Lanka Ceramic : Annual Report for 2023/2024

LANKA CERAMIC PLC

Annual Report 2023/24

CONTENTS

About Us	03
Operational Highlights	04
Financial Highlights	05
Reflections from the Chairman	07
Managing Director's Review	09
Board of Directors	11
Management Discussion and Analysis	16
Risk Management	30
Corporate Governance	34
Annual Report of the Board of Directors on the Affairs of the Company	45
Statement of Directors' Responsibility	50
Audit Committee Report	51
Remuneration Committee Report	52
Related Party Transactions Review Committee Report	53
Financial Calendar	55
Independent Auditor's Report	56
Statement of Financial Position	59
Statement of Profit or Loss and Other Comprehensive Income	60
Statement of Changes in Equity	61
Statement of Cash Flows	63
Notes to the Financial Statements	64
Company Ten Year Summary	97
Group Value Added Statement	98
Shareholder and Investor Information	99
Notice of Meeting	101
Notes	102
Form of Proxy	103

"At Lanka Ceramic, we work towards creating a positive social and environmental impact through every milestone we reach. We believe that our main responsibility is to leave our successor generation a meaningful future. Our best achievement is when our belief is put into action."

"We evaluate our performance and the success of our strategy and business model by utilising Key Performance Indicators. We have chosen to measure these Key Performance Indicators because we believe they best demonstrate how we are driving the business and creating value for our stakeholders"

Lanka Ceramic PLC

PLC CERAMIC LANKA 2023/24 REPORT ANNUAL

OVERVIEW

ABOUT US	03
OPERATIONAL HIGHLIGHTS	04
FINANCIAL HIGHLIGHTS	05

LANKA CERAMIC PLC

ANNUAL REPORT 2023/24

ABOUT US

Lanka Ceramic PLC (The Company) is a front-runner in mining and supplying of high quality raw materials to the ceramic industry of Sri Lanka.

OUR CORE STRENGTHS

INDUSTRY EXPERTISE

The Lanka Ceramic Ltd. established in 1990, now known as Lanka Ceramic PLC was converted to a public limited Company on 07th April 1993.

• Immediate parent is Royal Ceramics Lanka PLC and ultimate parent is Vallibel One PLC
• Partially meeting the high quality raw material requirement of the two largest domestic tile manufacturers in Sri Lanka
• Structured and well-established processes, following all applicable standards covering multiple aspects such as safety in operations, employee well-being, environmental impact, etc.
• Owning an investment property in a prime location of the Country

OUR CORE OPERATIONS

Mining

• Feldspar in Owala, Matale District of Central Province
• Kaolin in Meetiyagoda, Galle District of Southern Province.*

Other operations

• Importation of sanitaryware*
• Investment property management
• Managing operations of a tile outlet as a franchise partner with Lanka Tiles PLC

*Operations discontinued during the financial year ended 31st March 2024 as a part of the Company's strategic restructuring measures.

TOTAL ASSETS

Rs.1.5Bn

NET ASSET VALUE PER

SHARE

Rs.174

OUR FINANCIAL STRENGTH

TOTAL EQUITY

REVENUE

PROFIT BEFORE TAX

Rs.1Bn Rs.217Mn Rs.100Mn

OUR EMPLOYEE BASE: 48

OUR COMMITMENT TO ENVIRONMENTAL AND SOCIAL RESPONSIBILITY: We are committed to creating a positive social and environmental impact through every milestone we reach. We believe that our main responsibility is to leave our successor generation a meaningful future.

PLC CERAMIC LANKA 2023/24 REPORT ANNUAL

OPERATIONAL HIGHLIGHTS

Revenue

(Rs. Mn)

2023/24				217.47
2022/23
						446.81
2021/22						427.69
2020/21
		121.27
0	100	200	300	400	500

Prot before Tax

(Rs. Mn)

2023/24 99.52

2022/2337.11

2021/22						121.82
2020/21			75.91
0	30	60	90	120	150

Feldspar Mine - Owala

Sales (Rs. Mn)

2023/24 209.43

2022/23				178.37
2021/22			115.45
2020/21		72.45
0	50	100	150	200	250

Share Price

(Rs.)

150
	122.75
100	110
100	99.10

50

2020/21

2021/22

2022/23

2023/24

Composition of Revenue

(Rs.Mn)					279.25
300						221.23
250						178.37	209.43
200				115.45
150	72.45
100	37.37		32.98		47.21
50	11.44		8.04
0
2020/21	2021/22	2022/23	2023/24
			Feldspar	Kaolin		Sanitaryware

Prot After Tax

(Rs. Mn)

2023/24											89.24
2022/23 - 44.21
2021/22
									75.45
2020/21									67.84
-60	-40	-20	0	20	40	60	80	100

Mined Output - Owala

(MT)

2023/24 33,214

2022/23				29,850
2021/22
		29,125
2020/21
	19,047

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

Net Asset Value Per Share

(Rs.)

2023/24 173.81

2022/23				161.77
2021/22
				175.01
2020/21				161.68
0	50	100	150	200

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FINANCIAL HIGHLIGHTS

GROUP AT A GLANCE

For the year ended 31st March	2023/24	2022/23	Variance
	Rs	Rs	%
PROFITABILITY
Revenue	217,474,862	446,814,848	-51%
Gross Profit	67,967,849	94,906,648	-28%
Profit Before Tax	99,517,782	37,112,864	168%
Profit/(loss) After Tax	89,241,420	(44,209,974)	302%
FINANCIAL POSITION
Investment Property	1,043,904,000	999,260,800	4%
Non-Current Assets	1,381,232,428	1,359,336,211	2%
Current Assets	146,104,918	272,615,540	-46%
Current Liabilities	118,927,292	314,699,908	-62%
KEY INDICATORS
Dividend Pay-Out Ratio (%)	16.81	-
Interest Cover (Times)	3.74	1.66
Current Ratio	1.23:1	0.87:1
Quick Asset Ratio	1.16:1	0.85:1
Profit Before Tax to Revenue (%)	45.76	8.31
SHARE PERFORMANCE
No. of Shares	6,000,000	6,000,000
Basic Earnings Per Share (Rs.)	14.87	(7.37)
Market Price Per Share (Rs.)	99.10	100.00
Dividend Per Share (Rs.)	3.70	-

TOTAL ASSETS

Composition of balance sheet funding

Rs.1.5Bn

%8

24

REVENUE

68

Rs.217Mn

Total equity

Non-current liabilities

Current liabilities

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5

LEADERSHIP

REFLECTIONS FROM THE CHAIRMAN	07
MANAGING DIRECTOR'S REVIEW	09
BOARD OF DIRECTORS	11

LANKA CERAMIC PLC

ANNUAL REPORT 2023/24

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REFLECTIONS FROM THE CHAIRMAN

As we continue to re-shape ourselves in response to evolving conditions with the ultimate objective of optimizing returns to our shareholders, we draw deep strength from a number of factors unique to Lanka Ceramic PLC. Being in the same Group of the two larger tile manufacturers of Sri Lanka enables us to leverage the strengths and opportunities within the Group.

Dear Shareholders,

It is my immense pleasure to warmly welcome you to the 33rd Annual General Meeting of Lanka Ceramic PLC and present to you the annual report and audited financial statements for the financial year ended 31st March 2024. The Report reflects how we navigated a year of recovery marked by unique challenges whilst ensuring sustainable value generated to all our valued stakeholders.

OPERATING ENVIRONMENT

The Sri Lankan economy demonstrated resilience during the financial year under review, having weathered unprecedented shocks over the past few years. Inflation continued to decline in the aftermath of having reached historic highs in September 2022, stabilizing within the target mid-single digits levels. The Central Bank of Sri Lanka (CBSL) adopted relaxing monetary policy by reducing the policy rates viz. Standing Lending Facility Rate and Standing Deposit Facility Rate by seven percentage points. Resultantly market interest rates also reduced considerably. External sector performance improved with key indicators moving in the positive direction. The trade deficit reduced to USD 4,900 Mn one of the lowest levels in the Country's recent history, whilst the current account balance reached positive territories at USD 1,559 Mn. Exchange rate stabilized in the range of Rs. 325/- by end 2023 further improving to the Rs. 305/- range by the end of March 2024, however considerably higher than pre-economic crisis levels. The national economy contracted only by 2.3% during the year 2023 a notable improvement over the negative growth of 7.3% recorded in the prior year, yet far from its true potential.

At the sector level, construction sector remained under stress as the same is highly vulnerable to economic downturns, mainly due to the holdback of construction projects. The sector performance declined by 20.8% in 2023 and compared with a similar decline of 20.9% in 2022. Mining and quarrying also declined by 22.3% a clear demonstration of the challenges faced by the sector.

Macro-economic performance translated into mixed impacts on the performance of Lanka Ceramic PLC. Despite continued low demand for tiles in the market, Lanka Ceramic enjoyed healthy demand levels for Feldspar from its key customers engaged in the manufacturing of tiles. This enabled us to continue operations and maintain production capacity at intended levels at our Feldspar mine in Owala.

KEY STRATEGIC RESTRUCTURING OF OUR OPERATIONS

During the year, as a part of strategic restructuring of our operations, we implemented two major changes in our business model. Accordingly, we discontinued operations of our Kaolin mine in Meetiyagoda as the cost structures and demand levels for the mine's output were no longer viable as per our business plans. We also discontinued the importation of sanitaryware line of business, owing to high import cost of the goods and heavily reduced demand from the middle to low income target market segments which comprised our main customer base for sanitaryware. These restructuring initiatives are expected to shift the burden of losses from these operations and also allow the Company to focus on operation of the Feldspar mine in Owala and drive same towards greater efficiencies and returns.

ENDURING PERFORMANCE

With the discontinuation of two segments of our operations, which in the previous financial year made a collective contribution of 60% to total revenue, this year, our total revenue declined

to Rs. 217 Mn, a year-on-year reduction of 51%. There was commensurate reduction in all costs and expenses categories, which led to a pre-tax profit of Rs. 99.5 Mn, a notable growth of 168%. Profitability at post tax level was Rs. 89.2 Mn an encouraging movement from the losses of Rs. 44.2 Mn reported in the prior year.

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7

REFLECTIONS FROM THE CHAIRMAN

THE STRENGTH OF LANKA CERAMIC PLC

As we continue to re-shape ourselves in response to evolving conditions with the ultimate objective of optimizing returns to our shareholders, we draw deep strength from a number of factors unique to Lanka Ceramic PLC. Being in the same Group of the two larger tile manufacturers of Sri Lanka enables us to leverage the strengths and opportunities within the Group. Such strength derived has stood us in good stead through the most challenging times, in ensuring resilience and sound performance. Our dedicated staff base, their expertise and technical know-how are another major source of strength that has enabled sound performance.

A ROBUST GOVERNANCE FRAMEWORK

Lanka Ceramic PLC's time-tested governance frameworks proved invaluable as the Company persevered shocks in the external operating environment. The Board of Directors closely monitored developments in macro-economic, regulatory, political and social developments landscape and aptly assessed the impact of the same on the financial performance and operations of the Company. The collective acumen, expertise and invaluable contribution of the Board Directors in deciding on the best course of action for the Company ensured our sights and actions remained well aligned in delivering sound returns to our stakeholders. The Board was ably supported by three Board subcommittees, viz., Audit Committee, Remunerations Committee and Related Party Transactions Review Committee, which meticulously delivered on their set mandates.

EXPECTATIONS FOR BRIGHTER DAYS AHEAD

The Sri Lankan economy is anticipated to sustain its recovery and reach its potential in the coming years, supported by improved macroeconomic stability. With the continuous implementation of ambitious reforms and economic adjustments backed by the International Monetary Fund's (IMF) Extended Fund Facility (EFF) program, stability is expected across various fronts. We are however also cognizant of the persisting risks and challenges in the short-term, including high costs of our operations and our limited production capacities. In such a scenario in the near to medium term we will explore the possibilities of finding new mines to supply ball clay and other mineral where our expertise can be utilized and expanding our product range. We will also continue to consolidate our position and streamline our processes so as to be future-ready to take bold moves ahead, when the macro economic conditions warrant such moves.

ACKNOWLEDGMENT

I wish to express my sincere thanks to the fellow Board members for their individual and collective contribution in guiding Lanka Ceramic PLC ahead. I also wish to extend my deep appreciation to the Managing Director Mr. J.A.P.M. Jayasekera for his leadership and the entire Lanka Ceramic team for their continued support. I also take this opportunity to extend my gratitude and appreciation to the shareholders, customers and all other stakeholders who partner us in our mutual success and growth.

A.M. Weerasinghe

Chairman

30th May 2024

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