directors - Colombo Stock Exchange

ManageMent report
FinanCial
REvIEW
Overview
The group demonstrated its resilience in the financial year amidst most
challenging domestic and external conditions, which changed for the
better as the year progressed. The recovery was possible largely due to the
favorable changes that took place in the local economic landscape since the
second quarter of the year, marked by an increase in demand in the vehicle
market, lower interest rates, lower inflation rates and relative stabilization
in exchange rates. The first quarter of the financial year recorded a loss
and each ensuing three month period showed a marked improvement in
Profit before Tax, finally ending the year with an outstanding fourth quarter.
In order to provide the readers with a balanced view and the trend that
prevailed during the year, quarterly data have been used, where appropriate.
The operations of the telecommunication sales and service business was
discontinued during the year under review. SLAS 38 on ‘Non-Current Assets
held for sale and discontinued operations’ was followed in accounting for the
discontinuation and preparation of Financial Statements.
Financial Environment
The following extracts from the Central Bank Annual Report 2009 provides a
brief account of the economic background for the calendar year 2009, against
which the group achieved its results of the first three quarters of the financial
year. It also provides vital economic data that prevailed at the kick off of the
fourth quarter of the financial year. The table that follows the extracts from
the Central Bank Report 2009 provides some relevant economic data for the
quarter ended 31st March 2010, which have also been extracted from data
published by the Central Bank.
“Inflation, as measured by the year-on-year change in the Colombo
Consumers’ Price Index (CCPI), which was 14.4 per cent at end 2008,
continued to decline during much of the first three quarters of the year,
to reach a five year low of 0.7 per cent by September 2009. Annual
average inflation, which was 22.6 per cent at year end 2008, also declined
continuously, to reach 3.4 per cent by end 2009.”
“The entire market interest rate structure gradually shifted downwards
following the reduction in the policy rates. Short term money market interest
rates remained at a low level with much of the volatility smoothened out
during 2009.”
“The Average Weighted Prime Lending Rate (AWPR) showed a marked
decline of over 800 basis points to 11.12 per cent at end December 2009.
The Average Weighted Lending Rate (AWLR) has gradually declined during
the year by a total of 272 basis points to 17.41 per cent, with a marked
decline observed in the final quarter of 2009.”
“Although the exchange rate remained relatively steady at around Rs. 114.80
against the US dollar until end October 2009, as a result of the strong
external sector performance during the latter part of 2009 and benefitting
from further investments in Treasury bills and bonds, and the issuance of
the second sovereign bond of US dollars 500 million, the rupee appreciated
further against the US dollar.”
“By end 2009, the rupee appreciated to Rs. 114.38 resulting in an overall
depreciation of 1.09 per cent against the US dollar when compared to
a depreciation of 3.91 per cent in 2008. Meanwhile the annual average
48
ANNUAL REPORT 2009/10 DIESEL & MOTOR ENGINEERING PLC
exchange rate in 2009 was Rs. 114.94 against the US dollar when compared
with Rs. 108.33 recorded in 2008. During the year, the rupee depreciated
against the Euro (2.60 per cent), Indian rupee (4.13 per cent) and the Sterling
pound (10.16 per cent) while it appreciated against the Japanese yen
(0.89 per cent).”
Economic Data for the Quarter ended 31st March 2010
2010
1st Quarter
2009
AWPR - % 10.54 10.91
Rate of Inflation - % (CCPI Annual Average) 3.2 3.4
Exchange Rate (Rs. per USD) 114.02 114.38
Source: Central Bank of Sri Lanka
Financial highlights 05 Operational highlights 06 Chairman & CEO's Review 10 Board of Directors 14 Group Management Committee 18