Joint Statement of the Managing Director and the Chief Operating Officer

It was a record year for business, earnings and profits. At Company level, total turnover increased by 15.2% whilst net profit increased by 18.5%

The year under review saw Access Engineering continue its steep growth trajectory, consolidating gains made in previous years and setting new records for earnings and profits. We completed a number of significant projects in Sri Lanka, embarked on our first overseas project and won numerous awards and citations from industrial and professional bodies. We also became the first construction company in Sri Lanka to implement an enterprise resource planning system to plan, monitor and manage our operations.

An Environment Favourable to Growth

We were fortunate in that the macroeconomic environment was favourable to the construction sector. In a year where global economic growth came mainly from emerging, mostly Asian economies, Sri Lanka helped set the pace with an annualized GDP growth rate of 7.3%. Much of this output came from the construction industry, whose total GDP contribution was 8.7% in 2013. With a year-on-year growth rate of 14.4%, the construction sector continued to outperform the economy as a whole for the fourth year in succession.

Much of this was due to public spending on infrastructure development, which is expected to amount to over $ 10 Bn over 2013-2015. Considering the major infrastructure development projects currently in the pipeline, investment in this area will almost certainly continue well beyond 2015. China will continue to play its role as the main source of funding and execution for large-scale Government-led infrastructure projects.

This public spending is expected to be augmented by significant private investment in large-scale infrastructure development projects including integrated resorts, ports, land reclamation, highway construction and property development during the near future.

The construction sector also continues to enjoy a preferential tax rate of 12%, along with further tax concessions offered for new investments in production plant. Certain major infrastructure projects are identified as ‘strategic investments’, offering further tax concessions as incentives to encourage private investment in infrastructure development.

Our Strategic Focus

Despite the good times we enjoyed in FY 2013/14, we did not lose sight of the fact that all booms are temporary, and that gains made at such times are best invested in the future. The principal focus of management planning in the year under review was the sustainability of our business.

Accordingly, a substantial fraction of the year’s earnings was invested in capacity building, technology, skills development and productivity improvement. Investments in capacity building alone amounted to Rs. 1.2 Bn in FY 2012/13, supplementary to the Rs. 1.6 Bn spent in this area in FY 2011/12.

Continuing initiatives in productivity improvement through careful monitoring and budgetary control of projects are already paying dividends, as indicated by the fact that profits grew more steeply than turnover in the year under review. We continued to focus on maintaining our gross and net profit margins by optimizing the productivity of our plant and major equipment (asphalt plants, batching plants, piling equipment) and undertaking projects that demand a high level of lucrative ‘value engineering’ input.

Other management objectives in FY 2013/14 were -

• to implement the SAP Enterprise Resource Planning system
• to further consolidate our core business, growing faster than the rest of the industry and thus increasing our market share; and
• to improve our service portfolio through the introduction of accredited laboratory services.

How the Company Performed

As stated earlier, it was a record year for business, earnings and profits. At Company level, total turnover in FY 2013/14 was Rs. 13.2 Bn, a 15.2% increase over the corresponding figure for FY 2012/13. Still more satisfying to report, net profit increased even further, from Rs. 2.1 Bn in FY 2012/13 to Rs. 2.5 Bn in the year under review, an increase of 18.5% (again, at Company level).

A number of important projects were completed or made significant progress in FY 2013/14. Among these were the building of a salinity barrier across Walawe River, the rehabilitation of two nationally important water treatment plants, piling works on the new Colombo Outer Circular Highway, and the rehabilitation and improvement of several roads in the North and centre of the country, all completed in the year under review. All these were joint ventures with major international contractors, in which we performed as equal partners; the aggregate value of all such ventures to date exceeds US$ 250 Mn and continues to increase. We value such joint ventures for the growth opportunities they offer as well as for the knowledge and expertise we gain from our partners - which serve, by diffusion, to raise standards throughout the industry. It is no exaggeration to say that Access Engineering is the preferred local partner of most international civil engineering contractors operating in Sri Lanka.

In its own right, the Company was also the principal contractor on several important projects, including rehabilitation and improvements to several important roads, the building of a flyover to carry the main road at Veyangoda across the railway (thereby eliminating a dangerous and dilatory level crossing), the design and construction of several bridges in the Eastern and the North Central Provinces, and the deployment of an optical-fibre network for the country’s largest private internet service provider.

Recognition by Our Peers

Business performance was one of several factors that resulted in Access Engineering being judged overall Gold Award winner at the National Business Excellence Awards 2013, presented by the National Chamber of Commerce, and in winning Gold Awards in the ‘extra large business’, ‘business and financial performance’ and ‘construction sector’ categories at the same event. In the same year, we were named among the ten best corporate citizens by the Ceylon Chamber of Commerce.

Exploring New Territories

Access Engineering also ventured into several new areas in FY 2013/14. One of these is mechanical engineering. Our doorway into this sector is a recently finalized joint venture with Shanghai Zenzhua (ZPMC), the world’s No. 1 container handling equipment manufacturer, to set up a facility for the repair and maintenance of freight container handling equipment. ZPMC Lanka Company (Private) Limited will repair and service equipment belonging to Colombo International Terminals and others.

The year also saw us venture overseas for the first time, as a subcontractor on an Asian Development Bank financed project to improve the capacity of Lae, the largest port in Papua New Guinea, by building a tidal basin. Sustainability is a very important consideration in this project, and we significantly participate in environment-monitoring.

Access Realties, a wholly-owned property development subsidiary of Access Engineering is the owner and the managing agent of Access Towers, the principal property of the Access Group. During the year, we finalized investment plans and commenced construction work with respect to a second tower block at Access Towers, managed by Access Realties 2.

A Portfolio of Expertise

Laboratory services will be the latest addition to a range of accredited competencies that gives Access Engineering the broadest portfolio of expertise in the Sri Lankan construction sector. We are accredited in all major disciplines of construction including roads and highways, water and wastewater management, ports and aviation, flyovers and bridges, building construction, irrigation and land drainage, dredging and reclamation, environmental and waste management, telecommunication infrastructure and piling. Our service portfolio includes geotechnical and laboratory services, engineering design, piling, dredging, horizontal directional drilling, asphalt production, quarry production and concrete production.

This unmatched range of competencies was of vital importance in securing numerous large contracts in the year under review, including the largest piling contract ever awarded in Sri Lanka. Investments in asphalt, quarry and concrete production during a tax incentive period have resulted in increased contribution to earnings and profits from these lines of business.

‘Value Engineering’

We continued to deliver value engineering solutions in FY 2013/14, such as an improved formwork system for building construction, the use of prefabricated panel retaining walls, new field testing methods including the static load testing of piles, and new leak detection methods. ‘Value engineering’ in plants managed by us included optimizing mixes for various blends of asphalt and concrete, thus minimizing wastage. We also deployed other innovative techniques such as horizontal direct drilling (HDD), cable jetting and various resource and energy conservation measures, all of which are discussed in more detail elsewhere in this Annual Report.

Information Technology

We moved to improve the efficiency of our financial and administrative processes by implementing a SAP ERP system, becoming the first construction firm in Sri Lanka to do so. We also introduced a new software system for human resources management and development. Improvements were made to our asset management system.

A Broadbased Commitment to Sustainability

Fortuitously, there is a direct relationship between sustainable development and the objectives and activities of our core business. Thus, a commitment to sustainability is built into everything we do. On the social sustainability front, we retained our status as a preferred employer in our industry. Well-established programmes to build knowledge and human capital have helped us attract and retain some of the best human resources in the industry, and we enjoy an employee retention rate of almost 94%. Training and development initiatives included overseas and local training for 818 Access Engineering employees. Several health enhancement programmes for employees were also carried out during the year and received enthusiastic participation.

Community engagement projects carried out in the year under review included a mentoring programme for University of Moratuwa engineering undergraduates, an initiative to harness the job skills of ex-LTTE cadres through NAITA, training sessions for laboratory technicians and a ‘skills for life’ programme for over a hundred school leavers.

Our commitment to environmental sustainability was reflected in ongoing improvements to our construction practices such as the reuse of bentonite, the adaptation of cleaner technologies, the use of renewable energy at our construction sites, the evaluation of suppliers’ conformance to ISO 14001, control of paper waste and waste recycling, control of electricity use, water treatment and recycling, training on environmental waste practices and an ongoing tree planting programme in all our construction areas.

All our external corporate citizenship initiatives are now clustered in five areas under the common theme ‘More than Bricks and Steel’. Our commitment to sustainability was recognized in various forums: our mentoring programme received a certificate for ‘best project for university undergraduates’ from the Ceylon Chamber of Commerce. Access Engineering was also named among the ‘ten best corporate citizens of Sri Lanka’ by the Chamber.

Looking Forward

As earlier stated, our primary concern at present is to build long term sustainability into our operations and activities. Thus our policy is, for the most part, one of consolidation. Contribution from the water sector is expected to increase and the construction of roads and highways, bridges and flyovers will remain our main field of activity. With a large number of new public and private sector infrastructure development initiatives active or in the pipeline, the future outlook for the Company is very promising, and we continue to seek out lucrative public-private partnerships in infrastructure development.

Meanwhile, Access Engineering has begun moving into new areas, both commercial and geographical, reducing our sector exposure. Among these are renewable energy (mainly mini hydro power projects), real estate and ventures into new areas within the construction sector itself.

Subject to availability of capacity, we are now looking to exploit overseas business opportunities, particularly in Africa and the Middle East, with current strategic partners. Some of these will be in the ports sector; most probably, they will take the form of collaborations similar to the recently instituted partnership with ZPMC. We expect these ventures to contribute a larger fraction of the Company bottom line in the medium to long term.