MD's Message

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It is indeed a pleasure to place before you the performance of the Company and its subsidiaries for the financial year ending 31 March 2015, a year in which the Group's mettle was tested by a challenging industry landscape. The Group demonstrated strong resilience to achieve a top line growth of 10.8% whereas total pre-tax profit for the year was LKR 161.70 million, translating to Earnings Per Share of LKR 0.42. ASC and its subsidiaries achieved broad-based expansion in all its key business lines, as we pursued a focussed and strategic approach towards growth.

Industry landscape in 2014/15…

Sri Lanka's tea production levels remained largely unchanged over the previous year, upheld by increased production of Low and High-grown varieties during the latter part of the year. The prevalent external market conditions however, posed multiple challenges for the industry, as several major consuming markets experienced geopolitical and economic turmoil. Demand from Middle East and North Africa, Sri Lanka's largest export region, dwindled during the year, attributed mainly to the sharp drop in oil prices and international political factors. Meanwhile, declining oil revenue, depreciation of the Russian Ruble amid economic sanctions affected demand from Russia and the Commonwealth of Independent States. Resultantly, tea prices started to decline from the third quarter of 2014 continuing its downward spiral for the first half of 2015. Meanwhile, the country's rubber industry also experienced a difficult year, as production fell due to unfavourable weather conditions whilst global demand contracted due to stock piling in key rubber consuming economies. The coconut industry rebounded during the year with increased production in most related products such as desiccated coconut, coconut cream and milk whilst prices moved upwards in line with increased export demand amidst global supply shortages. Meanwhile, production of minor export crops (including pepper, nutmeg and cloves) recorded a downturn during the year due to non-conducive climatic conditions.

Creating Value to our Stakeholders…

We consistently strive to improve the readability of our Annual report, and this year we have enhanced the quality of our report by adopting a value creation approach when presenting the relevant information. We believe this method of reporting is more appropriate to our operations, since ASC has strived to differentiate itself from competitive pressures through value addition to our customers and other stakeholders.

From a customer perspective, we endeavour to provide support to our customers throughout the entire production and sales process. These value added services include providing research and advisory on a range of aspects, modern warehousing facilities and financial support. During the year under review, we further widened the scope of our research capabilities in order to provide more in-depth, timely and comprehensive information to our customers, enabling factories to modify their production to manufacture teas that are, and will be in demand. Having long-since recognised the importance of ensuring quality across the entire value chain, we obtained ISO HACCP certification for the tea sampling room.

Apart from our customers, the Group plays a pertinent role in actively engaging industry stakeholders and contributing towards ensuring the long-term sustainability of the Sri Lankan tea industry. Our employees actively contributed time and effort to several promotional initiatives of the Tea Board of Sri Lanka and Colombo Tea Traders Association. The Group's dynamic workforce is the key driving factor behind our success, and our value proposition to them includes investment in skill development and training, opportunities for career progression, attractive financial and non-financial incentives as well as year-round work-life balance initiatives which build fellowship and motivation.

Resilient Performance in 2014/15

Despite both tea and rubber industries experiencing a difficult year, the Group was able to successfully withstand challenges presented to grow its top line by 10.8% to LKR 607.40 million during the year. Performance was upheld primarily due to the diversity in the Group's earnings profile, which enables it to mitigate its exposure to the relatively volatile tea and commodity sectors. Revenue expansion was broad-based with all key sectors of broking (+7.2%), warehousing (+11.0%) and financial services (+13.5%) recording commendable growth. Operating expenses increased 18.6% during the year, as the Group invested in capacity building initiatives, primarily in the warehousing business line and the tea sampling centre. Meanwhile, supported by tight treasury management we successfully optimised finance cost. Overall, the Group's pre-tax profits remained relatively unchanged over the previous year at LKR 161.70 million (2013/14: LKR 164.15 million).

Forward Outlook

Over the short-to-medium term we will seek to increase the diversity of our earnings profile whilst maintaining focus on our key competencies. Accordingly plans are underway to embark on the construction of a second warehousing facility which is expected to double the Group's warehousing capacity and significantly boost the bottom line. Construction will commence in September 2015 and the facility is expected to be operational during the next financial year.

Acknowledgements

I would like to extend my utmost gratitude to the Chairman, Dr. Anura Ekanayake and my colleagues on the Board for their valuable counsel, unstinted support, and continued confidence in me. I sincerely appreciate all efforts of our Siyaka Workforce who have always been a source of inspiration. My gratitude also goes out to all our customers, buyers, regulatory authorities, government and all other stakeholders for their continued support.