Our business model revolves around optimising margins by converting by products from various industries into finished goods which are essential raw materials for other major industries. The price levels for our raw materials and our finished products have historically moved in tandem, albeit with a time lag between them, where finished goods price movements generally lead the way and raw materials prices follow. This has allowed RAIN to realise higher margins in rising markets, with lower margins seen in falling markets, but keeping our margins within a general range as the markets move through cycles. Recently, the cyclical nature of these markets has become increasingly more volatile. The exceptionally long market rise experienced during the 18-month, post-COVID period from late 2021 through early 2023 led to market highs not seen earlier.

The strong financial performance in 2022 was a testament to RAIN’s resilience and efficiency in maximising margins. However, we consistently emphasised during that period that such remarkable results were unlikely to be sustained. As anticipated, 2023 proved to be a challenging year for several reasons, as the subsequent decline during 2023 from such unprecedented highs has likewise been more acute and longer lasting than any past cycles. The continuous fall in finished product prices during 2023, combined with the slower declines in raw material prices, significantly impacted our margins. Regrettably, we see the stabilisation phase of this downturn also being drawn out over 12 months, a longer cycle period than usual for RAIN to experience a decline in operating margins. We are navigating the current, dynamic market landscape, capitalising on gains while facing these prolonged price adjustments.

energy rates in Europe. RAIN’s historical performance patterns indicate that, after a robust year, subsequent periods may experience challenges. In the current cycle, the ongoing trend of vulnerability is anticipated to persist for another quarter or two, coinciding with the stabilisation of prices for both raw materials and finished products. The softening of industry-wide demand for our finished products in 2023 can be attributed to various factors. Customers are proactively managing their production volumes in alignment with evolving demand outlooks and working capital management due to higher interest rates. The demand for our products also suffered from China's competitive exports to Western markets, and rising energy costs in Europe have exacerbated challenges within the industry.

Moreover, geopolitical, and climate-related obstacles in the Red Sea and Panama Canal emerged in 2023, leading to significant shifts in global supply chain routes and economics. These dynamic scenarios, influenced by macroeconomic factors, underscore the importance of prudent management and strategic planning. Please be assured that the entire RAIN team is diligently working to restore financial performance to normalised levels, and we are monitoring signs of eventual improvement.

RAIN’s proactive steps to improve performance Despite these challenges, RAIN remains optimistic about the future and is taking proactive steps to improve the performance. While the current landscape continues to pose challenges, we continue to actively pursue strategies in all parts of our Company to ensure a brighter future for RAIN.

The global rise in interest rates and tighter credit markets further impaired our 2023 financial performance. Despite these challenges, we completed the refinancing of our long-term loans during 2023 and pushed out debt maturities to 2028–2029. Although the refinancing was completed at higher interest rates than our previous ones, they were in-line with market rates prevailing at the time due to various unstable global, macroeconomic factors. Moreover, we succeeded in reducing our total debt by about US$ 130 million compared to year-end 2022.

Despite increased interest costs, we have no major debt repayment obligations until 2028, except for the
US$ 50 million payment of our old Senior Secured Notes which are due in April 2025. However, acknowledging the importance of reducing interest costs, our priority is to prepay debt. Following that strategy, we repaid approximately US$ 10 million of scheduled payments of Term Loan B for 2024 already in December 2023.

1. Optimising Carbon Segment Operations: Our Carbon segment’s calcination plants in India had been operating at lower capacity due to restrictions imposed on GPC imports into the country. However, with the recent relaxation in the imports of GPC and CPC by the Hon’ble Commission for Air Quality Management (CAQM), based on the directives of the Hon’ble Supreme Court of India Order, RAIN anticipates ramping up the operations to higher capacity, thereby significantly improving overall performance.
2. Capitalising on Regional CPC Demand: The increasing demand for CPC in and around India presents an opportunity for RAIN to strategically position our operations and leverage increased capacity to efficiently meet market needs.
3. Focus on Cost Efficiency: We cannot control the length or duration of market cycles, but we can control our costs. Throughout the down-cycle in 2023, we have remained proactive in enhancing our cost-efficiency. Our team has implemented significant and sustainable cost-saving measures, not only to safeguard our current earnings but also to fortify them for the future. We have undertaken initiatives including consolidating offices, optimising operations and streamlining our workforce.
4. Focus on Next-Generation Raw Materials and Finished Products: In addition to strengthening our existing business, we are focused on next-generation products to position the business for future growth, including the establishment of a new research and development facility to innovate and develop new, groundbreaking products

Outlook and future prospects for RAIN’s segments

Our Carbon segment, whose main customer base is the primary aluminium smelting sector, is looking up. Primary aluminium plays a crucial role in various sectors and has seen steady demand growth over the past few years, driven principally by emerging economies' infrastructure development and the increasing adoption of aluminium in lightweight vehicle manufacturing. Trends such as the shift towards electric vehicles, lightweighting in automotive and aerospace industries and the growth of renewable energy infrastructure are expected to drive demand for primary aluminium in the coming years. While the primary aluminium industry may encounter challenges, it is well-positioned to capitalise on growing demand and technological advancements, driving sustainable growth over the next several years.

Our Advanced Materials segment is similarly seeing economic recovery on the horizon in several end-user industries. Demand is growing steadily for our bio-based and environmentally friendly product lines in our resins, asphalt coating and rubber sectors. The medium and long-term markets for battery anode materials are similarly seeing promising future growth as consumers continue to demand cleaner, greener materials and ways of life.

Our Cement segment also has reason for a positive outlook. India’s cement industry is the second largest globally, with an estimated production of about 370 million tonnes per annum (MNTPA). South India, in particular, plays a significant role, accounting for about 33% of the country’s cement production capacity, and is poised for continued growth, fuelled by infrastructure development and government initiatives. Cement demand rebounded strongly in 2023, growing by 7 - 8% on a per annum basis due to the continued Indian government infrastructure spending that has been a driving force behind this growth. Over the next 5 years, it is expected that Indian cement demand will increase to about 525 MNTPA.

Our vision is to transform RAIN into an entirely unique industrial company with strong intrinsic cash flow economics and solid growth outlook. Leveraging sustainable ‘mega trends,’ we aim to position ourselves as a leader in the industry.

We anticipate a positive shift in demand for RAIN products starting in the latter half of 2024. With a robust R&D strategy, we are confident in our ability to adapt and thrive in a rapidly evolving market both in the near and long terms.

In closing, I would like to express my sincere gratitude to our dedicated employees for their outstanding work during these challenging times. Their commitment and resilience are instrumental in navigating the company through troubled waters. While 2023 presented numerous challenges, we remain steadfast in our commitment to the long-term success of RAIN. We are confident that our strategic initiatives will pave the way for a stronger and more resilient organisation.

Thank you for your continued trust and support.

Sincerely,

Jagan Reddy Nellore
Vice Chairman
February 23, 2024