Report to Shareholders

It is with great pleasure that we present to you, on behalf of the Board and Management of CDSC, the Company’s Performance for the year ended 31st December 2018.

Group Performance

The year 2018 was faced with several challenges both globally and locally that affected the general performance of the Capital Markets. The local market experienced foreign investor outflows in the second half of the year due to international market volatility factors like the Brexit uncertainty and the US trade war with China. The Federal Reserve Rate hikes also pulled high value investors away from emerging markets in favor of the developed markets.

The group however, recorded a 50% net profit growth to Kes. 82,183,351 for the year 2018 up from Kes. 54,649,567 in 2017 in spite of the uncertainty in our operating environment. This performance was mainly driven by a re-measurement of bank balances held with SBM Bank Kenya formerly held at Chase Bank (under receivership) and a 5.9% growth in revenues in 2018 to Kes. 355.3 million up from Kes. 335.6 million in 2017. Transaction levies increased marginally by 1.5% YoY to Kes. 281 million up from Kes. 276 million. Transaction levies contributed to 79% of the group’s revenues underpinning the importance of a vibrant capital markets to CDSC’s performance. Total expenses increased slightly by 3.3% to Kes. 268.4 million in 2018 up from Kes. 259.8 million in the previous year.

CDSC also recorded an annualized growth in total assets from Kes. 494.7 million in 2017 to Kes. 586.6 million in 2018 representing a growth of 18.6%. This increase was attributed to the continued investment in our systems infrastructure. Retained earnings also posted an increment of 21.7% in the year from Kes310.1 million in 2017 to Kes. 377.5 million in 2018.

A total of 307,873 deals were settled through the CDS system compared to 284,843 deals settled in 2017. The 8.1% increase was as a result of activity, mainly from foreign investors at the local bourse who were mostly net sellers. The equities turnover was also positively impacted by the trading activity rising marginally by 2.34% to Kes. 175 billion in 2018 up from Kes. 171 billion in 2017.

In contrast, CDSC witnessed a vibrant corporate bonds market in 2018 with the bonds turnover increasing by 29% to Kes. 562 billion up from Kes. 435 billion in 2017.

The data cleaning exercise commenced in 2017 continued into 2018. At the close of 2018, there were 1,159,674 CDS accounts, a marginal increase of 0.8% compared to 1,150,270 CDS accounts recorded at the close of 2017. The objective of this exercise is to ensure that the records maintained by CDSC are authentic, complete and accurately reflect the clients’ data for improved service delivery to our customers and compliance with KYC requirements.

Following the conclusion of the sale of a 30% stake in CDSC Registrars to Escrow Financial Services Limited, CDSC Registrars transferred management of CDSC Registrars to Escrow to bring in new synergies and improve performance of the business unit.

In 2018 CDSC Registrars recorded a loss of Kes. 7.6m compared to Kes. 7.8m loss in 2017; while CDSCR Rwanda recorded a loss of Kes. 1.1m compared to a profit of Kes. 0.7m. in 2017. This loss is attributed to tax arrears provisions.

Dividend Payment

The Board of Directors has recommended a final dividend of Kes. 10 per share for the year ended 2018 compared to Kes.6.85 in 2017.

Economic Performance

The global macro-economic environment was stable while the global capital markets experienced volatility as a result of stringent monetary policy, trade and geopolitical tensions in leading economies. Global market capitalization declined by 14.9% from 87.43 trillion US Dollars in 2017 to 74.4 trillion US Dollars in the year under review while shares traded volumes were up by 11.5% to 21.9 trillion US Dollars in 2018 up from 19.64 trillion US Dollars in 2017. Global growth for 2018 is reported at a rate of 3.6%, a slight decline from the performance recorded in 2017 of 3.8%.

The Sub-Saharan region recorded a marginal increase in GDP growth at 3.0% in 2018 compared to 2.9% growth in 2017.

Back home, the economic conditions were favourable. Kenya’s GDP grew at an average rate of 6.3% in 2018 compared to a 4.7% growth recorded in 2017. This was due to positive performance from key sectors such as agriculture and manufacturing supported by accelerated growth in the transportation and services sectors. This growth is expected to be maintained in 2019 due to increased business and consumer confidence as well as sustained low inflation levels at 4.7% in 2018 compared to an average of 8% in 2017.

Guarantee Fund

The CDSC Guarantee Fund is managed by CDSC as the Fund Administrator and operated in accordance with the CDSC Operational Rules and the Guarantee Fund Procedures. The purpose of the Fund is to mitigate settlement risks by guaranteeing funds settlement between settlement participants in instances of one or more parties’ inability to meet settlement obligations. The Fund covers all the Central Depository Agents (CDAs). These are stockbrokers, investment banks and custodian banks.

As at the close of 2018, the CDSC Guarantee Fund recorded a net surplus of Kes. 87 million. This was mainly driven by an increase in the fund’s income streams namely; interest income Kes.66m, Guarantee Fund Levy of Kes.35m and Kes.4m from penalties; recording a combined growth of 19.2% to Kes. 105.8 million in 2018 up from Kes. 88.7 million in 2017. The Fund also benefited from a re-measurement of bank balances held with SBM Bank Kenya formerly held at Chase Bank (under receivership), The Fund’s total assets consequently increased from Kes. 822.7 million in 2017 to Kes. 916.6 million in 2018.

Future outlook

As we take stock of last year’s accomplishments and learnings, we are cautiously optimistic of the future as the capital markets environment continues to experience volatility and low trading volumes. In the coming year, CDSC Board and Management will focus on increasing the revenue stream options for the group while ensuring prudent utilization of company resources for enhanced operational efficiency and business growth.

Delivering the Strategy

Our vision is to be a leading provider of innovative solutions for custody clearing and settlement services. We continue to showcase our commitment to achieving this goal through the implementation of our 2016 – 2020 strategy.

CDSC’s 2016 – 2020 strategy is now in its fourth year of implementation. In 2019 CDSC shall focus on three key areas namely; (a) CPMI IOSCO compliance, (b) the implementation of a new technology platform, which will enable the introduction of new products such as securities lending and borrowing and intra day trading, and (c) fulfillment of CDSC’s role under the Capital Markets Master Plan (CMMP).

Risk management remains a high priority at CDSC with continuous efforts to constantly upgrade our capability in tandem with the new operating environment envisaged under the new CDS system. Our focus remains on achieving full compliance with the CPMI IOSCO Principles for Financial Market Infrastructures, the Capital Markets Master Plan, the regulatory requirements spelt out under the Conduct of Business (Market Intermediaries) Regulations as well as the company ’s Strategic Plan.

To enhance the customer experience and keep investors up to date on their investment information, CDSC rolled out a Mobile Application in December 2018. The App enables investors to view their account details; get notifications on activity in their CDS accounts, get notifications on corporate announcements, make requests for activation of dormant accounts and protect their securities through self-freezing and unfreezing of their shares.

Leveraging on technology, CDSC has packaged data sets on information available in the depository to be sold out to both local and international institutions, researchers and individuals. Revenues generated from this service will ensure we diversify our income streams and improve the group bottom line ensuring sustained value creation to our shareholders.

In addition to making technological investments to support delivery of the strategy, we continue to provide an enabling environment through which our employees can develop their talents and skills to take charge of their own careers. These investments will in the long run, create a workplace that promotes growth and delivers greater value to the shareholders through increased productivity.

Corporate Governance

The Board recognizes the role that good governance plays in ensuring the success and sustainability of the business. In April 2018, the Board conducted a self-assessment that involved peer reviews as well as assessments of their effectiveness. The Board attained an overall score of 87.54%, a slight improvement from the previous year’s score of 87% signaling the Board’s continued commitment to good governance practices.

Board Changes

During the year, Mr. Mike Bristow resigned on 3rd December 2018 as the Chairman of both the CDSC and CDSC Registrars Boards to pursue other interests. He had served the CDSC Board diligently for fourteen years. Mr. Charles Ogalo was appointed Chairman of the CDSC Board in line with CDSC Memorandum and Articles of Association and the Corporate Governance Regulations. Mr. Sam Kimani was also nominated to the Board of CDSC Registrars, both as a director and Chairman, replacing Mr. Bristow. On behalf of the CDSC Board, I wish to thank Mr. Bristow for his tireless and dedicated service to CDSC, and wish him all the best in his future engagements.

During the same period, Mr. Isaac Awuondo joined the Board as a representative to the Capital Markets Challenge Fund. He brings on board significant financial and investment expertise that will serve the CDSC Board immensely in the stewardship of the company.


In conclusion, we would also like to thank the Board of Directors for their relentless support and diligent guidance throughout the year. Their counsel allows the organization to make the critical decisions that ensure stability and future growth of the company.

On behalf of the Board, we remain highly appreciative of the contribution of the Management and staff to the delivery of our promise to all our stakeholders of making progress possible.

We also take this opportunity to extend our appreciation to our valued business partners and customers who have been instrumental in the running our business and continue to play a significant role in the future success of the company.