On behalf of the Board of Directors,
I welcome you to the 48th Annual
General Meeting of the Company.
The Annual Report together with the
audited statement of accounts of the
Company and the Group for the year
ended 31st March 2011 and a review
of our activities endeavours to provide
an overview of the businesses in our
portfolio and the developments both
with regard to direction and revenue
streams in the near term.
The year under review could be described as a year when Sri Lanka enjoyed the first peace dividend after near 30 years of internal strife and a costly insurrection. The country is once again an oasis of peace in a turbulent world renewing hope and aspirations thus reawakening the nation encompassing all communities. Consequently, the year 2010 witnessed the growth of the economy by 8% which is perhaps the highest growth rate achieved during last two decades.
The key sectors of the economy contributed to this growth with Government setting the tone for the resurgence of village communities with a helping hand to rural agricultural Sri Lanka coupled with infrastructure development. The Hambantota Harbour, expansion of the Colombo Port, rehabilitation of the road and rail networks undertaken with a sense of urgency will add momentum to help the economy to deliver to its potential. Global market conditions too contributed to the above growth rate as tea and rubber prices recorded historic highs with demand for Sri Lankan-made garments improving by near 30%. Stability and peace also had a positive impact on tourist arrivals. Mobile and Internet connectivity improvements underscored the current and future growth potential of the services sector.
Unemployment too dipped to its lowest suggesting that Sri Lanka would not be a destination for cheap labour and also highlighting the need for pursuing productivity and greater value addition. The Government's initiatives on education sit comfortably with Internet connectivity, which would radically change the opportunities available to young people.
The Global economy recorded a modest improvement with substantial contributions by India and China. Increasing commodity prices including energy are challenges, countries such as Sri Lanka need to face in the short term. Crude oil and raw material price increases are bound to add further stress on our balance of payments. Accordingly, we will need to make headway in indices with negative connotations, such as ease of doing business in the country, corruption, environmental management, accountability, transparency, etc. in order to attract foreign direct investment. Increases in exports and productivity improvements would have to be pursued with renewed vigor. Our industry and agriculture should be made ready to face greater competitive pressures.
The year is certainly a landmark in the Company's history with the achievement of a Group post-tax profit of Rs. 1.17 billion which represents an increase of 57% in profit in comparison to the previous year. Group turnover recorded an increase of Rs. 4.4 billion or 26.7% over last year's performance. Animal feed, poultry, agriculture and food oriented businesses provided the bulk of the increases. The Group benefited to an extent of Rs. 188 million with the reduction in interest rates and invested Rs. 33 million in agricultural research excluding extension services.
CIC Holdings PLC, the Company, recorded an increase in post-tax profit of Rs. 64.7 million or 18.9% in comparison to the previous year. Turnover increased by Rs. 1.4 billion or 40% with Crop Solutions, Consumer & Healthcare gathering growth momentum.
The year also saw the implementation of the identity change, which we contemplated over a period. The name change of the Company to CIC Holdings PLC was approved by our shareholders in December last year. The Company is no longer referred to as the paint or chemical company, but it is now being identified largely with rural agriculture, poultry and animal feeds. In making the name change the positive attributes of the CIC Brand associated with quality, humanity and value for money connotations has been retained for the future. The Company logo has been redesigned to reflect the new impetus to agriculture thus breaking the historical affinity to ICI our original founder shareholder.
We continue to set new standards in production and management in the agri sector. Our animal feeds and the chicken carry quality parameters meeting high food safety standards, having obtained ISO 22000 Food & Safety Management System Certification. The rice that we produce at our state-of-the-art rice mill at Maho has had no difficulty in entering new markets once again with ISO 22000 Certification of the processing facility. Our rice is exported to Australia, Germany, France and USA to name a few markets. We continue to invest in Research & Development (R&D) in areas such as new rice varieties, improved vegetable seed production, fruit cultivation and generation of planting material. In order to be benchmarked with global producers we have sought and obtained Membership of the International Seed Testing Association. During the year, we commissioned a seed coating facility at Dambulla thus adding further value to our many customers. With this innovation, we have enhanced our position as the market leader in this sector and have enhanced the respect and confidence of the rural and plantation communities who use our products. We have also provided a window to the rural agricultural sector to link with the sophisticated consumers in Colombo and Kandy with our Fresheez and Juiceez outlets.
The Company has laid the foundation for the development of a strong agribusiness industry in the country which has both acceptance and potential. CIC is poised to unravel this potential for the benefit of the country, rural agricultural producers and itself. Global food production is projected as needing an increase of 70% by 2030 if the world is to be kept fed. This is a tall order given the fact that agricultural land continues to shrink with urbanisation. The availability of fertilizer a vital input linked to oil at an affordable price is suspect. Research & Development and technological innovations enhancing yields from diminishing resources seems the way forward. We contribute to these goals in large measure. The Company continues to invest in technologies available for adoption globally. We are also conscious of the need to be less weather dependent and consequently strive to manage water. We have ongoing research programmes on water management, soil management, delivery systems, to improve fertilizer utilisation and also organic inputs. Post-harvest loss reduction, transport, cold rooms and packaging are other areas receiving our attention. As highlighted earlier we have spent over Rs. 33 million on direct R&D during the year. A highly respected Bangladeshi company having visited our farms invited us to their country to replicate our model in Bangladesh. We have signed an agreement to form a joint venture company in Bangladesh titled 'Rahimafrooz CIC Agri', to replicate our agricultural model in that country. On the value addition front to agricultural produce our investments in Link Natural Products, Kelani Valley Canneries and a bought leaf tea factory in Kalawana remain the main areas of focus.
The Feed Mill which we purchased from Cargill of USA has continued to deliver profits year on year. Most small scale poultry producers are our customers as we have earned their confidence with consistent delivery of quality products with no variations in nutrition standards. We continue to expand our operation to meet market requirements. The Feed Mill has been refurbished and debottlenecked prior to the implementation of an expansion programme planned for 2011-2013. In the poultry sector too, our expansion programme is on track, keeping in mind bio-security and animal welfare standards. All chicken houses are environmentally controlled with automatic feed and water delivery systems.
In the Dairy sector, our programme to upgrade the herd of buffaloes at Hingurakgoda is near fruition. The new Farms at Siddhapura and Muthuwella continue to be operated on a low key as the lease agreements are yet to be completed. The Government is hesitant to allocate this land to us and has suggested a lesser extent than what was allocated earlier, to which we have agreed. The necessary documentation in this regard is now being processed.
In the fertilizer sector, our theatre of operations remains in tea, rubber, coconut and vegetables. The paddy sector is serviced by the Governmentowned companies in its entirety. As highlighted in the previous year the computation and quantum of subsidy caused innumerable problems to the private sector due to pilferage from the paddy sector which carried a subsidy level of near 90%. The Government has now moved to close these loopholes exploited by unscrupulous persons thus making the playing field more level for the future. A decision has now been made to grant an expanded subsidy to all other sectors narrowing the differential. The larger problem however, was the delay in the reimbursement of subsidy to fertilizer importers. Once again we have received assurances that the subsidy would be paid within the suppliers' credit period. All these measures augur well for the fertilizer business which delivered acceptable results during the current year.
Other subsidiaries in the Group are CIC Cropguard (Private) Limited, Link Natural Products (Private) Limited, Chemanex PLC, Cisco Speciality Packaging (Private) Limited and Crop Management Services (Private) Limited. Cropguard successfully launched a number of new molecules thus propelling our Pesticides business to the number one slot in the market. With further new products in the pipeline we should see a significant improvement in the Company and the overall pesticides business. Crop Management Services remained an investment entity and performed as expected.
Link Natural Products, our herbal remedy company has come of age and continues to unveil new herbal products for the local and export markets. Our products draw on the 2000 year ayurvedic tradition and the herbal and plant diversity that has been part of the Sri Lankan heritage since time immemorial. In order to improve our offering we need to infuse substantial capital to this operation. We are exploring options in this regard to infuse funds in short-term.
Cisco Speciality Packaging (Private) Limited has also recorded a growth and benefitted from the expansion that is taking place in the economy. The new Sidel Blow-Moulding machine installed in the premises of a premier customer performed satisfactorily with capacity utilisation as planned.
Chemanex PLC, our subsidiary, reported reasonable results for the past year given that exports had to contend with a strong rupee and escalating raw material prices. The Joint Venture we formed with them to manufacture intermediate chemicals which would then be converted to a Super Absorbent is yet to get off the ground, due largely to delays in procuring equipment and carrying out the necessary modifications to them. The first stage will be operational by July this year, while the second stage requires a larger extent of land than envisaged earlier due to safety considerations.
Our associate company, Akzo Nobel Paints Lanka (Private) Limited has been re-invigorated with technological innovations from our principals. With the growth in the construction industry the short and medium-term prospects for this Company remain exciting even with heightened competition. Akzo, the leading Paint Company in the world is poised to enhance market share even though we are currently the market leader.
In the FMCG area, Johnson & Johnson continues to enhance its presence. They have added a number of new products such as the Neutrogena range, which has helped enhance turnover. We anticipate continuing market support by J & J India who overlooks the operation in Sri Lanka, coupled with a large investment in order to enhance their market position. The business has increased its contribution both in terms of turnover and profitability for the year.
Our Pharmaceuticals & Consumer product range made a substantial contribution with many of the new products introduced during the year performing well above expectations. The Residual Chemicals business improved both in terms of turnover and profit with a substantial gain in the pesticides business related to Syngenta. The performance of the pesticides masked the changes in the industrial chemicals business where continuous attrition is taking place replacing products offering low margins with more profitable products leveraging our relationship with longstanding customers.
In February this year, we declared an Interim Dividend of Rs. 0.75 per share. The Directors now recommend a Final Dividend of Rs. 2.00 per share bringing the total dividend paid to Rs. 2.75 per share.
Mr. R.N. Asirwatham, a Senior Chartered Accountant with varied experience both as an Auditor and a Senior Director of large corporates joined the Board on 30th June 2010. I take this opportunity to welcome him to the Board of Directors.
My thanks to the Managing Director and the management team for their effort during the past year. They have done a tremendous job in placing CIC on a solid foundation and an exciting trajectory of growth. I would like to thank the Board for their dedication, guidance and insights. The employees too have shown high levels of dynamism and commitment and it is they who have made these results possible. I say a warm word of thanks to all of them. We continue to improve our services and deliver value to all our stakeholders. I thank our business partners and our shareholders for the support extended to us and look forward to another rewarding year.
B.R.L. Fernando
Chairman
20th May 2011 Page Top
The year under review could be described as a year when Sri Lanka enjoyed the first peace dividend after near 30 years of internal strife and a costly insurrection. The country is once again an oasis of peace in a turbulent world renewing hope and aspirations thus reawakening the nation encompassing all communities. Consequently, the year 2010 witnessed the growth of the economy by 8% which is perhaps the highest growth rate achieved during last two decades.
The key sectors of the economy contributed to this growth with Government setting the tone for the resurgence of village communities with a helping hand to rural agricultural Sri Lanka coupled with infrastructure development. The Hambantota Harbour, expansion of the Colombo Port, rehabilitation of the road and rail networks undertaken with a sense of urgency will add momentum to help the economy to deliver to its potential. Global market conditions too contributed to the above growth rate as tea and rubber prices recorded historic highs with demand for Sri Lankan-made garments improving by near 30%. Stability and peace also had a positive impact on tourist arrivals. Mobile and Internet connectivity improvements underscored the current and future growth potential of the services sector.
Unemployment too dipped to its lowest suggesting that Sri Lanka would not be a destination for cheap labour and also highlighting the need for pursuing productivity and greater value addition. The Government's initiatives on education sit comfortably with Internet connectivity, which would radically change the opportunities available to young people.
The Global economy recorded a modest improvement with substantial contributions by India and China. Increasing commodity prices including energy are challenges, countries such as Sri Lanka need to face in the short term. Crude oil and raw material price increases are bound to add further stress on our balance of payments. Accordingly, we will need to make headway in indices with negative connotations, such as ease of doing business in the country, corruption, environmental management, accountability, transparency, etc. in order to attract foreign direct investment. Increases in exports and productivity improvements would have to be pursued with renewed vigor. Our industry and agriculture should be made ready to face greater competitive pressures.
The year is certainly a landmark in the Company's history with the achievement of a Group post-tax profit of Rs. 1.17 billion which represents an increase of 57% in profit in comparison to the previous year. Group turnover recorded an increase of Rs. 4.4 billion or 26.7% over last year's performance. Animal feed, poultry, agriculture and food oriented businesses provided the bulk of the increases. The Group benefited to an extent of Rs. 188 million with the reduction in interest rates and invested Rs. 33 million in agricultural research excluding extension services.
CIC Holdings PLC, the Company, recorded an increase in post-tax profit of Rs. 64.7 million or 18.9% in comparison to the previous year. Turnover increased by Rs. 1.4 billion or 40% with Crop Solutions, Consumer & Healthcare gathering growth momentum.
The year also saw the implementation of the identity change, which we contemplated over a period. The name change of the Company to CIC Holdings PLC was approved by our shareholders in December last year. The Company is no longer referred to as the paint or chemical company, but it is now being identified largely with rural agriculture, poultry and animal feeds. In making the name change the positive attributes of the CIC Brand associated with quality, humanity and value for money connotations has been retained for the future. The Company logo has been redesigned to reflect the new impetus to agriculture thus breaking the historical affinity to ICI our original founder shareholder.
We continue to set new standards in production and management in the agri sector. Our animal feeds and the chicken carry quality parameters meeting high food safety standards, having obtained ISO 22000 Food & Safety Management System Certification. The rice that we produce at our state-of-the-art rice mill at Maho has had no difficulty in entering new markets once again with ISO 22000 Certification of the processing facility. Our rice is exported to Australia, Germany, France and USA to name a few markets. We continue to invest in Research & Development (R&D) in areas such as new rice varieties, improved vegetable seed production, fruit cultivation and generation of planting material. In order to be benchmarked with global producers we have sought and obtained Membership of the International Seed Testing Association. During the year, we commissioned a seed coating facility at Dambulla thus adding further value to our many customers. With this innovation, we have enhanced our position as the market leader in this sector and have enhanced the respect and confidence of the rural and plantation communities who use our products. We have also provided a window to the rural agricultural sector to link with the sophisticated consumers in Colombo and Kandy with our Fresheez and Juiceez outlets.
The Company has laid the foundation for the development of a strong agribusiness industry in the country which has both acceptance and potential. CIC is poised to unravel this potential for the benefit of the country, rural agricultural producers and itself. Global food production is projected as needing an increase of 70% by 2030 if the world is to be kept fed. This is a tall order given the fact that agricultural land continues to shrink with urbanisation. The availability of fertilizer a vital input linked to oil at an affordable price is suspect. Research & Development and technological innovations enhancing yields from diminishing resources seems the way forward. We contribute to these goals in large measure. The Company continues to invest in technologies available for adoption globally. We are also conscious of the need to be less weather dependent and consequently strive to manage water. We have ongoing research programmes on water management, soil management, delivery systems, to improve fertilizer utilisation and also organic inputs. Post-harvest loss reduction, transport, cold rooms and packaging are other areas receiving our attention. As highlighted earlier we have spent over Rs. 33 million on direct R&D during the year. A highly respected Bangladeshi company having visited our farms invited us to their country to replicate our model in Bangladesh. We have signed an agreement to form a joint venture company in Bangladesh titled 'Rahimafrooz CIC Agri', to replicate our agricultural model in that country. On the value addition front to agricultural produce our investments in Link Natural Products, Kelani Valley Canneries and a bought leaf tea factory in Kalawana remain the main areas of focus.
The Feed Mill which we purchased from Cargill of USA has continued to deliver profits year on year. Most small scale poultry producers are our customers as we have earned their confidence with consistent delivery of quality products with no variations in nutrition standards. We continue to expand our operation to meet market requirements. The Feed Mill has been refurbished and debottlenecked prior to the implementation of an expansion programme planned for 2011-2013. In the poultry sector too, our expansion programme is on track, keeping in mind bio-security and animal welfare standards. All chicken houses are environmentally controlled with automatic feed and water delivery systems.
In the Dairy sector, our programme to upgrade the herd of buffaloes at Hingurakgoda is near fruition. The new Farms at Siddhapura and Muthuwella continue to be operated on a low key as the lease agreements are yet to be completed. The Government is hesitant to allocate this land to us and has suggested a lesser extent than what was allocated earlier, to which we have agreed. The necessary documentation in this regard is now being processed.
In the fertilizer sector, our theatre of operations remains in tea, rubber, coconut and vegetables. The paddy sector is serviced by the Governmentowned companies in its entirety. As highlighted in the previous year the computation and quantum of subsidy caused innumerable problems to the private sector due to pilferage from the paddy sector which carried a subsidy level of near 90%. The Government has now moved to close these loopholes exploited by unscrupulous persons thus making the playing field more level for the future. A decision has now been made to grant an expanded subsidy to all other sectors narrowing the differential. The larger problem however, was the delay in the reimbursement of subsidy to fertilizer importers. Once again we have received assurances that the subsidy would be paid within the suppliers' credit period. All these measures augur well for the fertilizer business which delivered acceptable results during the current year.
Other subsidiaries in the Group are CIC Cropguard (Private) Limited, Link Natural Products (Private) Limited, Chemanex PLC, Cisco Speciality Packaging (Private) Limited and Crop Management Services (Private) Limited. Cropguard successfully launched a number of new molecules thus propelling our Pesticides business to the number one slot in the market. With further new products in the pipeline we should see a significant improvement in the Company and the overall pesticides business. Crop Management Services remained an investment entity and performed as expected.
Link Natural Products, our herbal remedy company has come of age and continues to unveil new herbal products for the local and export markets. Our products draw on the 2000 year ayurvedic tradition and the herbal and plant diversity that has been part of the Sri Lankan heritage since time immemorial. In order to improve our offering we need to infuse substantial capital to this operation. We are exploring options in this regard to infuse funds in short-term.
Cisco Speciality Packaging (Private) Limited has also recorded a growth and benefitted from the expansion that is taking place in the economy. The new Sidel Blow-Moulding machine installed in the premises of a premier customer performed satisfactorily with capacity utilisation as planned.
Chemanex PLC, our subsidiary, reported reasonable results for the past year given that exports had to contend with a strong rupee and escalating raw material prices. The Joint Venture we formed with them to manufacture intermediate chemicals which would then be converted to a Super Absorbent is yet to get off the ground, due largely to delays in procuring equipment and carrying out the necessary modifications to them. The first stage will be operational by July this year, while the second stage requires a larger extent of land than envisaged earlier due to safety considerations.
Our associate company, Akzo Nobel Paints Lanka (Private) Limited has been re-invigorated with technological innovations from our principals. With the growth in the construction industry the short and medium-term prospects for this Company remain exciting even with heightened competition. Akzo, the leading Paint Company in the world is poised to enhance market share even though we are currently the market leader.
In the FMCG area, Johnson & Johnson continues to enhance its presence. They have added a number of new products such as the Neutrogena range, which has helped enhance turnover. We anticipate continuing market support by J & J India who overlooks the operation in Sri Lanka, coupled with a large investment in order to enhance their market position. The business has increased its contribution both in terms of turnover and profitability for the year.
Our Pharmaceuticals & Consumer product range made a substantial contribution with many of the new products introduced during the year performing well above expectations. The Residual Chemicals business improved both in terms of turnover and profit with a substantial gain in the pesticides business related to Syngenta. The performance of the pesticides masked the changes in the industrial chemicals business where continuous attrition is taking place replacing products offering low margins with more profitable products leveraging our relationship with longstanding customers.
In February this year, we declared an Interim Dividend of Rs. 0.75 per share. The Directors now recommend a Final Dividend of Rs. 2.00 per share bringing the total dividend paid to Rs. 2.75 per share.
Mr. R.N. Asirwatham, a Senior Chartered Accountant with varied experience both as an Auditor and a Senior Director of large corporates joined the Board on 30th June 2010. I take this opportunity to welcome him to the Board of Directors.
My thanks to the Managing Director and the management team for their effort during the past year. They have done a tremendous job in placing CIC on a solid foundation and an exciting trajectory of growth. I would like to thank the Board for their dedication, guidance and insights. The employees too have shown high levels of dynamism and commitment and it is they who have made these results possible. I say a warm word of thanks to all of them. We continue to improve our services and deliver value to all our stakeholders. I thank our business partners and our shareholders for the support extended to us and look forward to another rewarding year.
B.R.L. Fernando
Chairman
20th May 2011 Page Top
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