Our recent strategic investments are delivering expected results, and going forward, we will continue to ensure sustained growth and superior value creation across all our business sectors.

Dear Shareholders,
Hayleys continued its trend of successful performance both in terms of revenue and profit growth in the concluded financial year amidst its share of challenges, particularly in some of our traditional lines of business. Adversity also revealed opportunity, whilst yet again the benefits of diversification provided the anchor for the Group to emerge stronger and more resilient than ever before. Our recent strategic investments are delivering expected results, and going forward, we will continue to ensure sustained growth and superior value creation across all our business sectors.

Performance Underpinned by Resilience

Revenue growth during the year was a satisfactory 8.4% to reach Rs. 80.6 bn, whilst profit before tax grew 3.2% to Rs. 5.1 bn. The strong returns generated from the Transportation & Logistics and Purification sectors along with recent investments in leisure, renewable energy and construction materials, drove the positive side of performance. The Hand Protection sector, despite facing many challenges including forced closure of a key manufacturing facility, posted meaningful results. Some of our established businesses, particularly the Fibre and Textiles sectors, faced operational challenges that are being addressed. Overall, an effective portfolio strategy provided the required resilience for the Group to post satisfactory results.

An Environment that Lends Optimism

The macroeconomic environment that prevailed during the year provided a blend of opportunities as well as challenges. The Sri Lankan economy moved favourably with interest rates on the decline, inflation managed at mid-single digit levels and the Rupee being largely allowed to move in line with market forces. There were also improvements in key global markets, which are important for the Groups’ export businesses. The United States made positive strides towards sustained economic recovery and tail risks in Europe diminished significantly. Challenges remain in certain emerging and frontier markets and Sri Lanka too faced some volatility in the first half of the financial year stemming from the US Federal Reserve’s announcement of tapering quantitative easing. Overall, our prudent management of foreign exchange and interest rate risks coupled with effective business strategies across a diversified portfolio makes us view the unfolding global and domestic macroeconomic environment with optimism.

Manufacturing with Purpose

Hayleys enjoys a proud tradition of innovation, pioneering the manufacture of coconut shell-derived activated carbon in Sri Lanka - a high value product which goes into a range of applications from air and water purification to energy storage and gold mining. The Hayleys Purification sector faced two setbacks during the year - the rising cost of coconut shells, and a downturn in gold mining due to low gold prices. Nevertheless, the demand for other applications remains robust. To secure reliable, affordable raw material supplies Haycarb continues to expand its overseas manufacturing operations in Indonesia and Thailand. Overall, the Purification sector recorded profit before tax (PBT) of Rs. 1,033 mn for the year (FY 2012/13: Rs. 1,188 mn).

The Hand Protection sector, led by Dipped Products PLC (DPL), demonstrated tremendous resilience amidst severe undue adversity during the year under review. With a history of 38 years and a 5% global market share for non-medical rubber gloves, DPL has built relationships with buyers across 70 countries around the world. Yet, the year under review turned out to be the most difficult period for DPL, when it was compelled to suspend production at the factory in Rathupaswala following protests by local communities over an unfounded allegation that the factory was contaminating the groundwater. The factory has always surpassed the requirements of the environmental protection regulations, duly confirmed by subsequent independent investigations. Nevertheless, as attempts to resume production were hindered, DPL chose to invest in a new manufacturing location in the BOI industrial zone in Biyagama. I am pleased to note that production has commenced in Biyagama with the project being implemented within anticipated time lines and costs. The silver lining is that adversity makes us even more resolute in discovering our hidden strengths. Despite these setbacks the Hand Protection sector turned in a PBT of Rs. 910 mn for the year (FY 2012/13: Rs. 1,339 mn).

A growing domestic economy and the boom in the construction industry saw Hayleys entering the Construction Materials Sector through a strategic acquisition of Alumex in 2010. The Alumex Group today accounts for over 50% of the domestic demand for aluminium extrusions, which is increasingly becoming a viable alternative to timber for window, door frames and similar applications. Alumex became the eleventh listed company in the Hayleys Group in March 2014 following an initial public offering. The Construction Materials sector turned in a sound PBT of Rs. 464 mn during the year (FY 2012/13: Rs. 377 mn).

The Hayleys Textiles sector posted an encouraging 39% growth in revenue and made a positive operating profit during the year. Investments in enterprise resource planning systems have contributed to improved performance all round. The sector continues to focus on higher end product lines by taking advantage of unique capabilities in providing end to end solutions through integrated textile manufacturing. The Textiles sector recorded a pre tax loss of Rs. 172 mn during the year, significantly lower than the FY 2012/13 loss of Rs. 468 mn.

The Fibre sector, through innovative R&D, has captured export markets through a wide variety of eco-friendly products for domestic and industrial applications. However, in recent years the sector has not performed to full potential and we are currently restructuring this business. Whilst making an operating profit, the Fibre sector profit before tax was in the red with a loss of Rs. 112 mn for the year (FY 2012/13: loss of Rs. 2 mn).

Adding Value in Agriculture

The Agriculture sector of Hayleys has a strong track record of supporting national imperatives. Our gherkin and jalapeno peppers out-grower venture creates indirect employment opportunities for over 8,000 individuals. We have recently ventured into seaweed cultivation, which provides supplementary income to fishing communities in the Mannar and Killinochchi Districts. Hayleys is present along the entire value chain of the Agriculture sector, from providing seeds for the domestic sector to tissue culture and biotechnology for the export of flower seeds and plants. While moving up the value chain, we continue to make a strong social and economic impact in the local communities. The bottom line too has been rewarding, with a PBT of Rs. 638 mn during the year.

The Hayleys Plantation sector continued to grapple with the vagaries of the weather and escalating wages. As a labour intensive sector, we provide livelihoods and social services to over 23,000 individuals in some of the most economically Hayleys PLC Annual Report 2013/14 012 Letter from the Chairman backward regions of the country. We invested over Rs. 2 bn in field development in our tea and rubber plantations during the past five years, with benefits to be reaped over the medium and long term. In spite of absorbing a wage hike this year, the Plantation sector recorded PBT of Rs. 699 mn. (FY 2012/13: Rs. 959 mn).

Developing Exportable Services

The Hayleys Transportation & Logistics sector continued to perform well with PBT of Rs. 1.12 bn, becoming the highest contributor to Group PBT this year. The sector continued to leverage several decades of experience in this industry and geared itself to take advantage of opportunities that are arising out of Sri Lanka’s move towards becoming a vibrant maritime and aviation hub.

Hayleys is a significant player in the domestic distribution market, bringing world class brands to the growing Sri Lankan middle class. We work with some of the world’s most renowned FMCG brands and selected high end products, incorporating modern distribution and supply chain systems. Despite overall slack demand in the market, the Consumer Products sector posted positive results, albeit lower than the previous year.

Aligning with the country’s drive to promote tourism, our Leisure and Aviation sector received significant investments in recent years that are beginning to show positive results. The sector reported a PBT of Rs. 538 mn during the year (FY 2012/13: loss of Rs. 18 mn), with strong contributions coming from the Group’s flagship city hotel, The Kingsbury, along with the resorts segment under the Amaya brand. The Aviation and Destination Management segments also contributed to the bottom line and provide the Group with a holistic exposure to the leisure industry.

The Hayleys Power and Energy sector aims to expand its footprint further. In addition to several mini-hydro power plants, our investment in a 10 MW wind farm is also generating a sound return. Along with our Industrial Inputs segment that primarily serves the local food, rubber, paint and textile industries, the sector performed well to post a PBT of Rs. 769 mn in 2013/14. (FY 2012/13: Rs. 497 mn).

The Hayleys BPO venture builds on capabilities developed under our shared services within the diverse businesses of the Group, to provide similar services to external customers as well. This business has turned profitable and is expected to grow, driven by offshore BPO clientele.

Results that Matter

We remain bullish on the sectors in which we have made significant investments over the recent past, whilst we are confident of seeing recovery in the sectors that are not meeting our expectations, through the remedial measures that are being implemented.

As a responsible corporate citizen, our strategies are aligned with sustainable business practices that balance the needs and aspirations of a multitude of stakeholders. When we step back and look at the contribution of the Hayleys Group to the broader community in which we operate, your Company is undoubtedly more than the sum of its parts. To us, they are matters that matter.

Given the results achieved this year while keeping a view on the future, the Board of Directors has proposed a first and final dividend of Rs. 5.00 per share for the year under review.

Acknowledgments

I thank all stakeholders who have stood by Hayleys over the years. The most valuable relationships are those that remain resolute under all circumstances, and we respect such relationships. In particular, I thank the staff of Hayleys who have worked hard amidst trying circumstances to deliver this year’s results and our customers and business partners for their continued loyalty.

Mr. Ranil Pathirana resigned from the Board of Directors of Hayleys in January 2014. I take this opportunity to convey my appreciation for his contribution to Hayleys and I wish him success in the future. I am pleased to announce that Mr. Hisham Jamaldeen has been appointed to the Board of Directors of Hayleys as a Non-Executive Director as of 7th February 2014. Ms Shyamalie Weerasooriya has been appointed to the Board of Directors as an Alternate Director to Mr. Dhammika Perera as of 1st December 2013. We warmly welcome both.

Finally, I would like to express my sincere appreciation of the continued guidance provided by the Deputy Chairman and the Board of Directors of Hayleys PLC.



Mohan Pandithage
Chairman and Chief Executive