Rupee depreciation, policy inconsistency biggest challenges: Tokyo Cement MD

This is the 15th of the Mirror Business-Colombo Stock Exchange (CSE) interview series, featuring top executives of the S&P SL20 companies. Here Tokyo Cement (Lanka) PLC Managing Director S.R. Gnanam talks about Tokyo Cement’s performance, future plans and industry growth prospects.

What are the key milestones Tokyo Cement Company (Lanka) PLC achieved in 2017? 

2017 marked a significant year for Tokyo Cement with us achieving many feats that further strengthen our leadership position.

In mid-2017, we commissioned a one million metric tonne (MT) cement grinding facility in Trincomalee, which brought our total production capacity to 2.8 million MTs per annum, the largest in the nation.

Another highlight of 2017 was the ceremonial commissioning of our third biomass power plant with a capacity of 8MW by the president. This landmark opening took place on May 5, the birth anniversary of Tokyo Cement Group Founder/Chairman the late Deshamanya A.Y.S. Gnanam, making the company one of the largest (non-hydro) contributors of renewable energy in the nation.

Tokyo Power now generates 24MW of biomass energy; 16.5MW of which allow us to self-supply all our production requirements and 7.5MW surplus that we are able to supply to the national grid. This biomass energy initiative that was pioneered in Sri Lanka by the Tokyo Cement group considerably reduces the carbon footprint of our production and net impact on the environment.

Both the power plant and additional one million MT grinding capacity was part of a larger US $ 50 million strategic investment plan to expand capacity and strengthen our supply chains in order to meet the anticipated demand growth fuelled by the country’s development momentum.

The multipronged project also included the setting up of a fully-automated dry mortar manufacturing plant to produce the company’s innovative range of value-added products, including plasters, flooring compounds, waterproofers and tile adhesives. As part of this expansion drive, the private jetty in Trincomalee was expanded to accommodate larger vessels that can transport bulk quantities of raw material and finished product to and from the new plant.

We also invested in a new vessel of a considerably higher capacity to best take advantage of the jetty expansion and serve our expanded production requirements. The master plan also includes several new cement silos to contain Nippon Cement-Pro, Tokyo Cement’s new brand of the highest graded cement in the country, formulated to serve the increasing demand from high-rises, advanced infrastructure and super structures.

Our focus has always been on investing on state-of-the-art technology and adopting an environmentally-efficient production process as a reflection of Tokyo Cement’s commitment to uphold the highest standards in production. To this end, we formed a strategic technology services partnership with Ube Industries Ltd of Japan, a leading manufacturer of cement and cement-related machinery in the region. 

The technical cooperation agreement between the two companies facilitates the exchange of innovative product knowledge and technical expertise in cement production. We were able to leverage this strategic partnership to improve our manufacturing excellence and superior product quality. Through this engagement we send groups of our technical staff to be trained under Ube Industries’ scientists and technical experts periodically. Furthermore, we import high-quality clinker from Ube Industries Japan to use in the manufacturing of Nippon Cement-Pro.

In September 2017, we commissioned the automated expansion of Sri Lanka’s first cellular lightweight concrete block manufacturing plant in Elpitiya. The plant will produce Tokyo Superlight CLC blocks, one of the lightest, most efficient and environmentally sound building materials available today, targeted towards reducing structural costs whilst increasing energy and auditory efficiency of skyscrapers.

‘‘Rupee depreciation or potential increases in raw material price have posed the biggest challenges to local manufacturers, regardless of the industry they are in. We anticipate this trend continuing in the foreseeable future and are making provisions to weather its impact in order to safeguard and increase our shareholder value

Apart from achieving these major business goals, Tokyo Cement continued to make numerous contributions in enriching our country, our people and the environment.  This included the laying of foundations for a housing project for 25 families displaced during the war and the distribution of deeds to a further 25 families of the Tokyo Cement Tsunami Housing Scheme in Nilaveli.

Adding value to our own dealer network, we were able to provide SME business management trainings to over 500 dealers from across the island through the Tokyo Cement ‘Divi Shakthi’ training programme during 2017. We contribute to conservation in a meaningful manner, in places that makes the biggest impact. To this end, Tokyo Cement carries out the Mangroves Reforestation programme, where we replant mangrove saplings along the eastern coastline of Sri Lanka, in a bid to preserve this complex and endangered habitat. To date we have successfully planted over 40,000 mangrove saplings nurtured at our very own plant nursery, in collaboration with the Sri Lanka Navy. 

Next, among our far-reaching conservation efforts is coral rehabilitation, where we recycle concrete to make reef balls upon which we plant corals. With the help of equally passionate partner marine research and conservation agencies (WRCT and Blue Resources) in cooperation with the Sri Lanka Navy, we monitor the conditions of the reefs, study external factors upon our oceans and plant live coral saplings on these reef balls along our eastern coastline all the way up to Jaffna. 
In and through these initiatives we have proven that it is within every corporate citizen’s control to make an impact, to achieve sustainable growth while making environmental conservation a business priority.

With a legacy that spans for over three decades, the company is now one of the largest manufacturers and suppliers of cement in Sri Lanka. Looking ahead, what growth initiatives can be expected going forward? 

The construction industry is on a great growth momentum with ever evolving cityscapes right around the country. In addition to the multitude of private and multinational investments taking place, the government’s plans for major public infrastructure development projects in the form of Megapolis Development, which includes LRT networks and expressways, add to the boom in the sector.

Tokyo Cement foresaw this development a couple of years ago and geared ourselves to meet its demands and explore new opportunities by improving our production capacity and diversifying our offerings. 

Tokyo Cement’s unmatched reputation for providing technologically advanced products has made it the trusted choice of leading construction firms and international building consultants, not just for local projects but for multinational collaborations that are redefining the country’s skyline. Adhering to stringent quality standards during production and backing up our product portfolio with a service guarantee have always been our hallmarks. 

On many fronts, we have been the only supplier who was able to meet the stringent guidelines set by the international developers behind some of the iconic projects that are being implemented in the country right now. As we gain more exposure and experience in meeting superior product standards, Tokyo Cement will continue to take the lead in this sector.

We have introduced a number of value-added products, innovative solutions and processes to improve efficiency and cost effectiveness of the construction industry. As industry awareness increases about the ease of usage and versatility of these products, compared to traditional construction materials, we will see further growth.
To match the speed of development in the industry, we restructured, strengthened and expanded our sales and distribution network. This enabled us to not only establish our key markets but also penetrate into new markets. 

Plans are already underway to open a technical training centre in Colombo to expose industry professionals and university students to modern construction solutions for mixed design constructions. The interactive educational experience we hope to provide therein will be part of our contribution to uplift the industry to adopt efficient and technologically advanced construction practices.

In your opinion, what challenges do you anticipate in the industry?

Rupee depreciation or potential increases in raw material price have posed the biggest challenges to local manufacturers, regardless of the industry they are in. We anticipate this trend continuing in the foreseeable future and are making provisions to weather its impact in order to safeguard and increase our shareholder value.
Added to this, the inconsistent policy framework has always been the bane of almost every progressive industry that is driving our economy forward. It goes without saying that the policy decision-makers should take the big picture into account when proposing policy revisions without looking at only one sector or short-term effect.
As a player who’s been in the field for over three decades, we have experienced that our policy framework is not geared to protect our local manufacturers or consumers. Especially in the construction industry, by allowing cheaper, low-quality imports to reach our consumers with a lenient tax framework we are not only compromising our own citizens’ health and safety but also discourage and place local investors at risk. The policy should have adequate checks and balances to ensure product standards are met by any player who wishes to enter our market. 

‘‘Listing on the CSE gave us the extra impetus needed to take our company to the next level and become globally competitive. The exposure it brought us gave the confidence to achieve bigger goals and demonstrate our business strengths to win over investors in a truly global arena

Positive reforms in our policies that directly or indirectly affect a particular industry will ensure all stakeholders and our country gain in the long term and safeguard investors who genuinely care and are here for the long-haul.

Could you elaborate on how the industry could evolve to better serve the modern demands of construction and building materials?

The construction industry across the world is adopting sustainability at the design stage, which we facilitate by developing products that are either more sustainable in terms of footprint or in how they behave after construction, i.e. better insulators that reduce energy consumption. Tokyo Cement does this by continuously reengineering every aspect of our business, from new product development, sourcing, manufacturing, all the way down to waste management, to minimize our carbon footprint and make all our products more environmental friendly.

Faster construction times in an era of mass labour shortages is another great challenge for the industry. We are tackling this by introducing products and methodologies that not only save time as far as setting speed (imagine faster concrete pours and less waiting for curing) but products like our Tokyo Supercast Plaster Master, that can be machine applicated, thereby reducing labour requirement as well as capable of theoretically increasing application efficiency by 700 percent. 
We’ve even introduced products that skip entire steps like our Tokyo Superseal waterproofer that doesn’t have the traditional requirements of epoxy mixes.
Focusing on the shareholder, what efforts and initiatives are you taking to drive shareholder value? 

As a public listed company, enhancing shareholder value is a key priority within every aspect of our planning and decision-making process. Over the years, Tokyo Cement has been able to add value to our shareholder confidence by maintaining a steady growth momentum by adopting better operational processes in the face of adverse external conditions. Our growth comes from adhering to far-sighted management practices and solid financial discipline.

We have been continuously reinvesting our profits to introduce innovative technologies and expand our manufacturing capabilities, while maintaining a healthy dividend payout ratio that has resulted in long-term investor confidence. Our investment decisions are made with the objective of safeguarding both immediate and future sustainability of the company.

Having diversified our product portfolio has enabled us to become a total solutions provider as opposed to a raw material supplier in the construction industry, thereby enhancing the customer value chain.

Introducing innovative products that are cost effective and efficient has helped us create a distinctive competitor advantage that will continue to win consumers who add value to the company’s market position.

How has listing on the CSE been beneficial to your company? 

Listing on the CSE gave us the extra impetus needed to take our company to the next level and become globally competitive. The exposure it brought us gave the confidence to achieve bigger goals and demonstrate our business strengths to win over investors in a truly global arena.  

Being listed on the CSE enhanced our brand equity and boosted our market position.

As a company which always believed in upholding integrity and stakeholder confidence, the CSE provided a good platform to demonstrate our corporate values that have been engrained in our business for decades.

Both local and foreign investor confidence that translates into the value of Tokyo Cement as a corporate entity at the bourse pushes us to excel in everything we do and take pride in watching the company grow.

Finally, what is your message to the shareholders of Tokyo Cement? Also, touch on the investment case for the company.

Tokyo Cement is about a glowing business legacy that continues to blaze new trails in the Sri Lankan construction industry. We are here today thanks to the many efforts and contributions of all our loyal stakeholders in the form of customers, dealers, partners, shareholders, business leaders, employees and the public. My colleagues in the board of directors are committed to delivering the maximum value for all our stakeholders who made it possible for the company to be where it is today.  

We have achieved great things since our inception and will continue to be the trusted partner in nation building.

The company is on a stable growth momentum with a portfolio of brands that have earned the trust of millions of customers and consumers who place their confidence on us to bring them a top-quality product each and every time. 

We consider every business achievement as a reminder to bring more value to our country, our people and the environment and will continue to Build Beyond Tomorrow.