Ceylon Investment : Annual Report 2023-24

Ceylon

Investment PLC

A Carson Cumberbatch Company

Annual Report 2023/24

CONTENTS

Financial Highlights		02
Chairperson's Message		03
Management Discussion and Analysis		04
Risk Management		08
Annual Report of the Board of Directors on the
affairs of the Company		14
Profiles of the Directors		30
Management Team Profiles		32
Audit Committee Report		33
Related Party Transactions Review Committee Report	35
Financial Calendar		37
Independent Auditor's Report		38
Statement of Profit or Loss and Other Comprehensive Income	40
Statement of Financial Position		41
Statement of Changes In Equity		42
Statement of Cash Flows		43
Notes to the Financial Statements		44
Five Year Summary		75
Information to Shareholders and Investors		76
Notice of Meeting		78
Notes		80
Form of Proxy		83
Corporate Information	Inner Back Cover

The report can be accessed online at

https://www.carsoncumberbatch.com

Ceylon

Investment PLC

Ceylon Investment PLC has consistently executed a strategy of long-term fundamental investing with a focus on high quality investments and wealth creation. The Company holds a total investment portfolio of Rs. 11.77 Billion as at 31st March 2024.

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Annual Report 2023/24

FINANCIAL

HIGHLIGHTS

In Sri Lankan Rupees Thousands

For the year ended / As at 31st March	2024	2023	Change (%)
Revenue	653,887	314,925	108
Profit from operations	1,074,503	496,966	116
Share of profit of equity accounted investees, net of tax	649,734	256,416	153
Profit before taxation	1,690,456	703,268	140
Profit for the year	1,605,443	656,802	144
Other comprehensive income / (expense) for the year	(284,965)	758,823	(138)
Total comprehensive income for the year	1,320,478	1,415,625	(7)
Net cash generated from / (used in) operating activities	499,729	(835,060)	(160)
Net increase / (decrease) in cash and cash equivalents during the year	764,865	(682,504)	(212)
Total assets	12,429,978	10,858,365	14
Total equity	11,737,483	10,572,207	11
Return on ordinary shareholders' funds (%)	13.68	6.21	120
Earnings per share (Rs.)	16.06	6.57	144
Dividend per share (Rs.)*	-	0.55	(100)
Net assets value per share (Rs.)	118.13	105.36	12
Actively managed portfolio **	4,502,351	3,641,965	24
Total fund value **	11,770,503	10,600,367	11
Price to book value ratio (times)	0.40	0.32	25
Stock market data
All share price index (points)	11,444	9,301	23
S&P SL 20 Index (points)	3,318	2,683	24
Market capitalisation	4,699,764	3,361,542	40
Share price (Rs.)
- Year end	47.30	33.50	41
- High	68.50	44.50	54
- Low	29.00	21.00	38

• Based on final / interim dividends.
• Based on the fair value of the portfolios after adjusting for cash and cash equivalents and short term borrowings. Total fund value includes actively managed portfolio and investment in equity accounted investees.

CHAIRPERSON'S MESSAGE

On behalf of the Board of Directors of Ceylon Investment PLC (CINV), it is my pleasure to present to you the Annual Report for the financial year ended 31 March 2024.

The year under review saw the economy demonstrate signs of recovery from the financial crisis, largely due to the country adhering to the economic policies prescribed by the IMF programme. We witnessed a series of much-needed reforms introduced in areas related to tax administration, the pricing of essentials and state-owned enterprises (SOEs). The partial implementation of such reforms assisted with economic stabilisation and laid the foundation for a potential recovery. We experienced a recovery in tourist arrivals and stronger remittance flows which brought much needed foreign currency into the economy. The gross official reserves improved to $5.0 billion as at March 2024, while interest rates declined significantly from crisis levels to low double-digit levels. However, significant efforts are further required to enable continued economic recovery, with more immediate challenges centring primarily on debt sustainability.

The positive developments on the economic front filtered through into the Colombo Stock Exchange (CSE), creating a cautionary but optimistic sentiment. As a result, the All Share Price Index (ASPI) experienced a strong performance of

23.04% while the S&P SL20 index also increased to 23.66%. Investor participation was more vibrant as declining interest rates encouraged increased investor participation in equities and a notable transition from fixed income. I am pleased to say that your Company was able to benefit from these positive developments and capture the upturn through its performance.

Ceylon Investment's discretionary portfolio recorded a performance of 27.95% (adjusted for dividend and share repurchases) and reported a consolidated profit after tax of Rs. 1.6 Bn for the financial year 2024. The strong financial performance was largely attributable to 'share of profit from equity accounted investees' and 'fair value gains from fair value through the profit or loss of financial assets' due to the upward movement of equity holdings of the portfolio.

I would like to thank the staff for their proactive efforts in managing the Company in very challenging times. I would also like to express my heartfelt gratitude to our shareholders, loyal clients and investors for placing their trust in the Company. I share my appreciation with the regulators and service providers for their ongoing support. Mr. Don Chandima Rajakaruna Gunawardena resigned from the Board in March 2024, I take this opportunity to thank him for his valuable contribution to the Company and wish him success in his future endeavours. I further express my deep appreciation

of my fellow Board Members and the members of the Audit Committee, Remuneration Committee, Nomination Committee and Related Party Transactions Review Committee for their continued diligence.

(Sgd.)

M. A. R. C. Cooray (Mrs.)

Chairperson

Colombo

1st July 2024

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PLCInvestment

Ceylon

MANAGEMENT DISCUSSION AND ANALYSIS

CEYLON INVESTMENT PORTFOLIO PERFORMANCE

We experienced another eventful year, as we witnessed the Sri Lankan economy begin its much-needed consolidation with the peak of the crisis behind it. Despite the many challenges that lie ahead, economic stabilisation began to take hold due to implementation of a number of key structural reforms and policy adjustments. Furthermore, the announcement of the Domestic Debt Optimisation (DDO) after the first quarter of the financial year resulted in declining policy and market interest rates, thereby moving the economic strategy into a more expansionary one. However, for the economy to remain on a more sustainable footing, with objectives of growth and prosperity in mind, considerable work is in store in terms of managing debt, fiscal reforms, governance and strategizing for economic growth. CINV's discretionary portfolio was well-

positioned to grow during this recovery period and capture the uptick in the share market while also benefitting from the high yielding fixed income investments made in the previous financial year.

The discretionary portfolio grew by 27.95% (adjusted for dividends and share repurchases) for the financial year to close at Rs. 4.5 Bn. This performance was higher than the ASPI of 23.04% and the average bank fixed deposit rates for the year of approximately 11.80%. Our equity philosophy of focusing on fundamentally strong companies that trade at significant discounts to their fair value contributed well to the overall performance. The total portfolio, which includes the strategic stake in Bukit Darah PLC, grew by 12.53% to Rs. 11.77 Bn (adjusted for dividends and share repurchases).

As at

31-Mar-2431-Mar-23Change %

Discretionary portfolio (Rs. '000) *	4,502,351	3,641,965	23.62%
Total Portfolio (Rs.'000)*	11,770,503	10,600,367	11.04%
ASPI (Points)	11,444	9,301	23.04%
S&P 20 (Points)	3,318	2,683	23.66%

As at 31-	Dividend/
Mar-2024	Repurchase
(Dividend/	adjusted
Repurchase	performance
adjusted)
4,659,977	27.95%
11,928,129	12.53%
	23.04%
	23.66%

*After the addition of the total cash outflow from the distribution of dividend/repurchase by the Company which was Rs.157.6 Mn during the period under review.

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Annual Report 2023/24

Initial adherence to the IMF program has been forthcoming, and as a result, there has been positive effects thus far. However, keeping in line with the program poses challenges largely in the form of fiscal revenue generation targets and overall debt curtailment in the years ahead. Despite the sharp upward tax adjustments that the country has experienced through income and indirect taxes, some favorable trends began to emerge such as the appreciation of the exchange rate, stronger remittances and tourism receipts. These factors along with declining interest rates contributed towards the positive sentiment and upbeat performance of the ASPI. The ASPI recorded a robust performance of 21.87% in the first half of the financial year largely driven by announcement

of the Domestic Debt Optimization (DDO) and a subsequent 0.96% for the second half of the year. The announced

DDO was not as deep or broad-based as what was initially anticipated which led to it being accepted positively by majority of market participants. Most companies listed on the CSE continued to experience reduced demand and cost escalations, which resulted in declining profitability. However, economic stabilization and an upward trajectory in some key macroeconomic variables such as economic growth, gross official reserves and reduced inflation has provided for some level of optimism.

Interest rates experienced a sharp decline throughout the financial year owing to the easing of monetary policy and the gradual dissipation of the threat of inflation. The 364-day Treasury bill saw a large decrease from 24.31% at the start of the financial year to close the year at 10.28%. This was

facilitated through the combined effects of the conclusion of the DDO, cumulative policy rate reductions of 7%, improved foreign exchange flow into financial institutions, relaxation of stressed interbank market liquidity and easing inflation. Larger bank fixed deposit rates also eased from 18.00-20.00% levels to reach the prevailing 8.00-8.75% levels. We continue to enjoy higher interest rates on Rs. 1.5 Bn of the longer-term fixed deposit portfolio, which was deployed in a timely manner towards the peak of the interest rate movement during the crisis period. The remaining fixed income investments are deployed in short-term investments, which are either awaiting higher interest rates to lock in or are to be deployed into identified equity opportunities.

The strong performance of the share market has resulted in majority of our investee companies experiencing upward share price movements. We have monitored each position carefully, adjusted such positions based on our fundamental outlook on each company and their respective discounts to intrinsic value and growth potential. We have also considered that next year, being an election year, carries with it a heightened political risk. With all these considerations, we have been a net seller in the market for the financial year, by selling Rs. 903 Mn worth of equity holdings and purchasing Rs. 277 Mn. Our equity strategy continues to focus on picking fundamentally strong stocks, which are able to navigate the challenging operating environment and offer growth potential, thus providing the prospect of long- term returns. The ability to select good businesses with strong management expertise is paramount in growing the portfolio in a difficult environment.

The highest equity company exposure in the discretionary portfolio continues to be Central Finance PLC, with a position of Rs. 726 Mn as at 31 March 2024. The company still maintains a high buffer over its minimal capital adequacy, thereby providing ample room to steer through the challenging operating environment. Profitability across the industry has declined with restrictions on vehicle imports, high interest rates and reduced disposable incomes. With sharp interest rate reductions in the last quarter of the financial year and the potential to relax import restrictions in the future, the company should experience improved profitability on the horizon. The company continues to trade at very attractive price-to-book value multiples, implying a significant upside.

We also hold a Rs. 321 Mn exposure to Hemas Holdings, which is a conglomerate operating in the consumer, healthcare and mobility sectors. Hemas consumer segment boasts a strong portfolio in home & personal care and learning segments. The company is also the market leader in pharmaceutical distribution, has a presence in pharmaceutical drug manufacturing and operates two hospitals. These key segments were affected adversely by the crisis through drastic reduction in disposable incomes, sharp inflation and exchange rate swings. However, the company proved resilient through the crisis and we expect a continued recovery to occur in volumes while positioning itself for future growth potential. The company currently trades at a discount to fair value and thereby provides a significant upside along with long-term growth potential.

The Distilleries Company of Sri Lanka maintains the highest market share in the core arrack segment through its 'extra special arrack' and a wide distribution network. We reduced our exposure in this regard as its share price increased throughout the year and as at 31 March 2024, maintain a position of Rs. 185 Mn. The company has been experiencing lower sales volumes, due to sharp upward price adjustments necessitated by tax increases. Despite defending its margins, one of the key threats to the business is continuous price hikes leading to consumers shifting into the illicit alcohol segment, resulting in further volume declines. However, improving consumer patterns and the potential recovery of disposable incomes through wage hikes are potential positives for the company to recover volumes. As opposed to a standard business operation, the liquor business

is exposed to a higher amount of political and regulatory risk, which we monitor closely.

Dialog Axiata is a telecom provider with the highest market share in the industry and also maintains a presence in broadband and Pay TV. We sold approximately Rs. 78 Mn of the company in the course of financial year resulting in a remaining exposure of Rs. 75 Mn as at year-end. The company was able to improve its revenue through price revision across data and call segments while improving on its international segment. Although the company was able to recover some of its EBITDA margins since the economic crisis, overall it remains at a reduced level. This is largely a result of increased cost structure and an inability to make significant price revisions. With the country's plans on SOE reforms there is potential for competition to intensify and we are watching the process closely and its impact on Dialog.

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Ceylon PLCInvestment

MANAGEMENT DISCUSSION AND ANALYSIS

The table below shows the top holdings of the Ceylon Investment discretionary portfolio.
Company	Market	Holding
	Value of the
	as a %
	holding
	discretionary
	(Rs. '000)	holding
Central Finance Company PLC	726,386	16.13%
Hemas Holdings PLC	320,693	7.12%
Distilleries Company of Sri Lanka PLC	184,774	4.10%
John Keells Holdings PLC	177,223	3.94%
Aitken Spence Hotel Holdings PLC	134,734	2.99%
Ceylinco Holdings PLC	119,009	2.64%
People's Leasing & Finance PLC	106,224	2.36%
HNB Assurance PLC	101,703	2.26%
Sunshine Holdings PLC	96,985	2.15%
Sampath Bank PLC	76,404	1.70%
	2,044,135	45.40%

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Annual Report 2023/24

A smaller component of the discretionary portfolio constitutes some overseas investments. Despite global markets being relatively up-beat, the investment outlook has been cautious with most central banks maintaining hawkish policy rates on inflation fears. Furthermore, critical elections to take place

in key countries along with the escalation of geo-political conflicts has resulted in our Company using a more cautious investment approach. However, we remain consistent in applying our investment philosophy of seeking out longer- term opportunities through both equity and fixed income asset classes.

FINANCIAL REVIEW

As at 31 March, 2024, the Company's revenue reached Rs. 654 Mn, marking a substantial 108% increase from the previous year. Interest income for the same period totaled Rs.363 Mn, reflecting a significant 62% growth compared to the preceding year.

Ceylon Investment PLC reported profit after tax of Rs. 1.6 Bn the financial year ended 31 March, 2024, exhibiting a significant growth from the Rs. 657 Mn profit recorded in the previous year. The positive financial performance was largely driven by Rs. 650 Mn from 'share of profit of equity accounted investees' and a fair value gain of Rs. 535 million from 'financial assets fair value through profit or loss,' resulting from the upward movement in equity prices. This growth in profit after tax was despite a 55% increase in administrative and operating expenses and an 83% increase in income tax compared to the previous year.

For the financial year ended 31 March, 2024, the Company's Net Asset Value (NAV) per share increased by 12.12% to

Rs. 118.13. However, the market price of the Company's share stood at Rs. 47.30, indicating a discount of 60% compared to the NAV per share.

NAV per share vs Share price

(Rs.)
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
2020	2021	2022	2023	2024

NAV per share

Market price per share

As at 31st March	2024	2023	Change %
ASPI	11,444	9,301	23.04
NAV per share (Rs.)	118.13	105.36	12.12
Market price per share
(Rs.)	47.30	33.50	41.19
Discount of NAV to
market price per share	60%	68%

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Ceylon Investment PLC

RISK MANAGEMENT

OVERVIEW OF RISK MANAGEMENT

Risk management is the process of identifying and assessing risks that may arise due to factors which are either internal or external to the entity and involves the implementation of mitigating actions to address such risks. The management of risk helps to avoid or minimize the likelihood of incurring unanticipated losses. It is not a one-time or periodic assessment, rather it is a continuous process which serves as an integral aspect of daily business operations and the management of the entity.

RISK MANAGEMENT

The risk management structure established at Ceylon Guardian Group is applicable across the parent company and all other entities of the Group. The Board of Directors has delegated the oversight of risk management to the Integrated Risk Management (IRM) Committee which is a subcommittee of the Board. The purpose of the IRM Committee is to assist the Board in its oversight of Group risk identification, risk assessment and risk management, in addition to the continuous monitoring of the adequacy and the effectiveness of the risk management process.

The Board of Directors

• Holds overall responsibility for risk management.
• • Review the Group's risk profiles.

The Management team

• Identifies, analyses, and assesses risks.
• Formulates risk management policies, strategies, and tools.
• Implementation and control of risk mitigating actions.

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Annual Report 2023/24

Audit Committee and IRM Committee

• Maintains oversight over the financial reporting function of the Group and the system of internal controls.
• Monitors the audit function, compliance, and risk management process.

• Assists the Company in its risk management process and the continuous monitoring of the adequacy and the effectiveness of the risk

management process.

The Investment	Internal Audit / Risk and
committee	Compliance team
• Provides advice and insights to the	• Evaluates the management's risk
fund management team.	assessment / strategies.
	• Monitors deviations from preset
	standards.
	•	Provides recommendations for
		improvements.

• Compliance audit / periodic reviews

Direct and monitor

Business units and Processes

Report for evaluation