Camlin Fine Sciences Ltd

It Is our privilege to write to you and present the Annual Report for FY2023-24.

As you know, the global Chemical sector has been struggling with myriad issues during the year under report. The current fiscal has seen unprecedented demand weakness across all sectors in which your company is operating. Tepid growth and local economic pressures in Chinese economy has hampered the regaining of the growth trajectory.

The predatory pricing and excess supply by Chinese producers have not only put extreme pressure on the margins but have also resulted into geographical anomalies. Later part of the year saw pricing moving southward putting additional pressure on the already low growth, of course, this negative was surmounted to some extent by falling raw material prices.

To weather these challenging situations, we have adopted a pro-active approach of continuing on the path to strengthen the positive aspects of the business while tackling the hurdles in a targeted manner.

We have also not lost sight of our endeavour to embrace sustainable development goals that would yield significant progress in the future.

Despite the efforts of our operational team, the performance remains underwhelming. There is no manner of doubt that all our stakeholders including our suppliers, vendors, customers have felt the pain of this challenging year. Needless, to say, we are fully committed to fixing the controllable aspect and enable us to overcome the external / uncontrollable issues.

The business, especially that of Performance Chemicals, was significantly impacted by shut down of our Di-phenol facility in Ravenna, Italy. Europe is unfortunately grappling with geo-political tensions, inflation, sustainability pressures, supply- chain disruptions and demographic challenges. The unprecedented fall in prices of Di-phenols with tepid demand in Europe forced us to temporarily close over operations in Europe on August 16, 2023. Unfortunately, the economic situation still seems volatile, which threatens smooth functioning of Di-phenol facility.

Ashlsh Dandekar

Chairman & Managing Director

Management has devised a risk mitigation strategy for our European Di-phenol facility by which a plan has been drawn to re- purpose the plant to manufacture MEHQ/ Guaiacol at the facility with a capital expenditure of Euro 2 million. We are in the midst of achieving the financial closure of re-purposing project and contemplate to restart the facility by end of FY25. As these products are also produced in India, company is well versed with the market of these products. This mitigation strategy should protect the value of our investment. With the plan to re-purpose the plant, certain process inventory carried for production of Di-phenols has been impaired and marked to market in terms of the principles of International Financial Reporting by recognizing a provision of INR 2,279.56 lakh in the financial year under report, which has been disclosed as an exceptional item.

Our JV Partner, Ningbo Wanglong Technology Limited in the Chinese JV, CFS Wanglong flavours (Ningbo) Co. Limited, has reached an outside court settlement in the IP infringement case. This has paved way to finalise the re-purposing of the Chinese Vanillin manufacturing facility to produce Heliotropin. We are earnestly pursuing the project along with our partner and would strive to commence its commercial production in the early part of FY26.

On a conservative principle, we have recognized an impairment provisioning of INR 2,700.84 lakh in the consolidated financial statement for financial year under report.

As you are aware, your company commenced production at its composite Vanillin manufacturing facility in Dahej in January 2023. The commercialization of the project faced teething issues on product stabilization in the early part of this year.

The commercialization also faced the onslaught from Chinese manufacturers on two counts, excessive supply and predatory pricing. Your company has rejigged its strategy and has commenced sale of Vanillin at the current prices, which has resulted in loss of margin both on sale as well as marking the inventory carry at realizable value. Your company also rationalized the production to match the excessive supply.

We foresee a major uptick on the revenues and margins on Aroma products in the later half of FY25 as we have now stabilized the product and are capable of manufacturing product of the quality that is commensurate with the best product available in the market.

These teething issues in Aroma product forced the company to liquidate the upstream intermediate, Catechol in the open market. As you are aware, the prices of Catechol as compared to the cost are not conducive. This again resulted in impacting the margins during the last quarter both on revenue and mark to market on the inventory carry. The result has an impact of INR 3,681.08 lakh on this count.

All these challenges do have a silver lining though. Our shelf life solution business has shown remarkable growth in all geographies. The business in the American continent, especially in USA, has been stellar, with new client acquisition, innovation in product and enhanced customer service. We are confident to keep the growth profile at a high rate in these geographies in the future.

It is no doubt this was an extremely challenging year, but our fundamentals remained solid and resolve steadfast in FY2023-24, our revenues from operations were at INR 161,306.20 lakh which is no less an achievement in these difficult times.

Our earnings before interest, depreciation, tax and amortization (EBITDA) were at INR 11,338.19 lakh. The impact of provisioning on impairment and closure of CFS Wanglong has resulted into a loss of INR 10,487.51 lakh.

The round map for ESG set last year is being pursued rigorously. Our vendors, suppliers, alliance partners along with our employees are actively engaged in working towards their attainment.

Our strong commitment towards strengthening and continuing on the path of our governance framework continues, which is led by the board and the management. Environmental sustainability remains our foremost focus and it encompasses not only to the processes but also in our offerings to the stakeholders. Our endeavour to achieve overall development of your Company by investing in the communities remains unchanged.

As you are aware, Infinity Group, Mauritius and Ackerman's & Van Haaren, Belgium joined the promoter group. Your company will be immensely benefited from their varied international experience.

We both recognize the critical role that is played for overall development and sustainability of our business, by our stakeholders, including customers, shareholders, suppliers, and industry regulators, remains unparalleled. We express our heartfelt gratitude to them and are sure that they would continue their unflinching support and partnership with Camlin Fine Sciences.

We would also like to express our deepest appreciation to all our talented and committed employees for their diligent efforts to drive the business forward in these challenging time and environment.

As we usher to the next fiscal, with the collective dedication and determined efforts of all our stakeholders, senior management, and employees, we are confident of successfully facing the challenges and navigate through the difficulties to achieve our goal of "Creating Value".