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FINLAYS Colombo Annual Report a refreshing change

Finlays Colombo's 2009 Annual Report is a revelation. This is for many reasons. But what was more striking hence the decision to highlight is the usage of a snapshot of the company's key stakeholders.

Perhaps other companies in the past in their annual report may have featured their engagement with stakeholders but the manner in which Finlays Colombo 2009 Report had done it is exceptional, hence commendable.

Indeed, there is a deserving superimposition, especially one of a differently-abled worker and a recipient of the company's CSR initiative. Perhaps for the first time in an annual report, an ordinary shareholder also gets pride of place, added with a personally signed message. Indeed, all select persons picked to represent different stakeholders have an authentic message signed off.

Walking the talk
The overall effort by Finlays Colombo is one that is akin to taking that extra step, adding true value and also walking the talk. The standard flashy images of Board of Directors has been relegated to later pages making room to highlight the more important and perhaps the real stakeholders of an organisation. The effort has certainly infused greater life and credibility to an Report.

Consider the message of the share holder:
"As a shareholder of Finlays Colombo PLC, am pleased to pen a few lines for publication in the Company's Annual report.
"As a member of an older generation, I place great value in such concepts as integrity, history, culture, experience, family, sustainable and responsible growth and so on, concepts which, I might add, are fast disappearing in cor porate Sri Lanka. Finlays possesses these attributes - and more!

"As an investor I look for a safe and reasonable return for my investment - a return based on responsibility by the company in the environment in which it does business. Finlays delivers on this expectation and has also evolved and changed to meet the challenges of the present, and future. The profile of the company today is materially different to what it was just 10 years ago. At its core, though, its ideals remain unchanged.

"I am secure in the knowledge that my investment is in a company of value - value in terms of return and in terms of responsibility and history. It is an investment which I can pass on to my family with some pride and which in turn, I have no doubt, they will value as well.

"I wish the company many more decades of successful business in Sri Lanka.
With best wishes,
Mr. Abhaya Wekunagoda
Shareholder, Finlays Colombo PLC."

One may tempted to write off the shareholder comments as very complimentary but the idea of giving the due space in an annual report to a shareholder is indeed noteworthy. The placement of real stakeholders in relevant sections of the Finlays Colombo annual report to buttress the company's progress in the year makes greater relevance.

Flagging off the chapter on the company's community initiatives is a student from a school in Polwaththa. Her message read:

"I am Shanika. English is my favourite subject. I go to English class on Saturday. We have our class at community hall. I enjoy learning English in that class. The teacher is kind and helpful. He teaches us a lot in the class. I love to sing, play and learn English in my class with my friends. I want to become an English teacher one day. I am waiting for my English class on Saturday.

Shanika Maduwanthi
G/Sri Buddhadaththa College
Polwaththa."

The only excusable irritation perhaps is a shareholder or a stakeholder

having to turn too many pages to find out the bottom line of Finlays Colombo. Furthermore, the Review of the Finlays Colombo Chairman Kumar Jayasuriya in the form of an interview is not new as this format had been used in the past by other companies as well. Nevertheless, such format in the 2009 Annual Report ensures continuity of the differentiation as well as frank and true to life presentation format.

n an overall sense, Finlays 2009 Report is not cosmetic but a refreshing change that would win the praise of many.

Challenges and progress in 2009
Despite a challenging year, Finlays Colombo in 2009 had reported a net profit attributable to ordinary shareholders of Rs. 309.7 million higher in comparison to Rs. 216.3 million in the previous year. Group revenue was Rs. 4.5 billion, up from Rs. 4.2 billion a year earlier. Earnings per share had increased from Rs. 6.18 to Rs. 8.85 whilst dividend per share rose from Rs. 3 to Rs. 4.50.

n his response to the first question, "Could you comment on Finlays' overall performance during 2009? From a Group perspective, were the results above, below or in conformity with expectations?" Jayasuriya responds: "Overall we had a satisfactory year. All the financial indicators were favour able. Our profit before tax grew by 40%, free cash flow by 6% and our return on invested capital was 14.5%. Accordingly, we have distributed a dividend per share of Rs. 4.50. These numbers were better than we had budgeted, so it is true to say we performed better than expected. must, however add, in all fairness, that these results are buffered by the profits we earned in the first half of the year, when tea prices were low and the full impact of the recession had not hit the major markets in which we operate. Profitability in the second half is a more realistic indicator of our per formance; find it more satisfying that we were able to achieve our budgeted targets during this period as well."

The last question was: "Could you sum up Finlays' year in a sentence?" to which the Chairman responded as saying: "would say it was a year when our business model, strategy and man agement skills were stress-tested and found to be both relevant and robust. might however, add, that strategy and management are only part of the story. We could not have negotiated the year's challenges so successfully if not for our people, and would like to thank all our employees for their loyalty, dedication and teamwork. must also thank our customers for their continued patron age, regular feedback, and the spirit of cooperation and goodwill we have devel oped together these many years."

With regard to what the Board's expectations were in 2009 Jayasuriya said in addition to pursuing the agreed strategic direction in order to build a sustainable business for the future, the Board's expectations were that, during the year, the management team would effectively contain the impact of the risks and uncertainties of the global economic meltdown on our businesses, and in doing so, devise and implement

a robust response to the challenges we faced. These expectations were met.

Elaborating on the challenges the Chairman said being a conglomerate in a serious recession like the one the world has just faced, different business es are faced with different challenges. "Whatever the business, our underlying consideration is always to remain com petitive, while mitigating risk through a comprehensive risk management process.

"In Finlays' export businesses, credit and currency risks had to be managed daily. The company's manage ment chose to hold market share at the expense of margins, creating an impe tus to drive productivity.

"Understanding the predicament of customers and actively engaging them was the key; meanwhile, the manage ment continued to focus on delivering products and services of exceptional value. In the case of Finlays' local businesses, such as Environmental Services, Airline GSAand Agencies, which support Sri Lanka's export industries, similar pragmatism was needed.

"Internally, we needed to keep our employees informed and 'on side' about developments in the turbulent exter nal environment and the necessity of specific management actions taken in response to them also, to make them feel they could rely on the Group in dif ficult times," Jayasuriya said.

"I am happy to say that our employees appreciated our taking them into our confidence in this manner and the understanding, cooperation and com mitment we received in response was commendable. In addition, we strength ened systems, processes and the quality of management information," the Chairman added.

Leading property-insurance broker in Sri Lanka
Capturing some of the noteworthy developments, Jayasuriya said in the tea export business, recessionary conditions in some of Finlays' markets, together with a more cautious approach to credit-risk management, meant that the total volume of exports declined marginally. However, Finlays was able to increase the proportion of value-added exports (exports in consumer packs of 1kg. and less) to 89 percent of the total. It was noted that low tea prices in the first four months of the year swelled our profits, but this did not last: from May onwards, tea prices rose to unprecedented levels, putting margins under severe pressure.

Another important factor was a company-wide initiative to manage working capital, partly by optimising inventories, receivables and payables and part ly through cost reductions and productivity improvements. This according to Jayasuriya had a very positive effect, "helping us maintain cash flows and shore up margins that would otherwise have been squeezed very thin".

"Finally, our diversified business portfolio helped provide a balance in revenue and profit streams so that, on an overall company basis, we were able to achieve growth in profitability," he pointed out.

To the question "Which individual businesses did best? What were the reasons?" 
the Finlays Chairman said the best performing businesses, in terms of growth of profits over previous year and against budget, were Tea Exports, Insurance Brokering and Temperature-Controlled Logistics.

"In insurance brokering, we expanded Finlays business portfolio by 93% by winning the accounts of several large Sri Lankan corporate and Maldivian resorts. While official figures have not yet been released, believe we are now the leading property-insurance broker in Lanka. This is a notable achievement and a tribute to the technical competence, professionalism and customer-orientation of our people," he said.

In Temperature-Controlled Logistics, Finlays maintained high levels of occupancy at its cold store and were successful in expanding the customer base. It also expanded the range of value-added services it provides.

Businesses which performed less than expected in 2009
Which businesses performed less than expected for Finlays in 2009? According to Jayasuriya, Environmental Services had a difficult year. Sanitact and Calmic brands, which cater mainly to the apparel sector, had a number of contracts terminated following the closure of factories in this sec tor. The impact on revenue was consid erable. However, several cost-reduction initiatives, as well as greater penetration into the corporate sector, helped to minimise the impact on profitability.

Finlays Import Agencies Division, which supplies tea bagging machines, spare parts and filter paper to teabag exporters, also had a difficult year, according to the Chairman. Shipments of teabags from Lanka recorded a drastic decline in 2009 as manufacturing shifted from to countries where the product is consumed. case in point is Russia, formerly the larg est destination for Lankan teabags, where imports sagged following the imposition of a higher import duty.

On a brighter note, Sterifirst, a hygienic medicalwaste service introduced in 2009, has been a great success. by the way, is the only Central Environmental Authority-licensed medical-waste disposal service operat ing in Sri Lanka. 
"All the leading private hospitals and medical institutions in the greater Colombo area have subscribed to the service and, with this level of success, am confident we will win contracts from State hospitals in the near future, significantly increasing our scale of operation," the Chairman added.

Referring to real milestones achieved in 2009, Jayasuriya said Finlays' ability to manage a range of businesses at a time of unprecedented economic meltdown, and still achieve the results reported, is something noteworthy.

"It certainly gives us confidence that we have the foundations on which to build a sustainable business going forward. The cost reductions and productivity improvements we achieved, as well as the solidity of our customer relations and the commitment of our people, show that even in adversity there is always a way to push out the boundaries. Complacency when times are less challenging is perhaps a worse enemy," emphasised Chairman Jayasuriya.

In 2009, Finlays provided assistance to internally-displaced people at the Sumathipuram and Weerapuram IDP centres. It undertook to help provide basic sanitary facilities and medical kits for these unfortunate people, a commitment which received spontaneous and generous support from our employees.

Their aggregate contribution was matched by the company; and thereafter, a larger contribution from the Swire Charitable Trust helped furnish around 3,000 children at the centres with schoolbooks and other education-related

 

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