The year 2012-13 has been amongst the most challenging years for CUMI, its subsidiaries and associate companies. The downtrend in macroeconomic indicators which began towards the second half of the previous year, not only continued but declined even further. While the United States showed signs of revival, India, Russia, China and South Africa, where majority of CUMI’s operations are located, had a significant drop in growth. Europe, a major market for CUMI went into further recession. Overall, the world economic scenario continues to cause both uncertainty and concern.
In this rather subdued environment, CUMI’s consolidated revenues dropped marginally by one per cent over the previous year. The emphasis was on retaining share of business with existing customers and seeking new opportunities with both existing and newly developed product and service offerings. This has been a very difficult task with increased input material and power costs, fluctuating currencies, rising inflation and consequent higher finance costs. This caused an EBITDA margin drop of seven per cent over 2011- 12, thus calling for even greater consolidation and prudence.
Despite these difficulties CUMI remains steadfast in its focus on a longer term vision, quality leadership, cost management, applications and service oriented customer engagements to ensure stable revenues and sustainable profitability. CUMI’s approach towards building strategic partnerships with customers and across the supply chain in all its product lines continued with a view towards ensuring reliability, improving efficiency and enhancing capability. With this long term approach in view and confidence in its implementation effectiveness, the dividend, though lower than the previous year, is at Rs.1.25 per share.
The sluggish demand in user industries impacted the sales and profitability of conventional and super abrasives in India. While market share was retained in Bonded Abrasives, good improvements were made in Coated Abrasives through greater market penetration and emphasis on after market applications. Non woven abrasives sales grew on the strength of customer alliances. A range of Power Tools, a useful adjunct to the sales of Abrasive products, were introduced into the market thus providing a total grinding solutions package to end users. The distribution arrangement for India with Metabowerke, Germany for their high end Power Tools was further strengthened by opening new locations for sales and service. Manufacturing capacity for an enhanced range of thin wheels is being completed in a phased manner at the Uttarkhand facility in Northern India. Abrasives sales in Russia declined in line with industry demand trends while in China a complete strategic reorientation of the business has been done with a new management team. This should improve the operations in the coming years. Sterling Abrasives, a subsidiary manufacturing Bonded Abrasives and Wendt India, a joint venture company providing Super Abrasive grinding tools and solutions had a difficult year too but remain on a clear improvement course as part of a longer term strategy.
The Ceramics business grew by nine per cent over the previous year due to sales of wear resistant ceramic products and application support in India and Australia. Anticorrosives turned in an excellent performance on the strength of an enhanced product range and a broad based service and application offering to customers. CUMI’s joint venture companies, Murugappa Morgan Thermal Ceramics which manufactures Ceramic Fibre and Ciria India, a provider of Refractory Engineering Services, together with CUMI’s range of dense and castable refractories, continued to extend their Total Heat and Energy Management Solutions expertise to customers amidst difficult market conditions. A recent acquisition, Thukela Refractories, Isithebe, South Africa has integrated well with other CUMI operations to derive better synergies. Though not currently profitable the signs of improvement and sustained business performance in the coming year are strong.
Electrominerals operations across Russia, South Africa and India were the worst affected during the year. The movement of the photovoltaic wafer industry from European locations and their plants in Asia, to China caused a considerable decline in sales of Silicon carbide macro and micro powders from Russia and India. This necessitated a reorientation in product mix at lower levels of profitability while making every effort to retain the residual high value business with European customers and their respective locations across the world. The Fused Zirconia operations at the subsidiary Foskor Zirconia in South Africa suffered heavy losses owing to volatility in input material price and lower customer offtake due to recessionary trends. These set backs we believe are temporary in nature and it has not deterred CUMI from investing in a new Zirconia Bubble plant at Foskor Zirconia in South Africa and an Alumina-Zirconia fusion facility in Kochi, India. These investments are all based on the latest technologies and will stand CUMI well in the future. In line with its core theme of providing technology solutions in ceramics material science to its customers, CUMI continues its pioneering investments. The latest is a joint venture with Cellaris, Israel to manufacture Ultralight Ceramics which has applications in the aerospace and semi conductor industries. The plant is in the process of being commissioned in Kochi India. Also a down stream processing centre and an applications laboratory are being added to help customers evaluate the product and work with CUMI towards jointly finding design solutions for lightweight high temperature duty ceramics.
Difficult business and trading conditions bring out the best in people. The CUMI team across the world ably led by Mr. K.Srinivasan, Managing Director and members of the leadership and teams across the operations in Russia, South Africa, Australia, China, Thailand, Middle East, North America and in India, across divisions, subsidiaries and joint ventures, show a great sincerity of purpose and strong commitment towards a relentless pursuit of excellence in all that they do. They are the strength of CUMI and are very focused on their roles and goals in both operations and financial parameters. In terms of financial performance the year has not been the best but in terms of fiscal prudence the entire team has done well to manage cash flows well and reduce levels of debt thus increasing CUMI’s financial strength and capability to address future opportunites with confidence and conviction.
CUMI’s Board of Directors are a source of great inspiration, wise counsel and always exercise sound judgement while advising the team and me personally on the business and challenging us to greater levels of achievement. A person who epitomizes all this in his thought, action and contribution to CUMI’s well being and progress, Mr. Subodh Kumar Bhargava retires at the forthcoming Annual General Meeting. Mr. Bhargava has served on the Board for 13 years and is the Chairman of the Audit, Compensation and Nomination Committees. We will miss him dearly as his knowledge, understanding, insight across all facets of the business operations has been truly outstanding. While acknowledging his invaluable contribution to CUMI, we wish him well in his retirement.
A dynamic fast changing world always provides many opportunities for a company, its development and progress. For CUMI, the field of Material Sciences provides a great opportunity to create and progress a vision towards being amongst the most admired companies in the world. Towards this the encouragement and support that we receive from all of you is indeed wonderful, and for which, my colleagues and I are most grateful. We look forward to your continued support in the future as we continue on our journey of “Making Materials Work For Man”.