We are facing an unprecedented crisis – the novel Corona Virus Disease (COVID-19), a global pandemic which has not only affected economies across the world but turned lives upside down. Resilience, Compassion and Hope are the need of the hour. Hence, I urge you to be safe, positive and optimistic to overcome these challenging times.
The global economic growth forecast for the year was already indicative of macro uncertainties owing to the US-China trade tensions, rising protectionism, stringent monetary policies etc. Though the economy was poised for a modest rebound, the outlook continued to be fragile against the backdrop of rising debt and declining productivity. The growth in emerging and developing economies was expected to be better with India remaining one of the bright spots. However, the onset of the COVID-19 has caused the deepest global recession in several decades. While the ultimate outcome is still uncertain, the pandemic is expected to result in contractions across economies causing lasting damage to labour productivity and potential output.
The growth momentum in CUMI which was initially impacted by the slow-down in the Automotive and other core industries during the financial year 2019-20, was on a rebound when the pandemic struck. While the impact caused a 7% decline in the standalone revenues for the Company, the geographical diversification of operations aided in reducing the decline to 3% at the consolidated level.
The lower demand across user industries including the intensified growth decline in Automotive industries, and a slow-down in core industries caused cascading effect on other user industries resulting in an overall decline in growth. This, coupled with the shutting down of operations in adherence to the Government directives for a lockdown to combat the spread COVID-19 towards the end of the financial year impacted the performance for the year.
Despite the decline in the growth, the profitability of the Company continued to be protected by operational efficiencies through Total Productive Maintenance (TPM) practices and rigorous cost management. The improvement in profitability was also attributed to an increase in non-operating income as well as reduction of corporate taxes during the year. The Company remains debt-free owing to prudent working capital management and well executed capital expenditure programmes providing the much needed liquidity during these crisis times. Capital Expenditure, focused on capacity increases, facilities for new products as well as maintenance was met entirely from internal accruals.
During the year, the Company made an interim dividend payment of Rs.2.75/- share of Re. 1/- each which is at the same levels as that of the previous year. Considering the prevailing uncertainties in business conditions and for efficient cash management, the Board has prudently recommended the interim dividend paid during the year to be confirmed as the final dividend for the year.
Abrasives, CUMI’s largest segment engaged in the business of engineering surfaces recorded 11% decline in growth during the year following a decline in growth in user industries mainly Automotive, Auto ancillary, Fabrication and General Engineering. While the business in Coated Abrasives did reasonably well, the impact of the industry slow-down was very visible in Bonded Abrasives. During the year, a state-of-the art maker facility was commissioned in Sriperumbudur, Tamil Nadu – doubling the existing capacity – to cater to the demand for Coated Abrasives products globally. The focus on new markets and products continued, duly supported by a robust distribution network. The indigenous sourcing of input materials and better efficiencies through TPM practices helped drive operational efficiency. The revenue growth in Volzhsky Abrasive Works, (VAW) our Russian subsidiary and Wendt (India) Limited, joint venture company manufacturing Super Abrasives, Grinding Machines, precision components was impacted owing to their dependency on domestic Auto sector which saw a downturn in line with the global Auto sector. The mixed Kharif crop season in India impacted the business at Sterling Abrasives, the subsidiary manufacturing specialist conventional Abrasives. The business in CUMI America saw a good growth riding on the back of increased product establishments and customer acquisitions, thus turning profitable during the year. CUMI Abrasives and Ceramics Company, China bore the initial brunt of the pandemic ahead of the others when the outbreak started in November 2019.
Despite being a challenging year both in India and globally, the Ceramics business recorded a 4% growth over the previous year. The Industrial Ceramics Business comprising, Technical and Wear Ceramics is largely export driven. Focused marketing efforts, penetration into new markets and servicing a global customer network cushioned the business from the adverse effects of the pandemic and economic slow-down. The Business also received the prestigious CSIR Diamond Jubilee Technology Award for development of global-scale technologies during the year. Capacity expansion plans with an addition of a continuous metallization furnace as well as smart manufacturing initiatives were undertaken, and the Business continues to have a strong focus on technology development.
CUMI Australia, the subsidiary engaged in lined equipment business continued to perform well with a marginal increase in revenue and profitability. With an improved performance by CUMI America, the overall consolidated performance of Industrial Ceramics was quite satisfactory in the prevailing conditions.
Refractories and Composites part of the business delivered an improved performance during the first half of the year. However, the cascading effect of the slow-down in core industries resulting in project and capital expenditure deferrals by user industries adversely impacted the performance of this business. The Company’s joint venture Murugappa Morgan Thermal Ceramics, engaged in manufacture of Ceramic Fiber products, which had a stellar performance last year, recorded a subdued performance impacted by changes in product mix.
The Electrominerals business, with its customer portfolio significantly being Refractory and Abrasives users, recorded a marginal growth of 1% in revenues over the previous year. This was mainly attributed by the growth of this business at VAW, Russia supported by a favorable product mix. During the year, the business successfully converted its Zirconia Fusion facility into a White Fused Alumina Fusion facility and also commissioned a pilot Graphene facility. The Business continues to explore value addition through product and process innovations.
The generation from the Maniyar Hydel plant addressing the power requirements of the business improved significantly over the previous year helped maintaining margins. This plant as well as the business at Cochin SEZ received the Sreshta Suraksha Pursaskar from the National Safety Council during the year, a proud moment indeed. The performance of the South African subsidiary continues to be wedged by high fixed costs, impacting the profitability. Exit options are being pursued to curtail future losses.
Southern Energy Development Corporation Limited, the gas based power generation subsidiary which was severely affected by cyclone during the previous year, marked a good growth of 27% in revenues with almost uninterrupted operations till the last week of March 2020. Net Access, the subsidiary providing IT facilities management and allied services recorded a marginal growth in turnover as well as profitability owing to competitive market conditions.
Research and Development
The Centers of Excellence recognized by the Department of Scientific and Industrial Research, Government of India and set up across locations continue to drive the Research and Development activities at CUMI. In the prevailing unprecedented and challenging conditions, innovation is very crucial in providing a competitive advantage. CUMind – the customized innovation framework based on design thinking methodology which has since been institutionalized will continue to play a significant role in leveraging this to CUMI’s advantage.
The onset of the pandemic and the combat measures being taken globally reiterates the fact that people remain the top priority not only for organisations but also for countries. The year witnessed continuing focus on training and development for re-skilling & up-skilling the diverse workforce of the Company, bringing in a culture of innovation & high performance, leadership changes etc. Under the able leadership of Mr. N Ananthaseshan, who had recently taken over as Managing Director from Mr. K Srinivasan after his superannuation in November 2019, the teams across CUMI, its Subsidiaries and Joint Ventures have shown exemplary resilience in handling the COVID-19 situation with conviction and commitment. Proactive awareness campaigns on health and hygiene, swift policy formulations, effective crisis management, well thought out business continuity plans and empathy with care to not only fellow workers but to the society at large showcased the best in our people.
Employee Health and Safety at the work-place remained top priority not only during the year but also when operations were closed owing to lockdown conditions that were imposed by the Government of India to contain the spread of COVID-19. In adherence to the guidelines, the plants were temporarily suspended reinforcing our commitment to the health and safety of all stakeholders. As and when relaxations were allowed, with due permissions from the local administrative authorities, the operations resumed in a secure manner after following requisite safety and maintenance protocols. A significant portion of our people continued to work from home in a safe and secure manner continuously engaging with customers and supply chain partners.
Headquartered in Chennai, India, many of us continue to work remotely away from our offices without any disruption in services. I am glad to share that with the support of our Auditors, the entire audit process has been completed in a smooth manner. The Annual Report for the year as well as the Notice convening the 66th Annual General Meeting (AGM) has been sent in the electronic mode to all shareholders whose e-mail IDs are registered with the Company. To those of you who are yet to register, I urge you to do so and the Report will be sent to you. Copies of the above have also been uploaded in the website of the Company www.cumi-murugappa.com. I also wish to inform you that considering the health and safety of our shareholders and social distancing being the need of the hour, the AGM is being convened through audio-visual means and the manner of participation is detailed in the Notice convening the AGM. For any clarification, you may please contact the Company Secretary who will facilitate your participation in the meeting.
CSR initiatives of the Company through The CUMI Centre for Skill development (CCSD) as well as many initiatives in the field of education and healthcare were undertaken during the year. The Company made significant monetary contributions to combat COVID-19 besides actively helping communities in areas of its operations. During the lock down, the canteens of the various plants in the Company served as community kitchens serving the needy. The selfless voluntary services of our employees helped reach relief materials to not only migrant workers but also others requiring similar support.
During the year, CUMI continued to be a proud recipient of several prestigious recognitions which shows our commitment to constantly excel in what we do.
Mr. K Srinivasan retired from the Company on 22nd November 2019 after passionately serving the Company for more than three decades. CUMI’s international expansion as also resilience to withstand turbulent times such as this is greatly owed to the leadership of Mr. Srinivasan. We greatly appreciate his contribution in building a strong organization. We wish him well in his retirement.
Mr. N Ananthaseshan took over as Managing Director from 23rd November 2019 and has had to lead the organisation under most difficult and tough conditions no one has seen before. We are sure that he along with his leadership team across various countries will lead the organization well and help to tide over this difficult phase smoothly. Mr. Ninad Gadgil has also joined the Company during the year to head the Abrasives Business. We wish Mr. Ananthaseshan and Mr. Ninad all success in their new roles.
Mr. T L Palanikumar who served for over 18 years and Mrs. Bharati Rao for 4 years retired from the Board during the year. We are indeed grateful for their expertise, wisdom, and support during their tenure. We thank them for their guidance to the Company and wish them well.
We are pleased to welcome to the Board, Mrs. Soundara Kumar, a successful banker of outstanding merit thus giving it a balanced and diverse composition. The Board has been a very great support to the Company, the leadership team and to me personally through their active involvement, wise counsel and expertise. Their continuous encouragement and guidance during these unprecedented times is a great source of inspiration to navigate the future with optimism.
We thank all our stakeholders, customers, suppliers, vendors, bankers, authorities and of course you – the shareholders for your unstinted support and encouragement in our journey to craft a future path traversing into new dimensions of material science and technology. Though the future remains uncertain at this point in time owing to the pandemic situation, with continuing grim forecasts being frequently revised, we assure you that we will stay strong in our purpose of Making Materials Matter by providing solutions for an enduring planet.