The financial priorities remain strongly pursued in formulating Corporate Strategy. The following are the Group’s financial priorities that drive the Group’s financial strategy:
i. Optimising profitability through value addition and efficient utilisation of resources particularly through prudent working capital management.
ii. Striking a balance between growth and immediate profitability in allocating financial resources.
iii. Maintaining a healthy Balance Sheet.
Treasury Management
The Group operates a central treasury function, which controls decisions in respect of cash management, utilisation of borrowing facilities, banking relationships and foreign currency exposure management. It enables effective cross utilisation of funds between business units. Policies are in place to guide the activities of the central treasury in terms of approval levels and the scope of decision making.
Financial Market Risk
The Company is exposed to various changes in financial market conditions, including fluctuations in interest rates and foreign currency exchange rates. Forward exchange rate contracts are entered into for imports on a selective basis, where desirable.
Retirement Benefits
The Group accrues gratuity expenditure based on salary as at the end of the year and the number of years completed in service. The provision for retirement gratuity as at 31st March 2008 amounted to Rs. 116 mn (2006/07 - Rs. 94 mn). The provision made for the year is Rs. 28 mn (2006/07 - Rs. 20 mn).
Contractual Obligations
Financial contractual obligations to banks as at 31.03.2008 are given below:
Obligation
Amount
due
2008
Rs. mn
Amount
due
2007
Rs. mn
Settlement
Long-term Borrowing
730
478
Equal monthly instalments
Short-term Borrowing
1,855
2,218
On maturity at terms ranging from
one month to six months
Overdraft
200
142
On demand
Letter of Credit
1,135
1,502
As per LC condition
Bank Guarantees
211
209
As per Guarantee condition
Bid Bonds/Performance Bond
109
148
As per Bond condition
Foreign Currency Transactions
The US Dollar and the Euro are the principal currencies in which the Group’s imports are denominated. A majority of receivables from foreign principals are also denominated in the same currencies. The Sri Lankan Rupee appreciated against the US Dollar by 0.5% (2006/07 - 6% depreciation) while it depreciated against the Euro by 17% (206/07 - 18%) during
the year.
Shareholders’ Funds
Shareholders’ funds increased to Rs. 1,657 mn from Rs. 1,507 mn. The increase of Rs. 150 mn in retained earnings represent the increase.
Market capitalisation as at 31.03.2008 was Rs. 1.07 bn (2006/07 - Rs. 1.45 bn).
Accounting and Financial Reporting
The Group strives to make meaningful disclosures of material information in the Annual Report and Accounts and has consistently focused on improving the presentation of information, within the framework of the Sri Lanka Accounting Standards.
It remains committed to the adoption of best practices in its communications with shareholders and other users of financial statements, within the bounds of commercial confidentiality, to enable them to make informed judgements on the performance of the Group.
Outlook
It is inevitable that a continuation or a deterioration of the current market and environmental factors will impact on the Company’s performance. Despite competitive market conditions, a recent drop in volumes and high interest rates, the DIMO team is determined to deliver a much improved result. Its Human Resources are well placed to seize opportunities and face challenges. Historically, the Board has constantly reviewed, and will continue to review its cost base and working capital management. At the same time, the group expects to further invest in Human Resources, Technology and where the group’s value addition content of the offering can be increased. Aftercare will remain an important element of the Company strategy for growth.
