different fund managers for investment assets. Where a Unit Holder is invested in more than one investment portfolio, this reduces the impact of a particular manager underperforming. Within the underlying investment portfolio, diversification is achieved at a number of levels. The diversified portfolios are invested across a range of investment sectors. Within each sector of the diversified portfolios, the fund managers invest in a variety of securities. Price risk Price risk is the risk that the fair value of the fund s investment in trading securities will fluctuate as a result of changes in the price of the fund s investments in trading securities. Price risk exposure arises from the fund s investment portfolios. The table below shows the impact on the statement of comprehensive income and statement of financial position due to a reasonably possible change in the price of the fund s investment in trading securities in note 4, with all other variables held constant: 38

41 Change in price of the fund s investment in trading securities: Increase/ (decrease) in profit before tax Rs March 2014 Increase/ (decrease) in net assets attributable to Unit Holders Rs. 000 Increase/ (decrease) in profit before tax Rs March 2013 Increase/ (decrease) in net assets attributable to Unit Holders Rs % -10% 99,074 99,074 86,060 (99,074) (99,074) (86,060) 86,060 (86,060) The above figures are calculated across the entire investment portfolio on an annual basis. There is a corresponding change to the fair value of trading securities within the statement of financial position. Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market interest rates. The fund s exposure to interest rate risk primarily arises from changes in interest rates applicable to the balance held at the bank and the listed debentures. Foreign exchange risk Foreign exchange risk is the risk that value of a financial instrument will fluctuate as a result of changes in foreign exchange rates. The fund is not exposed to foreign exchange risk since the financial instruments of the fund denominated in Sri Lankan Rupees. (e) Liquidity risk Liquidity risk is the risk that the fund will encounter difficulty in raising funds to meet its obligation to pay Unit Holders. Due to the nature of a unit trust, it is unlikely that a significant number of Unit Holders would exit at the same time. However, to control liquidity risk, the Fund investments in financial instruments, which under normal market conditions are readily convertible to cash. In addition, the fund invests within established limits to ensure there is no concentration of risk. Payables have no contractual maturities but are typically settled within five market days. Receivables outstanding at balance date are due to be settled within seven market days of balance date. Due to the short term nature of these financial instruments, carrying value approximates fair value. The effect of discounting is not significant as there is little difference between undiscounted and discounted cash flows. 39

42 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March FINANCIAL ASSETS - HELD FOR TRADING Rs. Rs. Quoted equity securities (4.1) 990,741, ,601,010 Debt securities - quoted debentures (4.2) 79,243,175 19,571,646 1,069,984, ,172, Quoted equity securities Cost as at 31 March 910,364, ,309,056 Appreciation/(depreciation) of market value quoted equity securities 80,376,936 (7,708,046) Market value as at 31 March 990,741, ,601, Company Number of Market Holdings Number of Market Holdings Shares Value as a % of Shares Value as a % of Net Asset Net Asset Rs. Value Rs. Value Banks, Finance and Insurance Central Finance Company PLC 108,499 19,638,319 2% 5, ,880 0% Commercial Bank of Ceylon PLC - Non Voting 423,409 41,070,673 4% 385,188 37,324,717 4% Commercial Bank of Ceylon PLC - Voting 1,260, ,980,000 14% 675,000 76,275,000 8% Hatton National Bank PLC - Non Voting ,000 58,555,000 6% Hatton National Bank PLC - Voting 250,000 37,500,000 3% Nations Trust Bank PLC 1,200,000 77,880,000 7% Union Bank of Colombo PLC 495,259 9,261,343 1% 1,215,789 20,668,413 2% People's Leasing and Finance Company PLC ,198,600 15,701,660 2% Sampath Bank PLC 667, ,504,040 11% 100,000 22,490,000 2% 461,834,375 42% 231,944,670 24% Beverages, Food and Tobacco Distilleries Company of Sri Lanka PLC , ,295,600 11% Lion Brewery Ceylon PLC ,000 66,600,000 7% Renuka Agri Foods PLC 8,220,240 25,482,744 2% 8,220,240 33,702,984 3% 25,482,744 2% 204,598,584 21% Chemicals and Pharmaceuticals CIC Holdings PLC ,000 7,198,000 1% - - 7,198,000 1% Construction and Engineering Access Engineering PLC 615,000 13,837,500 1% 615,000 12,115,500 1% 13,837,500 1% 12,115,500 1% Diversified Holdings CT Holdings PLC ,000 60,828,400 6% Hayleys PLC ,100 35,276,470 4% ,104,870 10% Health Care Ceylon Hospitals PLC (Durdans) - Non Voting 800,000 61,600,000 5% 800,000 60,080,000 6% Ceylon Hospitals PLC (Durdans) - Voting 54,541 6,272,215 1% Asiri Hospitals PLC 10,665, ,766,308 21% 10,665, ,582,699 13% 304,638,523 27% 181,662,699 19% Hotels and Travels Kingsbury PLC 1,650,000 21,120,000 2% 1,650,000 22,110,000 2% 21,120,000 2% 22,110,000 2% Manufacturing ACL Cables PLC 500,000 30,500,000 3% 500,000 32,750,000 3% Alumex PLC 357,100 5,070,820 0% Tokyo Cement Company Lank PLC - Voting 1,011,737 36,624,879 3% Tokyo Cement Company Lank PLC - Non Voting 1,754,450 50,879,050 4% 1,026,600 17,965,500 2% 123,074,749 10% 50,715,500 5% Plantation Kegalle Plantations PLC ,000 11,200,000 1% ,200,000 1% Investment Trusts Renuka Holdings PLC 804,877 25,353,626 2% 804,877 24,951,187 3% 25,353,626 2% 24,951,187 3% Telecommunication Dialog Axiata PLC ,000,000 18,000,000 2% ,000,000 2% Power & Energy Lanka IOC PLC 400,000 15,400,000 1% ,400,000 1% - - Total value of quoted equity securities (At market value) 990,741,517 87% 860,601,010 89% 40

43 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March FINANCIAL ASSETS - HELD FOR TRADING (contd..) 4.2 Quoted debentures Cost Market Holding as a Cost Market Holding as a Value % of Net Value % of Net Rs. Rs. Asset Value Rs. Rs. Asset Value Lanka Orix Leasing Company PLC 20,000,000 20,800,246 2% 20,000,000 19,571,646 2% Hatton National Bank PLC 3,167,100 3,731,302 0% Central Finance PLC 4,600,000 5,055,074 0% Lion Brewery 10,000,000 11,025,529 1% Softlogic Holdings PLC 25,000,000 27,627,559 2% Hayleys PLC 10,000,000 11,003,464 1% ,767,100 79,243,175 6% 20,000,000 19,571,646 2% 4.3 Net realised in gains on financial assets held for trading Rs. Rs. Equity securities Proceeds on sale of equity shares 501,549, ,069,433 Average cost of equity shares sold (438,868,893) (89,927,543) 62,680,999 52,141, Net change in unrealised gains/(losses) on financial assets held for trading Equity securities 88,084,982 (5,742,465) Debt securities - quoted debentures 4,726, ,780 92,811,147 (4,938,685) 5. FINANCIAL ASSETS - LOANS AND RECEIVABLES 5.1 Investments in commercial papers Carrying Holding as a Carrying Holding as a Value % of Net Value % of Net Rs. Asset Value Rs. Asset Value Softlogic Holdings PLC ,540,524 3% ,540,524 3% 5.2 Repurchase agreements First Capital Treasuries Limited 26,426,121 3% 14,087,002 1% Wealth Trust Securities Limited 2,638,217 1% 30,174,843 3% 29,064,338 4% 44,261,845 4% 5.3 Placements with other banks - fixed deposits Union Bank of Colombo PLC 22,735,494 2% 20,443,521 2% 22,735,494 2% 20,443,521 2% 51,799,832 6% 92,245,890 9% 41

44 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March FAIR VALUE OF FINANCIAL INSTRUMENTS Determination of fair value and fair value hierarchy SLFRS 7 Financial Instruments: Disclosures require fair value measurements to be disclosed by the source of inputs, using a three level hierarchy. The hierarchy for measuring fair value consists of Levels 1 to 3: Level 1 An investment in a fund is classified in Level 1 of the hierarchy when that investment is quoted in an active market and measured at the unadjusted quoted price at the reporting date. Level 2 An investment in a fund is classified in Level 2 of the hierarchy when that investment is measured using inputs that are directly observable at the reporting date. Level 3 An investment in a fund is classified in Level 3 of the hierarchy when the investment is measured using unobservable inputs at the reporting date. The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy: As at 31 March 2014 Financial assets - held for trading Quoted equity investments Quoted debentures Level 1 Level 2 Level 3 Total Rs. Rs. Rs. Rs. 990,741, ,741,517-79,243,175-79,243,175 As at 31 March 2013 Financial assets - held for trading Quoted equity investments Quoted debentures 860,601, ,601,010-19,571,646-19,571, ACCRUED INCOME AND OTHER RECEIVABLES Rs. Rs. Dividend receivable 7,739,647 6,932,575 7,739,647 6,932, ACCRUED EXPENSES Rs. Rs. Fund management fee payable 942, ,344 Trustee and Custodian fee payable 229, ,691 Audit fee 117, ,920 1,289,734 1,123,955 42

45 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March INVESTMENT INCOME Rs. Rs. 9.1 Dividend income 29,337,559 25,669, Interest income Interest on Treasury bill repurchase agreements (9.2.1) 4,470,978 4,460,818 Interest on Treasury bills (9.2.1) - 503,339 Interest on fixed deposits 3,545,559 3,292,355 Interest on trust certificates - - Interest on commercial papers 1,703,393 23,362,824 Interest on debentures 7,538,014 2,340,000 Interest on savings 96,414 62,147 17,354,358 34,021, Interest income on Treasury bill repurchase agreements and Treasury bills have been recognised gross of notional taxes. 10. INCOME TAX Rs. Rs Tax expense for the year - 1,475,801-1,475, A reconciliation betweenthe tax expenseand the product of taxable profit multiplied by the statutory tax rate is as follows: Operating profit before tax 179,335,588 93,869,944 Aggregate allowable expenses/ net gains (146,521,269) (47,266,031) Allowable tax credits (34,535,573) (25,669,988) Total statutory income (1,721,254) 20,933,925 Utilisation of previously unrecognised tax losses - (6,175,913) Taxable income - 14,758,012 Income tax at the rate of 10% ( %) Income tax expense reported in the Statement of Comprehensive Income - 1,475,801 Carried forward unutilized tax losses - 6,175,913 Tax losses incurred during the year 1,721,254 - Less: Tax losses claimed - (6,175,913) Brought forward unutilized tax losses 1,721, DISTRIBUTION The fund announced and paid the following dividends during the year. Dividend per Unit Date of declaration No. of units in issue Total Dividend Rs. Rs October ,751,200 5,375,600 43

46 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March CONTINGENCIES There are no material contingencies existing as at the reporting date that require adjustments to or disclosures in the financial statements. 13. EVENTS AFTER THE REPORTING DATE There have been no material events occurring after the reporting date that require adjustments to or disclosures in the financial statements. 14. CAPITAL COMMITMENTS The fund does not has significant capital commitments as at the reporting date. 15. UNITS IN ISSUE AND UNIT PRICE Units in issue and deemed to be issue as at 31 March 2014 is 10,751,200.0 ( ,751,200.0 ) and the net asset value as at that date per unit was Rs ( Rs ). 16. RELATED PARTY TRANSACTIONS 16.1 The following have been identified as related party transaction of NAMAL Acuity Value Fund for the year ended 31 March in accordance with LKAS 24 - "Related Party Disclosures". Company / Fund National Asset Management Ltd. (Managing Company) Deutsche Bank (Trustee) DFCC Bank Names of Directors / Managers Mr. I. J. P. Gamage (Executive Vice President) Mr. T. W. De Silva (Senior Vice President) Nature of Transactions Fund has paid Rs. 10,449,367/- ( Rs. 9,859,070) as management & registrar fees during the year. The fee payable as at 31 March 2014 is Rs. 942,883/- ( Rs. 816,344/-). Fund has paid Rs. 2,297,512/- ( Rs. 2,277,999/-) as trustee and custodian fees during the year. The fee payable as at 31 March 2014 is Rs. 229,811/- ( ,690/-). DFCC holds 30% of equity of National Asset Management Limited.Value of Units held by DFCC Bank in NAMAL Acuity Value Fund is Rs. 316,951,683 ( Rs. 269,111,628/- ) No of units held is 3,018,300 units, (2013-3,018,300 units) 44

47 NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March RELATED PARTY TRANSACTIONS (Contd..) Union Bank of Colombo PLC Mr. Alexis Lovell Mr. Anil Amarasuriya Union Bank of Colombo PLC holds 51% ( %) of equity of National Asset Management Limited. The value of fixed deposit investments during the year with Union Bank of Colombo PLC is Rs. Rs. 15,000,000/-. Interest received during the year is Rs. 3,664,360/-. Investment in fixed deposit as at 31 March 2014 is Rs. 22,359,939/-. Ennid Capital (Private) Limited Mr. Avancka Herat Ennid Capital (Pvt) Limited holds 19% ( %) of equity of National Asset Management Limited Unit Holdings of the related parties of NAMAL Acuity Value Fund as at 31 March is as follows. Name Relationship Value of Unit Holding As at * As at Mrs. R.D. Fonseka Spouse of Mr. A.N Fonseka - Rs. 445,800/- (5,000 Units) *Mr. A.N. Fonseka, resigned from the Board of National Asset Management Limited with effect from October 31, As of this date related party unit holding of Mrs.R.D.Fonseka (Spouse of Mr.A.N. Fonseka) was Rs. 470,300 (5000 units). 45

48 UNIT INFORMATION Analysis of Unitholders according to the Number of Units as at 31st March 2014 Units Range No. of Unitholders No. of Units Holding % , ,001-2, ,001-4, ,001-6, ,001-8, ,001-10, ,001-20, ,001-40, ,001- & Above 11 26, , , , ,088 62, , , ,645 9,381, ,751, Categories of Unit Holders No. of Unitholders Individuals 610 Company 48 No. of Units 1,152,100 9,599, ,751,200 Holding % Share Price Movement The market prices during the year Rs. Highest Price Lowest Price Last Traded Price Net Asset Value of a unit as at 31st March,

49 List of 20 Major Unit Holders based on their unitholdings as at 31st March, 2014 Name No. of Units Holding % DFCC Bank Hatton National Bank PLC Central Finance Company PLC A/C No 3 Life Insurance Corporation Lanka Ltd. Bartleet Religare Securities (Pvt) Ltd. HNB Assurance PLC A/C No 2 (Life Insurance Fund) East West Properties PLC Capital Alliance Finance PLC/A.H. Udeshi Mr. S. Nagahawatte Mr.W.K.G.N. Perera Mrs. G. Muralidaran HNB AssurancePLC A/C No 1 (General Insurance Fund) Merchant Bank of Sri Lanka LTD. A/C No 1 Mr.K.S.M.De Silva Mellon Bank N.A.-The Frontier Emerging Markets Fund Mr. W. A. D. U. C. Perera Mr. A. N. Dias Perera and Sons Caterers (Pvt) Ltd Perera and Sons Distributors (Pvt) Ltd Senkadagala Finance Company Ltd 3,018,300 3,000,000 2,744, , ,000 80,000 73,200 53,964 50,000 50,000 43,916 34,400 30,900 26,522 25,703 25,100 25,000 25,000 25,000 25,

50 Corporate Information NATIONAL ASSET MANAGEMENT LIMITED DIRECTORS Mr. Alexis Lovell Chairman Mr. Ajith Wijesekera Deputy Chairman Mr. Anil Amarasuriya Mr. Jitendrakumar Warnakulasuriya Mr. I. J. P. Gamage Mr. T. W. De Silva Mr. Avancka Herat Ms. Khoo Siew Bee UNIT TRUST INFORMATION MANAGEMENT COMPANY National Asset Management Ltd 7th Floor, Union Bank Head Office 64,Galle Road,Colombo 3. TRUSTEE & CUSTODIAN Deutsche Bank AG 86 Galle Road, Colombo 3. AUDITORS BANKERS Ernst and Young Chartered Accountants 201, De Saram Place Colombo 10. Union Bank Of Colombo PLC 64,Galle Road, Colombo 3 Deutsche Bank AG 86, Galle Road, Colombo 3. LAWYERS F J & G de Saram Attorneys-at-Law & Notaries Public 216, De Saram Place, Colombo 10 48

51 Declaration By Trustees And Managing Company DECLARATION 1 Declaration by Trustee and Management Company as per SEC Circular No: 02/2009 on Guidelines for Trustees and Managing Companies of Unit Trusts Funds. Deutsche Bank AG, the Trustee and National Asset Management Ltd, the Managers of the NAMAL Acuity Value Fund hereby declare that the requirements of the Guidelines for Trustees and Managing Companies of Unit Trust Funds set by the Securities and Exchange Commission of Sri Lanka (SEC), the Trust Deed, the SEC Act, the Explanatory Memorandum, directives issued by the SEC from time to time have been complied with during the period. the transactions were and will be carried out at an arm s length basis and on terms which are best available for the fund, as well as act, at all times, in the best interest of the fund s unit holders. DECLARATION 2 As per the section 4.3 c (iv) of the Listing Rule of the Colombo Stock Exchange. Deutsche Bank AG, the Trustee and National Asset Management Ltd, the Managers of the NAMAL Acuity Value Fund hereby declare that the requirements of the Trust Deed, the Securities and Exchange Commission of Sri Lanka Act No 36 of 1987, the Explanatory Memorandum, directives issued by the Securities and Exchange Commission from time to time have been complied with and is in compliance..... Director Management Company.. Director Management Company Authorised Signatories Trustee NAMAL Acuity Value Fund 49