2013 - 2014 annual report · 2015-07-15 · 16 12 09 05 03 01 46 48 annual report 2013 / 2014....

2013 - 2014

ANNUAL REPORT

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

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48

ANNUAL REPORT 2013 / 2014

About

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About NAMAL

National Asset Management Limited (NAMAL) is the pioneer Unit Trust management company in Sri Lanka

established in 1991. Over 20 years of experience and a successful track record of investing in equity and �xed

income markets, NAMAL launched the �rst Unit Trust to be licensed in Sri Lanka (National Equity Fund) and the

�rst listed Unit Trust (NAMAL Acuity Value Fund). We operate eight Unit Trusts and o�er 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 bene�t from professional fund management, investment

performance, portfolio diversi�cation, 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 �nancial wealth,

signi�cant 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.


Chairman’s Review

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Dear Investors,It is my pleasure to send this Report and accounts of the Funds to our investors for the year ended 31st March 2014.

The Company achieved an impressive 155% growth in Assets under Management (AUM) to Rs. 13.1 Bn from Rs. 5.1Bn during the year under review. The Company passed the Rs. 10Bn AUM level for the �rst 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 con�rming our pre-eminent position in the country.

The �agship, 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 �xed 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 sta�, 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 con�dent NAMAL will repay your trust by continuing to deliver excellent performance in the future.

Alexis Lovell, MBEChairman

“We remain committed to delivering

long term capital appreciation and

income to our investors by adopting

conservative, fundamental based

investment management”.


Board of Directors

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6

Board of Directors

Anil AmarasuriyaAjith WijeyesekeraDeputy Chairman

Ms Khoo Siew Bee

Alexis LovellChairman

Not in picture: Jitendrakumar Warnakulasuriya Tyrone De Silva

Avancka HeratPalitha Gamage


7

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 �ve manufacturing units with a turnover of Rs. 4 billion and a workforce of over 3500.

He is also the Founder Chairman/Managing Director of Union Resorts, the owning company of The Blue Water, Wadduwa, a luxury �ve 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 O�cer of Union Bank of Colombo PLC (UBC). A veteran banker and former Managing Director / Chief Executive O�cer 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 �eld of IT. Mr. Warnakulasuriya is a Fellow member of the Institute of Certi�ed Professional Managers, Chartered Institute of Marketing.

Pro�les of the Board of Directors


8

Ms. Khoo Siew Bee

Ms. Siew Bee has extensive experience in all aspects of corporate �nance 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 Paci�c) 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 2013. 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 2010. 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 pro�le.)


Management Team

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Avancka Herat, Executive Director/Chief Investment O�cer

Mr. Herat has over 20 years experience in the �nancial services sector in the areas of investments banking, investment management and corporate �nance. 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 O�cer/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 �nancial 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 �xed 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 �nancial 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 �nancial 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 Certi�ed Accountants (UK) and Chartered Institute of Management Accountants (UK).

Pro�les of the Management Team


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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.


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Funds

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NAMAL Funds

Name of Fund National Equity Fund

Fund Type

Objective

Invest In

Time Frame ofInvestment

Risk-Return

Dividends

MinimumInvestment

Front-End Fee

Management Fee

Exit Fee

Registrar Fee

Trustee Fee

Advantages

NAMAL IPO FundNAMALSharia Fund

NAMALGrowth Fund

Growth

Capital Growth

Medium to Long Term

No Set Pattern

2.50%

1.25% (Additional 1.5% ifNet Return exceeds 15% p.ain a Quarter)

No

No

0.20%

Invest in ProfessionallySelected IPO Securities

Daily Liquidity

Rs. 10,000

High to ModerateRisk / Return

Listed Equity & Fixed IncomeSecurities

Rs.1,000

Balanced

Income and Long Term Growth

Listed Equity & FixedIncome Securities

Medium to Long Term

High to ModerateRisk / Return

Annual

5.00%

1.50%

No

0.25%

0.20%

Provides current incomeand long term capital growth

Flexibility to invest upto 80%in the stock market

Minimum investment is low

Rs.5,000

5.00%

1.50%

No

0.25%

0.25%

Invest in high qualityhandpicked stocks

Flexibility to invest upto90% in the stock market

Ability to participate in adiversi�ed portfolio oflisted shares

Growth

Long Term Capital Growth

Listed Equity

Medium to Long Term

High Risk - High Return

No Set Pattern

Rs.10,000

3.50%

1.75% (Additional 1.5%if Net Return exceeds15% p.a in a Quarter)

No

No

0.20%

Access the ColomboStock Exchange in aSharia CompliantManner

Growth

Capital Growth

Sharia CompliantListed Equity &Income Securities

Medium to Long Term

High to ModerateRisk/Return

-


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Name of Fund NAMAL Income Fund

Fund Type

Objective

Invest In

Time Frame ofInvestment

Risk-Return

Dividends

MinimumInvestment

Front-End Fee

Management Fee

Exit Fee

Registrar Fee

Trustee Fee

Advantages

NAMALHigh Yield Fund

NAMALMoney Market Fund

Rs.10,000

Income

Income

Fixed IncomeSecurities

Medium to Long Term

Medium to Long Term

Semi Annual

No

1.25%

1.00%(If withdrawn prior to 1 year)

0.25%

Rs.200,000 per annum

Invest in high qualityincome producinginstruments

Receive regulardividend income

Rs.1,000,000

Money Market

Cash Management

Fixed Income Securitiesof less than 12 months

Short Term

Low Risk / Return

Quarterly

No

0.25%

No

0.05%

0.15%

Provides currentincome at minimum risk

Dividends paidquarterly

Rs. 10,000

Fixed Income

Income

Short Term Commercial Papers,Trust Certi�cates & Corporate Debt

Short Term

Moderate toLow Risk - Returns

Regular

No

0.50%

No

No

0.15%

Obtains Signi�cantly HigherYields than Treasury Bills &Fixed Deposits

Daily Liquidity


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Highlights of NAMAL Funds

National Equity Fund NAMAL Growth Fund NAMAL Acuity Value Fund NAMAL IPO Fund

Fund Performance YoYGrowth / (decline) 24.53% 19.46% 18.33% 13.03%

Fund Size Rs. 2.02 Bn 286.1 Mn 1.14 Bn 6.8 Mn

Dividend (Rs. Per unit) 1.00No dividend paid in line

with fund objectives 0.50 -

Return per unit holder(since inception)

15.06%*Rs. 100,000 invested at

inception is worthRs. 2.2 Mn today

16.82%**Rs. 100,000 invested at

inception is worthRs. 1.3 Mn today

20.25%** (returns are annualised

since 2009)

17.74%(returns are annualised since

2011)* assuming re-investment of dividends since 1991 and returns are annualised** assuming re-investment of dividends since 1997 and returns are annualised

NAMAL Income Fund NAMAL High Yield FundNAMAL Money Market Fund

Fund Performance YoYGrowth / (decline) 9.38% 7.92%

Fund Size Rs. 321.0 Mn 488.0 Mn

Dividend (Rs. Per unit) 0.55 0.77

Tax Equivalent Yield 13.03%* 11.00%*

12.07%

7.38 Bn

-

16.77%*

* for institutional investors who pay 28% corporate tax


Investment Manager’sReport

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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 2008-2013), though its contribution as the share of GDP was just 0.8% in 2013.

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 a�ected 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 bene�ts from the end of con�ict with average GDP growth of 7.5% in the past �ve years compared to 4.7% GDP growth during the con�ict 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.

Investment Manager’s Report

Economic outlook

Fig 01: GDP growth recovers to 7.3% in FY2013

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External sector improves

The external sector performed well in 2013 supported by the gradual recovery in advanced economies and improved performance in domestic environment. Signi�cant 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 2013. Exports increased 6.4% YoY to US$ 10.3 Bn while imports declined 6.2% to US$ 18 Bn, resulting in a trade de�cit 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 de�cit 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 in�ow to �nancial account (both Portfolio and FDI) helped to improve the overall BOP surplus of US$ 1 Bn in CY13 compared to US$ 151 Mn in 2012. Gross o�cial reserves rose to US$7.5 Bn by CY13, amounting �ve months of imports.

Fig 02: Services sector expansion the primary cause of higher GDP growth in CY2013


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Fig 03: Trade de�cit improves in 2013


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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 130.7. 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 2014.

Fig 04: : Currency stable in 2013 despite a mid-year wobble


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DepreciationLKR/USD

LKR/USD (LHS) Depreciation YTD (RHS)

Fig 05: FII Investments in Treasury Bills and Bonds


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%USD mForeign investments in treasury bills and bonds (USD Mn)Gross official reserve (USD m)FI as a % of gross official reserve


20

In�ation

In�ation remained at single digit levels for the �fth consecutive year. Headline in�ation 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 in�ation stood at 2.1% YoY and 4.4% on annual average basis by December 2013.

Monetary policy easing to continue

A stable economic environment coupled with benign in�ation 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 2013. 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 2014. 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, re�ecting the clear trend in lower policy rates, excess liquidity and moderating in�ation expatiations.

Fig 06: In�ation remains single digit


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2010 2011 2012 2013 2014

CCPI (Point to Point) CCPI (Annual Average)


Fig 07: Policy rates reduced further in 2013

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The removal of credit growth ceilings in banks did not yield any positive impact on credit growth during the year.


21

Budget de�cit declines further but need improvement in revenue collection

Steady progress on �scal consolidation and reduction in public debt is key for macroeconomic stability in Sri Lanka. Fiscal de�cit declined signi�cantly to 5.9% of GDP in 2013 from 6.5% in 2012, the lowest since 1977. However further reforms are needed in government �scal 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 �nancial management will also help to improve countries lagging �scal discipline.

Fig 08: Banking sector credit growth was below potential in 2013


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Fig 09: Real interest rates declines


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22

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. 828.4 Mn per day in CY13 compared to Rs. 883.6 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.

Fig 10: Budget de�cit continues to decline

Source: CBSL Annual Report

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Fig 11: ASPI outperforms Regional Indices

Source: The Wall Street Journal

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Fig 12: Foreign Funds (FIIs) remain Net Buyers

Source: CSE

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1-Ja

n-11

1-O

ct-1

1

1-Ju

l-12

1-Ap

r-13

1-Ja

n-14

LKR m

Fig 13: Yield Ratio improves

Source: CBSL Website & CSE

0

2

4

6

8

10

12

14

16

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

%

Post Tax TB Yield

Post Tax Dividend Yield


24

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 a�ect borrowing costs. Nevertheless we believe Sri Lanka is likely to maintain current economic momentum in the next 12-18 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 14: ASPI Data CY12-CY13

Source: CSE

% ChangeCY2013 CY2012

ASPI

S&P SL20

Average Daily Turnover

Net FII

Foreign participation

5,913

3,264

828,381,432

22,878,501,584

36.09%

5,643

3,085

883,583,465

38,681,213,541

24.93%

4.8%

5.8%

-6.2%

-40.9%

44.7%

Fig 15: Market PER multiples attractive on forward earnings

Source: CSE & NAMAL Estimates

1.4

1.7

2.0

2.3

2.6

2.9

3.2

3.5

3.8

4.1

4.4

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

Log scale

25x

10x

5x

2x


25

Acuity Value Fund

Fund Performance Review

Investment StrategyNAMAL Acuity Value Fund (NAVF) is a growth fund listed on Colombo Stock Exchange which aims to provide long term capital apprecia-tion 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 2014. The main sector allocations in equity are Banks, Finance & Insurance (46.6%), Healthcare (30.7%) and Manufacturing (12.4%).

Performance ReviewThe All Share Price Index increased by 4.06% for the year ending 31st March 2014. 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 2014. The Fund realized gains of Rs. 62.7 million during the year.

Return to InvestorsThe Fund has provided an annualised return of 20.25% to investors since inception in 2009.

The Fund paid a dividend of Rs. 0.50 per unit for FY2014, bringing the cumulative dividends paid to Rs. 9.00 per unit since inception in 2009.

Investment Management Team, National Asset Management Ltd

26


27

Fig 1: Fund Performance

Fund Performance and Market Returns as at 31st March 2014


ASPI

S & P SL20

12 months

18.33%

4.06%

(0.41%)

24 months

30.18%

10.11%

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

The Company

Asiri Hospitals PLC

Commercial Bank of Ceylon PLC

Sampath Bank PLC

Nations Trust Bank PLC

Ceylon Hospitals PLC (Durdans) (Non-Voting)

10,665,149

1,260,000

667,238

1,200,000

800,000

236,766,308

154,980,000

121,504,040

77,880,000

61,600,000

21%

14%

11%

7%

5%

Fig 2: Top Five Equity Holdings

No of Shares Value (RS.) % of NAV

Fig 3: Sector Allocation

46.62%

30.75%

12.42%

2.57%

2.56%

2.13%

1.55%

1.40%

0% 10% 20% 30% 40% 50%

Banks Finance And Insurance

Health Care

Manufacturing

Beverage Food And Tobacco

Trust & Investment

Hotel And Travels

Power And Energy

Constructions & Enginering

as a % of Total Equity

Sect

or


ADBT/CPEG/KWS/JJ

INDEPENDENT AUDITORS’ REPORTTO THE UNIT HOLDERS OF NAMAL ACUITY VALUE FUND

Report on the Financial Statements

We have audited the accompanying �nancial statements of NAMAL Acuity Value Fund (the “Fund”) which comprise the statement of �nancial position as at 31 March 2014 and statement of comprehensive income, statement of changes in unit holder’s funds, statement of cash �ows, for the year then ended and a summary of signi�cant 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 �nancial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implement-ing and maintaining internal control relevant to the preparation and fair presentation of �nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making account-ing estimates that are reasonable in the circumstances.

Scope of Audit and Basis of Opinion

Our responsibility is to express an opinion on these �nancial 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 �nancial statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the �nancial statements. An audit also includes assessing the accounting policies used and signi�cant estimates made by management, as well as evaluating the overall �nancial 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 �nancial statements give a true and fair view of the Fund’s �nancial position as at 31 March 2014 and its �nancial performance and cash �ows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory Requirements

These �nancial 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 2009.

06 June 2014Colombo

28


Ernst & YoungChartered Accountants201 De Saram PlaceP.O. Box 101Colombo 10Sri Lanka

Tel : +94 11 2463500Fax Gen : +94 11 2697369Tax : +94 11 [email protected]

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 FCMAW 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 FCMAMs. A A Lodowyke FCA FCMA Ms. G G S Manatunga ACA N M Sulaiman ACA ACMA B E Wijesuriya ACA ACMA

29

NAMAL Acuity Value FundSTATEMENT OF FINANCIAL POSITIONAs at 31 March 2014

06 June 2014

Colombo

*The Accounting Policies and Notes on pages 33 to 45 form an integral part of these Financial Statements.

Notes 2014 2013ASSETS Rs. Rs.

Cash and cash equivalents 816,533 657,111 Financial assets - Held for trading 4 1,069,984,691 880,172,656 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 1,136,508,469 984,952,393

UNIT HOLDERS' FUNDS & LIABILITIES

LIABILITIESCDS 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' FUNDSNet assets attributable to Unit Holders 1,135,218,735 961,258,747

1,136,508,469 984,952,393

These Financial Statements were approved by the Management Company, and adopted by the Trustees.


………………………………..

Trustee

…………………………

Director

Management Company

Director

…………………………

Management Company

Di t

………………………… ………………………… ………………………………..

Trustee

30

NAMAL Acuity Value FundSTATEMENT OF COMPREHENSIVE INCOMEYear ended 31 March 2014


2014 2013Notes Rs. Rs.

INVESTMENT INCOMEDividend income 9.1 29,337,559 25,669,988 Interest income 9.2 17,354,358 34,021,483Net realised gains on �nancial assets held for trading 4.3 62,680,999 52,141,890Net change in unrealised gains/(losses) on �nancial assets held for trading 4.4 92,811,147 (4,938,685)Total investment income 202,184,063 106,894,676

EXPENSESManagement 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 pro�t 179,336,513 93,869,944

FINANCE COSTInterest 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


31

NAMAL Acuity Value FundSTATEMENT OF CHANGES IN UNITHOLDERS' FUNDSYear ended 31 March 2014


2014 2013Rs. Rs.

UNIT HOLDERS' FUNDS AT THE BEGINNING OF THE YEAR 961,258,747 879,678,630

Increase in net assets attributable to Unit Holders 179,335,588 92,331,317

(5,375,600) (10,751,200)

UNIT HOLDERS' FUNDS AT THE END OF THE YEAR 1,135,218,735 961,258,747

Income distribution to unit holders


32

NAMAL Acuity Value FundSTATEMENT OF CASH FLOWS Year ended 31 March 2014


2014 2013Rs. Rs.

Cash �ows from operating activitiesDividend 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 �ows from �nancing activitiesIncome distribution (5,375,600) (10,751,200) Interest paid on borrowings (925) (62,826) Proceeds from borrowings 5,000,925 212,363,759 Repayment of borrowings (5,000,925) (212,363,759) Net cash used in �nancing activities (5,376,525) (10,814,026)

Net increase in cash and cash equivalents 159,422 541,224 Cash and cash equivalents at the beginning of the year 657,111 115,887 Cash and cash equivalents at the end of the year 816,533 657,111


33

1. 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 2009.

The fund is managed by National Asset Management Limited, which is incorporated and domiciled in Sri Lanka. The registered o�ce of the management company is located at 7th Floor, Union Bank Head O�ce, 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 �xed income securities.

2. ACCOUNTING POLICIES

2.1 BASIS OF PREPARATION

The �nancial 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 �nancial statements have been prepared on the historical cost basis except for the �nancial assets at fair value through pro�t or loss. The �nancial statements are presented in Sri Lankan rupees. The statement of �nancial position is presented broadly in order of a liquidity basis.

2.1.1 Statement of Compliance

These �nancial statements have been prepared in accordance with Sri Lanka Accounting Standards comprising SLFRSs and LKASs (hereafter "SLFRS") which are e�ective from 01 January 2012.

2.1.2 Comparative Information

The accounting policies have been consistently applied by the Fund with those of the previous �nancial year in accordance with LKAS 01 Presentation of Financial Statements. Further, comparative information is reclassi�ed wherever necessary to conform to the current presentation.

2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.2.1 Financial instruments – initial recognition and subsequent measurements

2.2.1.1 Date of recognition

All �nancial 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 �nancial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

2.2.1.2 Initial measurement of �nancial instruments

The classi�cation of �nancial instruments at initial recognition depends on their purpose and characteristics and the management intention in acquiring them. All �nancial assets are measured initially at the fair value plus transaction costs, except in the cases of �nancial assets recorded at fair value through pro�t or loss.

NAMAL Acuity Value Fund NOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2014


34

2.2.1.3 Financial assets - Loans and receivables

Loans and receivables are non derivative �nancial assets with �xed or determinable payments that are not quoted on an active market. Loans and receivables in the statement of �nancial 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 e�ective 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 e�ective interest rate, except for short term receivables when the recognition of interest would be immaterial.

2.2.1.4 Financial assets at fair value through pro�t or loss

Financial assets are classi�ed as fair value through pro�t or loss (FVTPL) if they are held for trading or are designated at fair value though pro�t or loss. Financial assets are classi�ed 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 pro�t or loss as incurred.

• Financial assets held for trading

Financial assets, held for trading are recorded in the statement of �nancial position at fair value. Changes in fair value are recognised in the ‘net change in �nancial 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 classi�cation are quoted equity securities and quoted debentures.

2.2.1.5 Determination of fair value

The fair value for �nancial 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 �nancial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash �ow 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 �nancial instruments and further details as to how they are measured are provided in Note 6.

2.2.1.6 Derecognition of �nancial assets

A �nancial asset is derecognised when,

1) The rights to receive cash �ows from the asset have expired.2) The fund has transferred its rights to receive cash �ows from the asset or has assumed an obligation to pay the received cash �ows 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.



35

2.2.2 Recognition of income

Revenue is recognised to the extent that it is probable that the economic bene�ts will �ow to the fund and the revenue can be reliably measured.

Interest income

For all �nancial instruments measured at amortised cost, interest income is recorded using the e�ective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the �nancial instrument or a shorter period, where appropriate, to the net carrying amount of the �nancial 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.

2.2.3 Cash and cash equivalents

Cash and cash equivalents in the statement of �nancial position comprise cash at bank.

For the purpose of the statement of cash �ows, cash and cash equivalents consist of cash and cash equivalents as de�ned above.

2.2.4 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 2006.

2.2.5 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

2.2.6 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.



36

2.2.7 Unit Holders’ funds and net assets attributable to Unit Holders

Unit Holders’ funds has been calculated as the di�erence 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.

2. 3 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

2.3.1 Fair value of �nancial 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 signi�cant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next �nancial year.

a) Fair value of securities not quoted in an active market and over the-counter derivative instrumentsManagement uses its judgment in determining the appropriate valuation technique for �nancial instruments that are not quoted in an active market. Valuation techniques commonly used by market practitioners are applied. Other �nancial instruments are valued using a discounted cash �ow analysis based on the assumptions supported, where possible, by observable market prices or rates.

2.3.2 Impairment losses on �nancial assets – Loans and receivables

The fund reviews its �nancial investments classi�ed 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 �ows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may di�er, 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 e�ective up to the date of the Fund’s �nancial statements are given below. The company will adopt these standards when they become e�ective. Pending a detailed review the �nancial impact is not reasonably estimable as at the date of publication of these �nancial statements.

SLFRS 9 – Financial Instruments : Classi�cation and MeasurementSLFRS 10 – Consolidated Financial StatementsSLFRS 11 – Joint ArrangementsSLFRS 12 – Disclosure of Interests in Other EntitiesSLFRS 13 – Fair Value Measurements

The Manager believes that there would be no impact on the �nancial statement of the Fund from SLFRS 10 and SLFRS 11 one such standard become e�ective.

SLFRS 9 will be e�ective for �nancial periods beginning on or after 01 January 2015 whilst SLFRS 10, 11, 12 and 13 will be e�ective for �nancial periods beginning on or after 01 January 2014.



37

3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

(a) Financial instruments

The fund’s principal �nancial assets comprise investments in trading securities, repurchase agreements, �xed deposits and cash at bank. The main purpose of these �nancial instruments is to generate a return on the investment made by Unit Holders. The fund’s principal �nancial liabilities comprise amounts attributable to Unit Holders, which are the amounts owed to Unit Holders of the fund. The fund also has other �nancial 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 �xed deposits are classi�ed as ‘loans and receivables’ and valued at amortised cost. Trading securities are classi�ed as ‘held for trading’, meaning they are valued at fair value through pro�t or loss. Amounts attributable to Unit Holders are classi�ed as ‘other �nancial liabilities’ and are carried at the redemption amount being net asset value. Payables are designated as ‘other �nancial liabilities’ at amortised cost.

(b) Financial risk management objectives, policies and processes

Risks arising from holding �nancial instruments are inherent in the fund’s activities, and are managed through a process of ongoing identi�cation, 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 �nancial 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 �nancial instruments. The manager agrees policies for managing each of the risks identi�ed below.

The risks are measured using a method that re�ects the expected impact on the statement of comprehensive income and statement of �nancial 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 �nancial instruments exposed to risk, as well as compliance with established investment mandate limits. These mandate limits re�ect 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 �nancial 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 a�ected by changes in economics, political or other conditions.



38

(c) Credit risk

Credit risk is the risk that the counterparty to the �nancial instrument will fail to discharge an obligation and cause the fund to incur a �nancial loss.

The fund’s exposure to credit risk from its �nancial 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 �nancial instruments with reputable counterparties. The details are as follows:

Counter Party Credit Rating Rating AgencySoftlogic Holdings PLC BBB+ Fitch RatingUnion 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 signi�cant.

The fund’s maximum exposure to credit risk can be analysed as follows:

2014 2013 Rs. 000 Rs. 000NAMAL Acuity Value Fund - Investments Conservative 29,064 44,261Balanced 22,735 47,984Growth 1,069,985 880,173

(d) Market risk

Market risk represents the risk that the value of the fund’s investments portfolios will �uctuate 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 di�erent 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, diversi�cation is achieved at a number of levels. The diversi�ed portfolios are invested across a range of investment sectors. Within each sector of the diversi�ed 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 �uctuate 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 �nancial 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:



39

The above �gures 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 �nancial position.

Interest rate risk

Interest rate risk is the risk that the value of a �nancial instrument will �uctuate 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 �nancial instrument will �uctuate as a result of changes in foreign exchange rates.

The fund is not exposed to foreign exchange risk since the �nancial instruments of the fund denominated in Sri Lankan Rupees.

(e) Liquidity risk

Liquidity risk is the risk that the fund will encounter di�culty in raising funds to meet its obligation to pay Unit Holders.

Due to the nature of a unit trust, it is unlikely that a signi�cant number of Unit Holders would exit at the same time. However, to control liquidity risk, the Fund investments in �nancial 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 �ve 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 �nancial instruments, carrying value approximates fair value. The e�ect of discounting is not signi�cant as there is little di�erence between undiscounted and discounted cash �ows.

31 March 2014

Increase/ (decrease)in pro�t before tax

Rs. 000

Increase/ (decrease)in net assets

attributable toUnit Holders

Rs. 000

31 March 2013

Increase/ (decrease)in pro�t before tax

Rs. 000

Increase/ (decrease)in net assets

attributable toUnit Holders

Rs. 000Change in priceof the fund’sinvestment intrading securities:

+10%-10%

99,074 99,074 86,060(99,074) (99,074) (86,060)

86,060(86,060)


40

NAMAL Acuity Value FundNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2014

4. FINANCIAL ASSETS - HELD FOR TRADING 2014 2013Rs. Rs.

Quoted equity securities (4.1) 990,741,517 860,601,010Debt securities - quoted debentures (4.2) 79,243,175 19,571,646

1,069,984,691 880,172,6564.1 Quoted equity securities

Cost as at 31 March 910,364,581 868,309,056 Appreciation/(depreciation) of market value quoted equity securities 80,376,936 (7,708,046) Market value as at 31 March 990,741,517 860,601,010

4.1.1 Company Number of Market Holdings Number of Market HoldingsShares Value as a % of Shares Value as a % of

Net Asset Net AssetRs. Value Rs. Value

Banks, Finance and InsuranceCentral Finance Company PLC 108,499 19,638,319 2% 5,166 929,880 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 1,260,000 154,980,000 14% 675,000 76,275,000 8%Hatton National Bank PLC - Non Voting - - - 350,000 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 - - - 1,198,600 15,701,660 2%Sampath Bank PLC 667,238 121,504,040 11% 100,000 22,490,000 2%

461,834,375 42% 231,944,670 24%

Beverages, Food and TobaccoDistilleries Company of Sri Lanka PLC - - - 626,400 104,295,600 11%Lion Brewery Ceylon PLC - - - 200,000 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 - - - 118,000 7,198,000 1%

- - 7,198,000 1%

Construction and EngineeringAccess Engineering PLC 615,000 13,837,500 1% 615,000 12,115,500 1%

13,837,500 1% 12,115,500 1%

Diversi�ed HoldingsCT Holdings PLC - - - 482,000 60,828,400 6%Hayleys PLC - - - 118,100 35,276,470 4%

- - 96,104,870 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 10,665,149 236,766,308 21% 10,665,149 121,582,699 13%

304,638,523 27% 181,662,699 19%

Hotels and TravelsKingsbury PLC 1,650,000 21,120,000 2% 1,650,000 22,110,000 2%

21,120,000 2% 22,110,000 2%

ManufacturingACL 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%

PlantationKegalle Plantations PLC - - - 100,000 11,200,000 1%

- - 11,200,000 1%Investment TrustsRenuka Holdings PLC 804,877 25,353,626 2% 804,877 24,951,187 3%

25,353,626 2% 24,951,187 3%

TelecommunicationDialog Axiata PLC - - - 2,000,000 18,000,000 2%

- - 18,000,000 2%

Power & EnergyLanka IOC PLC 400,000 15,400,000 1% - -

15,400,000 1% - -

Total value of quoted equity securities (At market value) 990,741,517 87% 860,601,010 89%

2014 2013


41


4. FINANCIAL ASSETS - HELD FOR TRADING (contd..)

4.2 Quoted debentures

Cost Market Holding as a Cost Market Holding as aValue % 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% - - -

72,767,100 79,243,175 6% 20,000,000 19,571,646 2%

4.3 Net realised in gains on �nancial assets held for trading 2014 2013Rs. Rs.

Equity securitiesProceeds on sale of equity shares 501,549,891 142,069,433 Average cost of equity shares sold (438,868,893) (89,927,543)

62,680,999 52,141,890

4.4 Net change in unrealised gains/(losses) on �nancial assets held for trading

Equity securities 88,084,982 (5,742,465) Debt securities - quoted debentures 4,726,165 803,780

92,811,147 (4,938,685)

5. FINANCIAL ASSETS - LOANS AND RECEIVABLES

Carrying Holding as a Carrying Holding as aValue % of Net Value % of Net

Rs. Asset Value Rs. Asset Value 5.1 Investments in commercial papers

Softlogic Holdings PLC - - 27,540,524 3%- - 27,540,524 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 - �xed 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%

2013

2014 2013

2014


42


6. 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 classi�ed 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 classi�ed 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 classi�ed 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 �nancial instruments recorded at fair value by level of the fair value hierarchy:

Level 1 Level 2 Level 3 TotalRs. Rs. Rs. Rs.

990,741,517 - - 990,741,517 - 79,243,175 - 79,243,175

860,601,010 - - 860,601,010 - 19,571,646 - 19,571,646

7. ACCRUED INCOME AND OTHER RECEIVABLES 2014 2013Rs. Rs.

Dividend receivable 7,739,647 6,932,575 7,739,647 6,932,575

8. ACCRUED EXPENSES 2014 2013Rs. Rs.

Fund management fee payable 942,883 816,344 Trustee and Custodian fee payable 229,811 205,691 Audit fee 117,040 101,920

1,289,734 1,123,955

Financial assets - held for trading

Quoted equity investmentsQuoted debentures

As at 31 March 2014

Financial assets - held for trading

Quoted equity investmentsQuoted debentures

As at 31 March 2013


43


2014 20139. INVESTMENT INCOME Rs. Rs.

9.1 Dividend income 29,337,559 25,669,988

9.2 Interest incomeInterest 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 �xed deposits 3,545,559 3,292,355 Interest on trust certi�cates - - 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 34,021,483

9.2.1

10. INCOME TAX 2014 2013Rs. Rs.

10.1 Tax expense for the year - 1,475,801 - 1,475,801

10.2

Operating pro�t before tax 179,335,588 93,869,944 (146,521,269) (47,266,031)

Allowable tax credits (34,535,573) (25,669,988) Total statutory income (1,721,254) 20,933,925

- (6,175,913) Taxable income - 14,758,012

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 1,721,254 -

11. DISTRIBUTION

The fund announced and paid the following dividends during the year.

Dividend per Unit No. of

units in issueTotal

Dividend Rs. Rs.0.50 10,751,200 5,375,600

Interest income on Treasury bill repurchase agreements and Treasury bills have been recognised gross of notional taxes.

Date of declaration

03 October 2013

A reconciliation between the tax expense and the product of taxable pro�t multiplied by the statutory tax rate is asfollows:

Aggregate allowable expenses/ net gains

Utilisation of previously unrecognised tax losses

Income tax at the rate of 10% (2013-10%)


44

12. CONTINGENCIES There are no material contingencies existing as at the reporting date that require adjustments to or disclosures in the �nancial 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 �nancial statements. 14. CAPITAL COMMITMENTS The fund does not has signi�cant 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 (2013 - 10,751,200.0 ) and the net asset value as at that date per unit was Rs. 105.01 (2013 - Rs. 89.16). 16. RELATED PARTY TRANSACTIONS

16.1 The following have been identi�ed as related party transaction of NAMAL Acuity Value Fund for the year ended 31 March in accordance with LKAS 24 - "Related Party Disclosures".


National Asset Management Ltd.(Managing Company)

Deutsche Bank(Trustee)

DFCC Bank

Fund has paid Rs. 10,449,367/- (2013 - Rs. 9,859,070) as management & registrar fees during the year. The fee payable as at 31 March 2014 is Rs. 942,883/- (2013 - Rs. 816,344/-).

Fund has paid Rs. 2,297,512/- (2013 - Rs. 2,277,999/-) as trustee and custodian fees during the year. The fee payable as at 31 March 2014 is Rs. 229,811/- (2013 - 205,690/-).

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 (2013 - Rs. 269,111,628/- ) No of units held is 3,018,300 units, (2013 - 3,018,300 units)

Mr. I. J. P. Gamage(Executive Vice President) Mr. T. W. De Silva(Senior Vice President)

Nature of TransactionsNames of Directors / ManagersCompany / Fund


45


Union Bank of Colombo PLC

Ennid Capital (Private) Limited

Union Bank of Colombo PLC holds 51% (2013 - 51%) of equity of National Asset Management Limited. The value of �xed 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 �xed deposit as at 31 March 2014 is Rs. 22,359,939/-.

Ennid Capital (Pvt) Limited holds 19% (2013 - 19%) of equity of National Asset Management Limited.

Mr. Alexis LovellMr. Anil Amarasuriya

Mr. Avancka Herat

16. RELATED PARTY TRANSACTIONS (Contd..)

16.2 Unit Holdings of the related parties of NAMAL Acuity Value Fund as at 31 March is as follows.

*Mr. A.N. Fonseka, resigned from the Board of National Asset Management Limited with e�ect from October 31, 2013. 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).

Rs. 445,800/-(5,000 Units)

-

Name Relationship Value of Unit Holding

As at 31.03.2013

Mrs. R.D. Fonseka Spouse of Mr. A.N Fonseka

As at 31.03.2014*


46

UNIT INFORMATION

Analysis of Unitholders according to the Number of Units as at 31st March 2014

Share Price MovementThe market prices during the year Rs.

Highest Price 73.50Lowest Price 65.20Last Traded Price 68.40

Net Asset Value of a unit as at 31st March, 2014 105.01

Units Range No. ofUnitholders

No. ofUnits

1-200 256205

594329

912191511

201-1,000 1,001-2,000 2,001-4,000 4,001-6,000 6,001-8,000 8,001-10,000 10,001-20,000 20,001-40,000 40,001- & Above

26,298 136,893 100,914 129,405 155,088

62,530 120,000 268,647 369,645

9,381,780

0.24 1.27 0.94 1.20 1.44 0.58 1.12 2.50 3.44

87.26

100.00

658 10,751,200

Holding%

Categories of Unit Holders

Individuals 610Company 48

1,152,1009,599,100

10.7289.28

100.00658 10,751,200

No. ofUnitholders

No. ofUnits

Holding%


47

List of 20 Major Unit Holders based on their unitholdings as at 31st March, 2014

Name No. ofUnits

Holding%

3,018,300 3,000,000 2,744,900

168,500 100,000

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 25,000

28.0727.9025.53

1.280.930.740.680.500.470.470.400.320.290.240.240.230.230.230.230.23

DFCC BankHatton National Bank PLCCentral Finance Company PLC A/C No 3Life Insurance Corporation Lanka Ltd.Bartleet Religare Securities (Pvt) Ltd.HNB Assurance PLC A/C No 2 (Life Insurance Fund)East West Properties PLCCapital Alliance Finance PLC/A.H. UdeshiMr. S. NagahawatteMr.W.K.G.N. PereraMrs. G. MuralidaranHNB AssurancePLC A/C No 1 (General Insurance Fund)Merchant Bank of Sri Lanka LTD. A/C No 1Mr.K.S.M.De SilvaMellon Bank N.A.-The Frontier Emerging Markets FundMr. W. A. D. U. C. PereraMr. A. N. DiasPerera and Sons Caterers (Pvt) LtdPerera and Sons Distributors (Pvt) LtdSenkadagala Finance Company Ltd


48

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

Corporate Information

UNIT TRUST INFORMATIONMANAGEMENT COMPANY

TRUSTEE & CUSTODIAN

AUDITORS

BANKERS

LAWYERS

National Asset Management Ltd7th Floor, Union Bank Head O�ce64,Galle Road ,Colombo 3.

Deutsche Bank AG86 Galle Road, Colombo 3.

Ernst and YoungChartered Accountants201, De Saram PlaceColombo 10.

Union Bank Of Colombo PLC64,Galle Road, Colombo 3

Deutsche Bank AG86, Galle Road, Colombo 3.

F J & G de SaramAttorneys-at-Law & Notaries Public216, De Saram Place, Colombo 10


49

Declaration By Trustees And Managing Company

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.

1.

2.

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.

DECLARATION 1

DECLARATION 2

As per the section 4.3 c (iv) of the Listing Rule of the Colombo Stock Exchange.

……………………………..……………………………..

DirectorManagement Company

DirectorManagement Company

……………………………………………

Authorised SignatoriesTrustee



……………………………..

Director

"The SEC in approving this Annual Report has taken reasonable care to ensure the accuracyof the information included herein. However, National Asset Management Limitedis at all times responsible for the information included in this Annual Report"

National Asset Management Ltd. | No.64 Galle Road, Colombo 03. | T: 9411 2445911 | www.namalfunds.com

2013 - 2014 annual report · 2015-07-15 · 16 12 09 05 03 01 46 48 annual report 2013 / 2014....

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