Value Creation and External Capital Formation
External Capital Formation
The value created by the DFCC Banking Business for stakeholders through activities, relationships and linkages lead to the formation of capital external to these entities. They reside within our stakeholders and hence not ‘owned’ by us. But we have access to and make use of these and our ‘own’ internal capital in driving business. The discussion that follows focuses on our external capital formation, the material ones being investor capital, customer capital, employee capital, business partner capital and social and environmental capital.
INVESTOR CAPITAL
This section on investor capital pertains to DFCC Bank. The Bank’s investors are persons, both institutional and individual, who provide equity or debt capital with the expectation of a superior return over the short, medium and long term. In turn, the Bank drives future earnings while operating within sound risk management and control frameworks to derive value for itself and to deliver value to its investors.
Shareholder Profile
The Bank had 8,443 shareholders on 31 March 2015 (FY 2013/14: 8,874 shareholders), with the total number of shares in issue remaining unchanged at 265,097,688 ordinary shares. Around 85% of the Bank’s share capital is held by institutions. Local shareholders, both institutional and individual, hold about 74% of the total number of shares in issue and account for 98% of all shareholders.
Return to Shareholders
Financial Return
All shareholders of the Bank are treated equally on the basis of one vote per ordinary share. The Bank has not issued any non-voting ordinary shares or preference shares.
Shareholders are primarily rewarded through dividends and share price appreciation. The Bank aims to provide consistently high total shareholder returns through profitable and sustainable performance. Dividends are determined based on growth in profits while taking into account future cash needs and the maintenance of prudent ratios. The Board of Directors has recommended a first and final dividend of LKR 6.00 per share for the year under review (FY 2013/14: LKR 5.50), to be approved by shareholders at the Annual General Meeting on 30 June 2015.
The DFCC Bank share closed at LKR 202.90 on 31 March 2015. The highest and lowest values recorded during the period under review were LKR 239.00 on 7 October 2014 and LKR 144.70 on 1 April 2014. Over the 12 month period, the share posted a gain of LKR 59.90 (42%). The share price tracked the movement of the All Share Price Index (ASPI) closely throughout the period.
Additional details are given under the section Investor Relations.
Economic Return
Economic Value Addition (EVA), as distinct from financial value addition and its distribution, is the value created over and above the required return of the Bank’s equity investors. Given below is the Bank’s EVA computation for the year under review and the previous period.
| LKR million |
2015 |
2014 |
| Invested equity |
|
|
| Shareholders’ funds |
44,095 |
37,410 |
| Add: Allowance for impairment |
2,902 |
3,392 |
| Less: Fair value reserve |
17,513 |
12,443 |
| Total |
29,484 |
28,359 |
| Earnings |
|
|
| Profit after tax |
3,240 |
2,587 |
| Add: Impairment write back/(charge) for loans and other losses |
308 |
(324) |
| Less: Loan losses written-off |
4 |
26 |
| Total |
2,928 |
2,885 |
| Cost of equity (Based on 12 months weighted-average T-bill rate plus 2% for the risk premium) |
9.56% |
9.83% |
| Cost of average equity |
2,765 |
2,719 |
| Economic value added |
163 |
166 |
