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Dear Shareholder It was an extremely challenging year for the CIC Group amidst tough economic conditions, which saw Sri Lanka’s GDP growth slowed to 3.1% in 2017. The country’s agriculture sector remained in distress due to persistent adverse weather for the second consecutive year. The spillover effects of bad weather impacted other sectors of the economy as well, most notably the industry and services sectors, where growth indicators for 2017 remained more or less static compared to the previous year. Inflation remained high as did interest rates. Meanwhile the decision by the government to allow the free float of the Rupee saw the currency begin to depreciate from about September 2017, bringing severe pressure on many companies within the CIC Group due to their heavy reliance on raw material imports. ADJUSTING TO CHANGE Before I proceed to review the performance for the year, let me briefly recap some key events in the recent past that have a significant bearing on results for the 2017/18 financial year. As you may recall the CIC Group underwent a fairly significant restructuring a few years ago, to be precise in 2013/14 where as a result the Group reported a significant loss of Rs. 1.1 Bn at the end of that year. However stemming from this effort, the Group made a turnaround and succeeded
in delivering an outstanding performance in the years that followed, tabling PBIT of Rs. 2.1 Bn in 2014/15 and an even better result of Rs. 2.7 Bn in 2015/16. Not to be complacent and more importantly to overcome the deteriorating market conditions in 2017, we looked to further refine our 2014 restructuring effort in order to shape up for the future. With deteriorating market conditions continuing to affect the prospects of many of our businesses, we felt it is imperative that the Group is structured to respond more effectively to the changing market dynamics and embarked on “CIC re-strategizing 2020”, a re-calibrating exercise aimed at creating a more efficient and fluid organisation. Following much introspection we began the task of de-layering our operations to enhance our competitive position in each of our chosen industries. Given our intention to right size the business, we were compelled to take on serious losses as we made some tough but necessary decisions to re-scale certain businesses, while exiting from yet others that did not demonstrate the potential to generate a sustainable return in the future. The re-strategizing exercise was also accompanied by a Group-wide VRS scheme, which proved to be a further draw-down on the Group profits for the year under review. Consequently, the losses incurred as a result of the re-strategizing and the VRS together saw the Group’s PBIT decline to Rs. 1.3 Bn in 2017/18. Nonetheless, I remain confident that the savings generated as a result of the VRS and the closure of the loss making businesses would go on to enhance GP margins in the near-term and in turn contribute towards a consistent improvement in the bottom line, going forward. STRENGTHENING GOVERNANCE I am pleased to note that while early progress against our strategy has been encouraging, we continued to focus diligently on advancing our governance frameworks to ensure proper oversight for the planned execution of our strategy. Throughout the year the Board and its various committees engaged with executive teams to keep the momentum in implementing the “CIC re-strategizing 2020” initiative. This included strengthening the strategy review process, with a strong emphasis on effective execution, reviewing the allocation and need for resources and supporting the management to deliver on our promises to stakeholders. I firmly believe that these efforts too will produce more focused businesses that will help the Group to secure leadership in these respective industries. PARTNERING FOR INNOVATION Innovation has been the cornerstone of the Group’s success. Since the inception, CIC has been credited with numerous firsts and even today remains unchallenged in many spheres. I must acknowledge that our ability to stay on top of the innovation spectrum has largely been pivoted on our strategic partnerships with the relevant government authorities and our relationships with long-standing principals, all of who are top multinationals and leaders in their respective fields. As we look to accelerate our new strategic journey, we remain focused on deepening these ties with existing business partners and also actively sourcing new relationships to give us access to more compelling and innovative products that would transform the lives and businesses of our customers. MOVING FORWARD While the country forecast for the coming year remains uncertain, given the tough decisions that were taken during the year, I am confident that the CIC Group is on track to achieve significant profits in the years ahead. As the “CIC re-strategizing 2020” continues to play out, our simplified operating structure will enable us to work more efficiently and with a lower cost base, in turn enhancing our competitive position in the long-term. Hence I look forward to the future with a great deal of enthusiasm for I believe the Group is now well placed to continue to grow in 2018 and beyond
in delivering an outstanding performance in the years that followed, tabling PBIT of Rs. 2.1 Bn in 2014/15 and an even better result of Rs. 2.7 Bn in 2015/16. Not to be complacent and more importantly to overcome the deteriorating market conditions in 2017, we looked to further refine our 2014 restructuring effort in order to shape up for the future. With deteriorating market conditions continuing to affect the prospects of many of our businesses, we felt it is imperative that the Group is structured to respond more effectively to the changing market dynamics and embarked on “CIC re-strategizing 2020”, a re-calibrating exercise aimed at creating a more efficient and fluid organisation. Following much introspection we began the task of de-layering our operations to enhance our competitive position in each of our chosen industries. Given our intention to right size the business, we were compelled to take on serious losses as we made some tough but necessary decisions to re-scale certain businesses, while exiting from yet others that did not demonstrate the potential to generate a sustainable return in the future. The re-strategizing exercise was also accompanied by a Group-wide VRS scheme, which proved to be a further draw-down on the Group profits for the year under review. Consequently, the losses incurred as a result of the re-strategizing and the VRS together saw the Group’s PBIT decline to Rs. 1.3 Bn in 2017/18. Nonetheless, I remain confident that the savings generated as a result of the VRS and the closure of the loss making businesses would go on to enhance GP margins in the near-term and in turn contribute towards a consistent improvement in the bottom line, going forward. STRENGTHENING GOVERNANCE I am pleased to note that while early progress against our strategy has been encouraging, we continued to focus diligently on advancing our governance frameworks to ensure proper oversight for the planned execution of our strategy. Throughout the year the Board and its various committees engaged with executive teams to keep the momentum in implementing the “CIC re-strategizing 2020” initiative. This included strengthening the strategy review process, with a strong emphasis on effective execution, reviewing the allocation and need for resources and supporting the management to deliver on our promises to stakeholders. I firmly believe that these efforts too will produce more focused businesses that will help the Group to secure leadership in these respective industries. PARTNERING FOR INNOVATION Innovation has been the cornerstone of the Group’s success. Since the inception, CIC has been credited with numerous firsts and even today remains unchallenged in many spheres. I must acknowledge that our ability to stay on top of the innovation spectrum has largely been pivoted on our strategic partnerships with the relevant government authorities and our relationships with long-standing principals, all of who are top multinationals and leaders in their respective fields. As we look to accelerate our new strategic journey, we remain focused on deepening these ties with existing business partners and also actively sourcing new relationships to give us access to more compelling and innovative products that would transform the lives and businesses of our customers. MOVING FORWARD While the country forecast for the coming year remains uncertain, given the tough decisions that were taken during the year, I am confident that the CIC Group is on track to achieve significant profits in the years ahead. As the “CIC re-strategizing 2020” continues to play out, our simplified operating structure will enable us to work more efficiently and with a lower cost base, in turn enhancing our competitive position in the long-term. Hence I look forward to the future with a great deal of enthusiasm for I believe the Group is now well placed to continue to grow in 2018 and beyond
