Ceylon Investment : Annual Report 2021-22

Ceylon

Investment 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

Annual Report of the Board of Directors on the affairs of the Company 16 Profiles of the Directors 27

Management Team Profiles 30

Audit Committee Report 31

Related Party Transactions Review Committee Report 33 Financial Calendar 35

Independent Auditor's Report 36

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 41

Notes to the Financial Statements 42

Five Year Summary 73

Information to Shareholders and Investors 74

Notice of Meeting 76

Notes 78

Form of Proxy 79

Corporate Information Inner Back Cover

The report can be accessed online at

http://www.carsoncumberbatch.com

Ceylon

Investment PLC

Ceylon Investment PLC has consistently executed a strategy of long term fundamental investing with a focus on wealth creation and maintaining high quality investments with an emphasis on a time horizon of medium to long term. The company holds a total investment portfolio of Rs. 9.37 Bn as at 31st March 2022.

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.

2

Annual Report 2021/22

FINANCIAL

HIGHLIGHTS

In Rupees Thousands

For the year ended / As at 31st March	2022	2021	Change (%)
Revenue	338,754	521,315	(35)
Profit / (loss) from operations	(290,083)	1,016,872	(129)
Share of profit / (loss) of equity accounted investees, net of tax	(185,541)	508,558	(136)
Profit / (loss) before taxation	(475,725)	1,503,665	(132)
Profit / (loss) for the year	(497,777)	1,484,197	(134)
Other comprehensive income for the year	534,355	1,551,037	(66)
Total comprehensive income for the year	36,578	3,035,234	(99)
Net cash generated from operating activities	410,956	398,091	3
Net increase in cash and cash equivalents during the year	279,610	27,691	910
Total assets	9,407,443	9,442,161	-
Total equity	9,277,635	9,409,914	(1)
Return on ordinary shareholders' funds (%)	(5.37)	15.77	(134)
Earnings / (loss) per share (Rs.)	(4.91)	14.65	(134)
Dividend per share (Rs.)*	0.75	0.70	7
Net assets value per share (Rs.)	91.55	92.86	(1)
Actively managed portfolio **	3,389,227	3,690,953	(8)
Total fund value **	9,372,163	9,364,634	-
Price to book value ratio (times)	0.41	0.69	(41)
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	3,759,641	6,455,233	(42)
Share price (Rs.)
- Year end	37.10	63.70	(42)
- High	68.70	92.00	(25)
- Low	37.00	27.00	37

• 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 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 Investment's total portfolio recorded a flat performance] of 0.81% (dividend adjusted performance) and reported a consolidated loss after tax of Rs. 498 Mn for the financial year 2022. The negative financial performance was largely attributable to the loss of Rs. 568 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 6.31% despite the aggregate earnings growth of the companies in the portfolio growing by 50% for 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 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.

During the fourth quarter of FY 2022, Ceylon Investment Company PLC did a repurchase of shares, at its prevailing net asset value (NAV) at the time of the buy-back of Rs. 102.70 per share, at a cost of Rs. 102.03 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 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.

3

Ceylon PLCInvestment