CEO’s Review

Despite the fact that lower standard or inferior quality products have always been a threat, the strategic brand promotional exercises of the company have resulted in an increasingly larger percentage of the citizens of Sri Lanka establishing within their minds the fact that “Isi was salt and salt was Isi”.

The Country is in state of comparative volatility

The year-under-review has been one that saw political, economic and social upheaval with the larger body of the citizenry left in a state of comparative confusion. There was an increasing sense of disconnect among them as well as real and imagined exposure to various societal vulnerabilities resulting in both economic and social risk aversion. This was compounded by reciprocally volatile global socioeconomics. Within that climate of doubt, the vulnerability of Sri Lanka’s economy to these types of impact parameters became increasingly visible during the year-under-review with real economic growth being 3.2% compared to 3.4% during the previous year which was a drop of 5.9% YoY. Service sector growth of 4.7% was the chief contributor to this growth while it was heartening to see that the agriculture sector recovered with a growth of 4.8% YoY. This is particularly important to FMCGs where the recovery of the sector that has largest grassroots percentage of livelihoods increases their purchase power and implicitly drives sales.

A great harvest of salt

In the salt sector, production remained comparable to the previous year and resulted in an increase in stocks at the salterns dotting the country leading to a shrinking of margins. Despite the fact that lower standard or inferior quality products have always been a threat, the strategic brand promotional exercises of the company have resulted in an

increasingly larger percentage of the citizens of Sri Lanka establishing within their minds the fact that “Isi was salt and salt was Isi”. This is a very significant victory for the company and a harbinger of far better operational and marketing futures for its product portfolio.

Our business operations – our strength

The company operates the main salt refinery, the crystal salt plant, the pure vacuum dried (PVD) salt plant and two salterns upon a 131-acre parcel of land in the Puttalam district. Its fully owned subsidiary, Southern Salt Company (Pvt) Limited operates a salt refinery and a saltern on 204 acres at Bataatha in the Hambantota district. The two main product lines are salt for direct domestic consumption and salt for industrial use. Despite the fact that your company is the largest producer of value added salt, given its significant presence in the market, the group’s own supplies are still unable to cater to the demand and therefore, supply is ensured via the purchase of raw materials in significant quantities at competitive prices from external suppliers. In that respect, since raw salt prices were depressed during the year-under-review given high harvests, there was a comparatively positive impact on the cost of production of your company’s primary product of free-flow table salt.

One of the most significant supportive factors for positioning the products of your company at the top of the minds of consumers is the fact that they are

marketed under the umbrella brand “Raigam” which is one of the most highly respected food commodity FMCGs in Sri Lanka. Overall distribution logistics costs as well as branding and marketing costs have therefore been kept at far lower levels than the competition resulting in stronger, cheaper product penetration strategies from your company.

Our standards – our assurance to the consumer

As a business entity dependent upon its own food manufacturing processes spread out across the country, your company, adhering to the highest business ethics, legal mandates and social standards, is an ISO 9001 (2016) certified company that has made process, environment and safety part of the very DNA of its existence. These standards as well as the network of finance, logistics, human resource and IT services have been the reason why it is seen as one of the most trustworthy businesses in the country and national proof of this, we are proud to note, came in the highest form possible - by Raigam Wayamba Salterns PLC winning the gold award at the National Business Excellence Awards of 2018 for the Manufacturing Food and Beverages sector for the second year running, proving our continued commitment to product excellence and optimized organizational culture and processes.

Multiple dependencies impact bottom lines but multiple counter efforts neutralize the fiscal negatives

The group recorded a turnover of Rs. 744.2 million down from Rs. 791.5 million for the previous year which is a drop of 6% YoY. We earned a pretax profit of Rs. 141.7 million on that turnover as compared to the pretax profit of Rs. 185.0 million earned in the preceding year. Profit after tax dropped by Rs. 44.3 million to Rs.103.8 million down from Rs. 148.2 million during the previous year. The earnings per share dropped to Rs. 0.37 compared to Rs. 0.53 in the previous year.

However, I am pleased to note that while the continuing upward trend in revenue and the results of the “golden year” of 2017/2018 could not be maintained during the year under review due to the dependencies mentioned earlier, massive efforts in branding have significantly increase brand retention on the part of consumers with increasing numbers turning to the primary brand as their preferred choice when purchasing salt while our R&D efforts have yielded many positive outcomes to position your company to move forwards more durable and more stable than it has ever been.

Additionally, a management team that has perennially been focused on managing funds due to the comparative volatility of the sector has been even more so during the year under review. This can be best seen by the fact that net assets per share increased to Rs. 4.26 over Rs. 3.96 during the previous year giving a clear indication of asset growth and overall stability. However, given the issues related to money markets in general in Sri Lanka as well as its overall economic woes, investors fought shy across the trading floor affecting your company as well and resulting in a drop of the share price from Rs. 2.40 to Rs. 1.90 YoY. Market value stood at Rs. 536.2 million over 677.3 million YoY.

Taxes have increased

Our income tax expense for the year under review amounted to Rs. 37.9 million compared to Rs. 36.8 million during the previous year. According to the agreement entered into by the company with the Board of Investment of Sri Lanka, the profits arising from operations are taxable at a concessionary rate of 20%. As per the regulations gazetted by the Hon. Minister of Finance on 1st April 2018 to give effect to transitional provisions under the new Inland Revenue Act, the company is eligible to continue with the beneficial rate of tax despite removal of most of the tax concessions by the new Act.

With the new Inland Revenue Act coming into force, we are compelled to account for a deferred tax liability that would arise if we were to dispose of the land & buildings housing the plant. The deferred tax liability was calculated on the difference in value between the most recent valuation and the cost of acquisition. As mandated by Accounting Standards, the relevant provision amounting to Rs. 2.4 million is reflected in the Statement of Other Comprehensive Income.

Considering the heavy capital outlay ahead, your Board deemed it is appropriate to maintain an adequate level of liquidity and reserves. However the Board has proposed a first and final dividend of Rs. 0.05 per share for the year amounting to Rs. 14.1 million which is 17.5% of after tax profit.

Charting the salt-story into the year ahead

Although the year ahead is an election year and given current situational realities, the outcomes of those elections might certainly affect the overall economy and entrepreneurial environment, I must underscore the fact that the primary product of your country is one that is not only essential to the citizens of Sri Lanka but which must also be at a quality level that allows them to trust its source. Against that reality, I am proud to say that we are significantly pushing aside the low and inferior quality market with the proven increase in trust of the "Isi" brand and therefore, with are capable management team and farsighted fiscal management, we are well positioned to capture a significant share of the market in the year to come and we are grateful in the strong trust and confidence that you, our most valued shareholders have put into the company. While the year under review could not meet the performance of the two preceding years as a part of the natural dynamics of a volatile market, and despite the fact that the FMCG sector including the F&B sector is envisaged to remain under pressure, we are confident that with the depletion of existing buffers, the price will improve. However, your company is proud to have positioned itself to move beyond price competition in narrower niches and has expanded its portfolio to reduce its exposure to such external dependencies and increase its overall profits

Very special thanks for our outgoing CEO

While I have taken over at the helm of the company since 01 August 2019, our outgoing CEO Mr. Ganaka Amarasinghe headed up your organization over the last four years. First, I extend my warmest thanks to Mr. Ganaka Amarasinghe for building up the company to this level and making my future tenure and the financial futures of our valued stakeholders and partners completely secure.

I join with Mr. Amarasinghe in extending my heartfelt thanks to the very driven team led by its talented, skilled, farsighted senior managers who have supported us with unstinted loyalty as well as gratefully thanking our distributors, dealers including modern trade operators and consumers who have contributed to our success, and, sincerely thanking you, our loyal shareholders for us to direct your company. I commit to doing my utmost to take your company into a stable, sustainable, successful and mutual rewarding future.

Finally, I wish to extend my gratitude to the management teams of the parent company and other sister companies of Raigam Group for their excellent support and Chairman and my colleagues on the Board for their direction and valuable guidance to perform my role successfully

Kishan Rohana Theodore

Executive Director / CEO 23 August 2019