I am pleased to present our performance for FY2018-19 for a number of reasons.
The year under review was one of the most challenging in recent years marked by avisibly weaker consumer sentiment and corresponding decline in offtake from the secondhalf of the financial year.
Despite this unforeseen reality the management at Greenlam Industries responded withspeed and effectiveness. The Company reported profitable growth; revenues increased 11.9%while profit after tax strengthened 19.3% during the year under review. This improvementin the face of diverse challenges intense competition tentative globalconsumption currency volatility trade wars and uncertain political developments was a testimony to the Company's overarching culture called bettering.
Culture called Bettering
A number of observers are likely to ask: what is this culture called Bettering atGreenlam?
This is how I have always explained it: whenever there is a slowdown in the marketplaceor an unexpected increase in resources costs it would be nave to believe that we wouldbe able to pass these cost increases to our consumers. At Greenlam during these junctureswe have generally tended to enhance our internal focus. We believe that by looking withinwe are able to exercise a deeper grip on factors within our control; this deeper insightinevitably enhances our understanding of prevailing realities; this understanding providesus valuable cues on how we may improve processes to shrink time enhance quality andreduce costs.
At Greenlam this culture is not invoked in the face of sectoral downturns; itrepresents our reflex system across all market cycles. The result is that this constitutesGreenlam's natural body language and core personality. At our company what is good mustbe made better. This sustained commitment is derived from the ability to challenge thestatus quo consistently believe that there is always a better way to do things and thatin this journey of continuous improvement the sky is indeed the limit.
At Greenlam we refer to this as our Culture called Bettering.
How this culture played out in 2018-19
During the year under review our Culture called Bettering played out visibly.
At Greenlam we have always believed that a slowdown represents an attractiveopportunity to deepen our competitive advantage and outperform the sectoral average. Thiswas visibly demonstrated during the last financial year: even as the broad interiorproducts sector registered subdued growth Greenlam's revenues grew 11.9% . During thischallenging year a number of players were compelled to absorb the increase in costs inthe face of a slowdown in the realty sector and deferment of interior refurbishing by anumber of players. This reality affected the margins of most players.
At Greenlam we consistently believed that during these market junctures the distancebetween Greenlam and the other brands would widen. This conviction was validated: by aprudent leverage of our various intangible strengths brand portfolio complementand distribution reach we were able to pass on the cost increase whichstrengthened our revenues and validated our sectoral leadership. Besides we strengthenedour laminates product mix by plugging product gaps introduced new designs strengthenedthe weightage of value-added products and reinforced our positioning as a premiumnon-commoditised player. The result is that our laminates revenues grew 10.2% (4.3% growthwithin India and 17.2% globally). Average realization per sheet was increased by 10.25% incomparison to the previous year. Although we could have generated higher volume sale byundertaking a price revision we chose to grow sustainably by protecting our margins andmaintaining a healthy Balance Sheet.
Our decorative veneers and allied business reported a healthy growth of 22.3% for theyear. The decorative veneer segment grew 10.6% engineering wooden flooring business grew64.3% and engineered door set business grew 39.6%. Although the floor and door businessesregistered a loss at the EBITDA level the growth momentum is expected to accelerate.
The result is that we did not just grow our business during the year under review; weensured that our margins were not highly impacted. Although overall EBITDA marginsdeclined from 13% in FY2017-18 to 12.4% in FY2018-19 the margins from our laminatebusiness which accounts for nearly 85% of our revenues stood at 13.65% during the year.Net profit margins improved by 40 bps to 6% compared to 5.6% in FY2017-18. The RoCE andRoE stood at an attractive 17.2% and 18%.
The Company's US and APAC subsidiaries performed better than in the previous year; theUK subsidiary reported profit in FY2018-19.
Strengthening the core
At Greenlam we have always believed that slowdowns create attractive opportunities.
Such markets make it possible for companies like Greenlam to leverage theirlongstanding competencies: economies of scale translating into cost leadership; wideglobal footprint making it possible to move from countries experiencing pricing pressureto markets affording superior realisations; deeper ability to invest in technologies withthe objective to enhance operating efficiencies. The other big advantages of slowdown isthat the resource costs get cheaper (generally) people retention is higher and it becomeseasier to enhance mind share when most players are holding back on brand investments.
Over the last decade one of the ways the Company differentiated itself was through itswide global footprint. As part of a hub and spoke approach the Company selected toacquire/establish subsidiaries in large countries or contiguous to a number of countrymarkets. The result was that the Company's product enjoyed a presence across 100+countries and exports accounted for 43% of the Company's revenues in FY2018-19.
We made a decisive investment related to our European footprint. We acquired DecolanSA. a distribution and marketing company in Switzerland (acquired through our Singaporesubsidiary on 14th May 2019). This acquisition was in line with the Company's convictionthat progressive investments in tangible assets will drive the Company's revenues marketshare and competitiveness.
What made the Decolan SA acquisition attractive is that the Company has been animporter and distributor of laminates and allied categories (compact laminates faadeproducts etc.) for seven years servicing growing Central European demand in SwitzerlandItaly The Netherlands Belgium France and Sweden etc. This acquisition will deepen ourpresence in a market where we do not have a distribution arrangement strengthening ourexports.
At Greenlam we continued to plug business gaps with timely investments during the yearunder review.
One the Company engaged in capital expenditure with the objective to generate largerthroughput by modernising and debottlenecking capacities. Two the Company madeinvestments in the S/4HANA version of SAP which represents a superior digital platformgeneration that will mine data deeper and enhance the quality of our decision-making.
Three we invested in the customised development of products (laminates veneers anddoors) for specific markets the benefits of which will begin to reflect from the currentyear.
Four we relocated our headquarters from downtown New Delhi to Aerocity which providesus with superior access to modern infrastructure interdepartmental co-ordination andexcellent connectivity.
Five we commissioned an Experience Centre in downtown Kolkata with the objective toprovide consumers with a modern experiential environment in which to appraise the entirerange of our products and simulate their application into their desired interiorenvironment. We believe that this form of consumer engagement is futuristic; Greenlam waspossibly the first within the country's laminate business to commission an ExperienceCentre of this standard.
Investing in responsibility and sustainability
At Greenlam we believe that the sustainable companies of the future will be those thatreconcile their growth with the protection of the environment. As global standards andregulations become increasingly stronger it will be binding on companies to moderatetheir carbon footprint. Greenlam took a number of proactive initiatives towards makingthis a culture even before this became a sectoral standard. For instance the Companyintroduced Green Guard Certification of its products from FY2006-07 which validated thatthe products of the Company meet rigorous third-party chemical emissions standardshelping reduce indoor air pollution and the risk of chemical exposure. The Companyinvested in cutting-edge technologies that moderated material consumption and achievedproduct quality right the first time.
Besides the Company moderated water consumption across its manufacturing process andinstalled renewable energy (solar power) generation capacity of 955 kilowatts. We believethat this priority will only strengthen our recall as a responsible brand that is not onlyabout being good to look at but also good for the earth and its environment.
At Greenlam we foresee a stronger performance across the foreseeable.
We expect that demand will progressively revive; we possess adequate capacity andcapability; we are present across a diverse range of products; we will focus on enhancinga cross-sale of products; we expect to enhance the proportion of value-added products inour portfolio; we intend to control receivables and inventories with the objective tomaximise cash flows margins and profits. We intend to maintain the integrity androbustness of our Balance Sheet which will ensure sustainable future growth.
Managing Director & CEO