Chairman’s Speech at 27th Annual General Meeting of Shrenuj & Company Limited
Dear Shareholders, Directors, colleagues and friends:
It is with great honour that I make my first address to you as Chairman.
It is therefore only fitting that I begin by extending my deepest gratitude to my father, who I succeed as Chairman. He has guided Shrenuj through three generations, overseeing its growth and transformation to the company it is today. His legacy is an eternal source of inspiration, and I hope he continues to guide us for years to come.
Over the next twenty minutes, I wish to cover three main areas. First, I will outline how your Company has performed over the past year. Secondly, I am going to talk about our recent acquisition in Botswana. And finally, I will share with you my vision for taking our Company forward over the next five years.
I don’t need to tell you what a challenging year this has been. We started the year in a period of exceptional buoyancy. But in a matter of months, the industry was brought to its knees as the global crisis took hold. The financial health of all diamond and jewellery businesses was put to the test. Many companies paid the price of speculative strategies and poor planning. Some suffered bankruptcy while many others were reduced to survival mode.
Despite this backdrop of unprecedented difficulty, I am pleased to report that Shrenuj has, in a relative sense, fared well, because strategic planning, risk mitigation and contingency measures have always been central to the way we do business. However, we have not been complacent. We have been proactive, agile and swift in implementing measures made necessary by the crisis, but without losing our long-term perspective.
In spite of extremely challenging market conditions in the second half of the financial year, Shrenuj’s total group revenue for the year 2008-2009 grew by 19% to Rs.1460.10 Crores (US$ 287.87 mn). We undertook a comprehensive review of our entire cost base and implemented the measures necessary to strengthen our business given prevailing economic conditions. We have reduced headcount but not at the cost of losing talent in the organisation. Shrenuj incurred some exceptional costs associated with this workforce realignment. Before these exceptional costs, Consolidated Profit before Depreciation, Interest and Tax rose 2%, to Rs. 126.16 Crores (US$ 24.87 mn). However, after including these exceptional items, Consolidated Earnings were down 51% to Rs. 21.68 Crores.
Our global diversity, distinctive product and service proposition, and downstream focus helped us secure a relatively solid first quarter for 2009. This was a remarkable result given our industry was battling with falling consumer demand, excessive stocks, extremely volatile prices, and a liquidity drought. Our sales of Rs. 325.71 crores (US$ 68 mn) were only marginally down 3.87% over 2008's strong first quarter, although earnings of Rs. 10.06 crore (US$ 2.10 mn) decreased 27%. Let me expand on the business segments that generate these sales and earnings.
A decade back, about 80% of your Company's earnings came from the sales of polished diamonds, mainly from Indian exports. This business has flourished in the past 10 years, and continues to grow, albeit contributing a declining share of our total revenue. Today, around 35% of sales are driven by new, fast-growing businesses in jewellery, branded jewellery, and retailing, from our offices in 14 countries, spanning four continents. We have shifted from a diamond-centric business to a consumer-centric business, extending our activity portfolio through forward integration, creating captive consumption for our diamonds. This strategy is not only growing our profit margins but also bringing us closer to the consumer.
Our objective is to further drive this shift, and our target is for jewellery and retail sales to contribute 50% of total revenue by 2012. We are continuing to develop the resources and infrastructure to achieve this. Our retail operations in Hong Kong and India show exciting growth potential. We plan to increase our store presence significantly by opening another 100 stores for Diti in India in the coming years. I have already setup a four-member team to study the feasibility of opening stand-alone stores for retailing high-end jewellery in India.
We are continuing to develop our brands. Each of them is distinct and meets specific consumer needs in each local market. But, all our brands offer the same promise of quality, design and value. Our brands have greater resonance than ever among consumers, and provide us with a great platform for gaining market share in this economic climate.
We have invested in strengthening our design and marketing teams, enabling us to create and market products that resonate closely with diverse consumer needs around the world. Just last year, we commissioned the Shrenuj Gems & Jewellery Limited facility in Seepz; this increases our jewellery manufacturing capacity to one million pieces per annum. And the acquisition of Simon Golub and Sons in 2007 provides us with a deep, downstream distribution network in the US.
We are positive about the future potential of the industry, and believe our business is extremely well positioned to leverage this. We are building a strong presence and leadership in the most promising emerging markets for diamonds such as India and China. Our focus is on developing a consumer-driven proposition, adding value to our products through appealing jewellery design, branding and creating an exciting retail experience. This enables us to capitalise on growing sales today, and build an even better position for the future.
We need to support our downstream growth by ensuring suitable, sustainable supply of rough diamonds. Given that diamond miners have been cutting back production, supply to the market will be limited, making this an even more important strategic focus. As many businesses have been limiting or ceasing their purchasing over the past few months, suppliers are tending towards companies that have shown consistency and continued demand over this difficult period. I am happy to report that we were successful in securing an ongoing direct supply from BHP Billiton earlier this year. This additional source of consistent goods also supports the long-term growth of our business. We have a strong advantage here to improve our position.
Moving on to my second topic, I am very pleased to report that we just recently acquired a significant diamond manufacturing operation in Botswana. Opening a factory in a diamond producing country has been an increasingly important objective in our global manufacturing strategy. When the opportunity arose to acquire a large diamond-processing factory in Gaborone, we were able to respond immediately. The factory was re-commissioned on 3rd August this year. I am very happy to inform you that this factory in Botswana is truly state of the art in terms of technology and practices. I am grateful to the government of Botswana for having granted us the licence for manufacturing in exceptional circumstances.
In an unprecedented show of support, De Beers Botswana granted us a direct rough diamond supply for this factory. Supply agreements are non-transferable between factories and we are the first and only company to have been granted direct supply outside the original selection process. The strategic nature of this supply and the increased manufacturing base are both long-term growth drivers. Looking forward, we also plan to develop a jewellery manufacturing facility in Gaborone to feed worldwide demand for our products.
We have a vision for Botswana that runs wider than merely sustaining a profitable operation in a responsible manner. We pledge our commitment to driving a lasting positive social impact in Botswana and in particular the community in which we operate. In addition to providing job opportunities, this venture enables us to transfer our world-class manufacturing skills and expertise to the local workforce. We take particular interest in supporting disadvantaged groups, and about a third of our diamond polishing workers are individuals with hearing and speech impairments. With the development of local jewellery manufacturing, we will achieve total value addition within Botswana and create direct employment for hundreds of local citizens.
Our Botswana factory will benefit greatly from the pioneering technology and information systems we have integrated throughout our global facilities. We have developed the ability to automate production by introducing new cutting-edge technology. Our world-leading Information Systems can coordinate end-to-end operations, from order entry through factory scheduling to customer invoicing. Shrenuj has achieved a competitive advantage over the years by consistently being one of the first to embrace and adopt new technology. But technology continues to evolve. We remain committed to keeping abreast of changes in technology and the marketplace, and will continue to invest in our in-house research and development.
Our close links with Botswana support and enhance our capabilities as a leading product innovation and design house. Over the last year we have sponsored and collaborated with David Atoh Moatisi, a jewellery designer from Botswana. This collaboration produced the winning piece at the De Beers Shining Light Awards- Botswana. More generally, our global design teams continue to produce outstanding jewellery products, giving us an edge in our respective local markets.
I would now like to look forward, and share with you my vision for Shrenuj over the next five years.
I have been involved with our Company for 40 years. I have watched it grow and transform under my father’s leadership to become a truly global, vertically-integrated operation. I have been involved in every step along the way, from our early days of polished manufacturing in India back in the 1970s, to launching international jewellery brands and retailing operations in the last decade. Yet my excitement for what we have yet to achieve and the potential the future holds is stronger than ever. As the new CMD, I will lead our Company into this new era.
I inherit a business in tremendously strong financial shape, even in today’s climate. In the last five years, we invested substantial amounts in acquisitions and equipment: nearly Rs. 126 crores (US$ 24.84 mn). Yet we maintain a strong financial position, with almost Rs. 90.79 crores (US$ 17.90 mn) in cash and equivalents and healthy interest coverage. Our investment strategy leaves us well placed to drive vigorous future growth.
And I have extensive plans for how we will achieve this growth over the coming years, but for today let me just outline my management ethos and where I want to steer Shrenuj:
“Shrenuj shall be the most profitable, highly integrated company, with world quality leadership in every one of its products and services. We want Shrenuj to be perceived as a unique, zealous, entrepreneurial enterprise, known around the world for its unparalleled level of excellence.”
My entire team at Shrenuj shares this vision. And it is through this shared vision, collective commitment and alignment that we will achieve it, rather than slogans and speeches. Excellence will only be achieved by making it the cornerstone of our Company’s culture and fostering it through an enabling environment.
"Excellence" is a moving target. It’s the state of being the best in all you do; where we continue to challenge ourselves and uplift our performances. It will be the responsibility of my team to allocate the resources necessary to achieve our goals. In short, we will search for the impossible and make it happen.
It is equally important for us to be realistic in focussing on areas where our inherent and acquired competencies enable us to excel. This necessitates a discipline to avoid and withdraw from areas where the environment or economics do not play to our strengths.
Recognising and building on our strengths will drive our growth and defend us against competitors. The superior quality of our products creates customer loyalty. And our passion for innovation allows us to offer our customers more exciting, desirable products with higher value propositions.
We are already a world-class Company with one of the best reputations in our field. It is my responsibility to propel Shrenuj to new levels by providing leadership that is enabling, inclusive and definitive. Everyone in our Company – throughout our operations and across our regions - will continue to embrace the challenge to live up to this reputation and enhance our performance so that, in the world's assessment, our quality and excellence are not issues for conjecture, but indisputable facts.
We want to make our shareholders, employees, customers and suppliers prouder than ever to be associated with Shrenuj. I assure you of our best efforts and thank you for your continued commitment and belief in our Company. I look forward to sharing success with you in the coming year.
Thank you for your attention.