Ceylon Guardian Investment Trust : Annual Report FY 2021/22

Ceylon Guardian

Investment Trust PLC

A Carson Cumberbatch Company

Annual Report 2021/22

Contents

Financial Highlights		2
Chairperson's Message		3
Management Discussion and Analysis		5
Risk Management		9
Profiles of the Directors		15
Management Team		17
Annual Report of the Board of Directors on the Affairs of the Company	18
Audit Committee Report		29
Related Party Transactions Review Committee Report		31
Financial Calendar		33
Independent Auditor's Report		34
Statement of Profit or Loss and Other Comprehensive Income	38
Statement of Financial Position		39
Statement of Changes In Equity		40
Statement of Cash Flows		42
Notes to the Financial Statements		43
Five Year Summary		111
US$ Financials		113
Information to Shareholders and Investors		119
Notice of Meeting		121
Form of Proxy		123	The report can be accessed online at
Corporate Information	Inner Back Cover
http://www.carsoncumberbatch.com

Ceylon Guardian

Investment Trust PLC

Ceylon Guardian Investment Trust PLC is the holding company of the

investment business of the Carson Cumberbatch Group. As an investment house it is managing portfolios of multiple asset classes for differing groups of investors, maintaining a high quality of investments and wealth creation. The Guardian Group holds an investment portfolio worth approximately Rs. 19.65 billion as at the end of March 2022.

This portfolio builds equity stakes in some of Sri Lanka's most promising and successfully run companies that show great potential for value creation.

The environment in which the company operated for the financial year was challenging. We are pleased to set out the review and performance of the business during the year in this report.

Financial Highlights

In Rupees Thousands

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Ceylon Guardian Investment Trust PLC

For the year ended / As at 31st March	2022	2021	Change %
Revenue	1,168,979	1,604,663	(27)
Profit / (loss) from operations	(828,659)	3,265,929	(125)
Share of profit of equity accounted investee, net of tax	(805)	2,805	(129)
Profit / (loss) before taxation	(835,857)	3,221,390	(126)
Profit / (loss) for the year from continuing operations	(920,813)	3,164,738	(129)
Profit / (loss) for the year	(1,065,632)	3,243,951	(133)
Profit / (loss) attributable to equity holders of the parent company	(897,627)	2,721,021	(133)
Other comprehensive income / (expense) for the year	1,075,220	3,106,531	(65)
Total comprehensive income / (expense) for the year	9,588	6,350,482	(100)
Total comprehensive income / (expense) attributable to equity holders of the parent	(4,709)	5,298,930	(100)
Net cash generated from / (used in) operating activities	518,706	1,025,567	(49)
Net increase / (decrease) in cash and cash equivalents	(32,979)	(37,331)	(12)
Total equity attributable to equity holders of the parent	16,501,330	16,742,130	(1)
Total equity	19,650,067	20,061,693	(2)
Total assets	19,944,920	20,401,160	(2)
Return on ordinary shareholders funds (%)	(5.44)	16.25	(133)
Earnings / (loss) per share (Rs)	(10.11)	30.65	(133)
Dividend per share (Rs.) *	2.00	1.60	25
Net assets per ordinary / deferred share (Rs.)	185.87	188.58	(1)
Guardian actively managed Portfolio **	12,254,381	12,954,877	(5)
Guardian fund value **	19,647,919	19,694,391	(0)
Stock market data
All Share Price Index (points)	8,904	7,121	25
S&P SL 20 Index (points)	3,031	2,850	6
Market capitalisation	6,513,841	9,957,464	(35)
Share price (Rs.)
Year end	78.50	120.00	(35)
High	136.75	170.00	(20)
Low	74.00	49.00	51

• Based on proposed / interim dividends
• Based on fair value of portfolio after adjusting for cash and cash equivalents. Total Fund value include actively managed portfolio and investment in Bukit Darah PLC.

Chairperson's Message

On behalf of the Board of Directors of Ceylon Guardian Investment Trust PLC (CGIT), it gives me great pleasure to present to you the Annual Report for the financial year ended 31st March 2022. It is worth noting that the company was proactive and agile in terms of managing the challenging backdrop caused by the COVID-19 pandemic, and the economic crisis which began to take effect towards the close of the year.

The All Share Price Index (ASPI) experienced a positive momentum throughout most of the financial year but experienced a correction in the final months due to the economic crisis and eventually closed the year with a gain of 25.03% while the S&P SL 20 gained 6.35%. Due to mixed sentiment amongst investors, the positive movement was not broad-based, and some of the key stock price performances did not reflect the market's optimism. Sharp upward share price movements of ten stocks contributed towards 95%

of the index movement. Foreign and some institutional investors were cautious in consideration of the looming economic crisis, while retail investors and High Net Worth Individuals remained buoyant with increased market participation.

Ceylon Guardian Group's total portfolio recorded a flat performance of 0.58% (dividend adjusted performance) and reported a consolidated loss after tax of Rs. 1,066 Mn for the financial year 2022 (FY 2022). The negative financial performance was largely attributable to the loss of Rs. 1,780 Mn from fair value through the profit or loss of financial assets due to the downward movement in the equity stocks in the portfolio. Majority of the share prices of the stocks within the discretionary core portfolio declined despite the businesses performing reasonably well against the challenging conditions. Therefore, the discretionary portfolio declined by 4.16%, despite the aggregate earnings growth of the companies in the portfolio growing by 50% for the FY 2022.

In the wake of a sharp rise in interest rates, drastically reduced disposable incomes and a high inflationary environment we anticipate the operating environment for all companies listed in the Colombo Stock Exchange (CSE) to be significantly challenged in the year ahead. The company therefore proactively reduced its equity positions with the aim of investing in the higher interest rates as the CSE goes through its corrective path.

Continuing with our decision to not maintain a dedicated fund for the private equity business, we disposed of our 83.97% stake in Guardian Capital Partners in October 2021. With the conclusion of this transaction we are now equipped to dedicate a greater focus towards our core strategy of growing the portfolio through both listed equity and fixed income.

During the fourth quarter of FY 2022, Ceylon Guardian Investment Trust PLC did a repurchase of shares, at its prevailing net asset value (NAV) at the time of the buy-back of Rs. 204.01 per share, at a cost of Rs. 100.6 Mn. As the share price of the company was trading at a significant discount to its net asset value the repurchase would provide an opportunity for shareholders to realize the intrinsic value for a portion of their investment, and thereby minimize the gap between the market price per share and the NAV of the company.

Economy

The economy recovered in 2021 to grow by 3.7% compared to a decline of 3.6% in 2020. The calendar year commenced with economic activity on a good footing, but an increase in COVID-19 infections in the second quarter resulted in said activity becoming subdued once more. However, a strong vaccination drive and an improved business sentiment saw a degree of optimism return in the third quarter.

Increases in global commodity prices and supply disruptions saw inflation pick up towards the end of the financial year with the National Consumer Price Index (NCPI) recording a 21.5% increase on a year-on-year basis as at March 2022. Foreign currency reserves declined to hazardous levels on account of strained Dollar income to the country, continuous outflows through imports and external debt repayments. In response to these dynamics, the Central Bank of Sri Lanka reversed its policy in order to implement a floating exchange rate system during March 2022. This resulted in a sharp depreciation of the Rupee and the subsequent 50% depreciation in currency during the financial year. Looking ahead, the ongoing discussions with the IMF, the restructuring

of government debt and fiscal reforms will be crucial in order to get the country back on track. In the meantime, we anticipate further restrictions and challenges going forward, as the country attempts to secure financing for essential items and cash-flow needs.

Business Environment

With the greater burden of the pandemic behind us, it is heartening to note that we can focus on continuing our business operations with significantly less disruptive activity. However, the economic crisis will undoubtedly cause significant cost escalations for businesses with continuous prices hikes across both essential and non-essential items. Fuel shortages and rising transportation costs have caused severe disruptions to daily life. Furthermore, the performance of the CSE will depend on its ability to provide uninterrupted trading, in addition to the ability of the entities listed therein to prudently manage the macroeconomic and systematic vulnerabilities to which they are exposed.

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Annual Report 2021/22