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Annual Report 2014

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REPORT
OF THE GROUP CHAIRMAN AND CHIEF EXECUTIVE

AAn enduring feature that has become part of our Group’s Legacy is the ability to deliver consistent performance and value in varying economic circumstances. Over the long term this has built confidence among shareholders and our stakeholders positioning the Group as a secure investment, career and trade partner destination. As we add yet another milestone to the 134 year legacy of our business Group in the Caribbean, I am pleased to report that in 2014 ANSA McAL has once again delivered profit before tax (PBT) above the billion dollar mark. While the year in review presented challenges in some sectors, there were significant opportunities in others that maintained your Group on a positive trajectory and produced a solid result. Our strong gains in our automotive, trading and distribution segments offset the decline in our financial services sector that arose from reduced yields in local and international portfolios. In the period under review, our focus remained on extracting greater efficiency and business synergies to continuously improve our competitiveness, delivering on business plans and budgets, as well as creating stakeholder value. Our operations in the region and the US continue to benefit from refining and refocusing our business processes. The ongoing investments in IT, plant and equipment have performed well. In Barbados, structural adjustment programmes and aggressive destination marketing are predicted to have a positive effect on the economy in the near future. Nevertheless, we have continued our investment strategy and managed to improve performance over prior year in spite of delays in obtaining regulatory approvals to reopen our flagship supermarket. We continue to invest and are proud to record the opening of a new flagship Standard store in Q4 last year. We anticipate an even better 2015. Your Group’s performance has again demonstrated the benefits of a diverse portfolio strategy and the ability to leverage scope and geographic coverage. Further, we believe there is even more room to grow our market share in the respective sectors, irrespective of a challenging macro-economy.

FINANCIAL PERFORMANCE

For a second consecutive year, the Group has crossed $6 billion in revenue and achieved over $1 billion in PBT. Total assets have grown and now exceed $13 billion with liquidity metrics either preserved or improved.

On a sectoral basis, our financial services sector declined by 23% as local and international portfolios generated $97 million less than the prior year. The strong gains in our automotive, trading and distribution segment offset the decline in the manufacturing, packaging and brewing segment. Our operations in the USA, Barbados, Trinidad & Tobago, Grenada and St. Kitts have all performed well.

On a reported basis, revenues generated were $6.1 billion ($6.2 billion – 2013), PBT was $1,065 million ($1,144 million – 2013) and earnings per share (EPS) is $3.97 ($4.31 – 2013). Operating profit (before tax and share of results of associates and joint ventures) exceed the billion dollar mark for the fifth consecutive year at $1,079 million ($1,164 million – 2013).

All balance sheet liquidity metrics have been preserved or improved as we grow our asset base and debt is minimal as reflected by our increasing interest cover ratio of 27.25 (25.12 – 2013).

Our balance sheet has never been stronger but we are never complacent. We remind ourselves that adaptability not just strength is key to long term sustainability. In 2014, your Group committed investments of $184 million ($276 million – 2013) across several Sectors in business improvement and new business projects.

Constant review of our governance and administration structures to verify ‘best practice’ is maintained in our operations and is second nature in the Group. Our ‘act like an owner’ philosophy encourages ‘best practice’ and ‘innovation’ at all levels in the Group.

Distribution

DISTRIBUTION
Jose L. Nivet – Sector Head

AMCO delivered the lead performance in the Sector, exceeding both prior year and budget. All divisions performed well with a good mix of organic and new business growth. The outlook for 2015 is positive and the AMCO management is carefully monitoring the market for growth opportunities.

BrydenStokes in Barbados is expected to continue to benefit from a new and invigorated management team and a brightening outlook for the economy. The management is implementing initiatives to better manage the operational expenses and improve efficiencies while at the same time continuing to invest in people and brand development.

ANSA McAL Trading in Guyana did feel the effects of a decrease in the momentum of that economy, supply issues and the impact of parallel trade in the year under review affecting performance. However, our business is robust and the management has planned new product launches which will bring excitement to the market and generate growth from new product lines.

T.Wee Duty Free liquor store had a very good year with over 10% growth versus the prior and
continues to provide an excellent retail outlet for our brands.

Automotive

AUTOMOTIVE
David B. Sabga – Sector Head

In spite of very active competition in the market, our automotive business performed well. We delivered 12% revenue growth and an 11% improvement in profitability on prior year.

Mitsubishi and Ford both lead the Sector in market share growth, Mitsubishi retaining its #1 position in the truck segment, while our other brands maintained their market share.

In October 2014, McEnearney Motors, the FORD agent for 95 years, opened its new facility. Customers are now offered a state-of-the-art FORD dealer showroom experience. This facility is the latest investment and is designed to improve the customer experience and raise the profile of our brands. Continuing the upgrade programme in our Automotive Sector, a new facility in Chaguanas will be opened by August 2015.

We look forward to several initiatives in the coming year that will keep our business “top of mind” and retain our prominence in the Automotive Sector.

In 2014, we completed the installation of our new dealer management IT software and expect to see enhancements in both administrative and customer experience. Mitsubishi has launched its new line of FUSO heavy trucks, 9 tons and up, in April 2015. This is an additional lineup of trucks.

Manufacturing

MANUFACTURING
Gerry C. Brooks – Sector Head

2014 was a year in which several companies in the Sector recorded significant success, positioning the Sector for transformative growth and greater value creation in the future. The Sector also recorded the lowest level of Lost Time Injuries and Lost Time Costs in the Group’s history, which is a direct consequence of a consistent, deliberate focus on Group-wide health and safety programmes. This has been an important and continuing focus of the Sector and Group.

ABEL Building Solutions commenced operations of its state-of-the-art block making facility. The facility was formally commissioned in June 2014 by the Honourable Kamla Persad-Bissessar, SC., MP., Prime Minister of Trinidad and Tobago. The new plant has improved compressive strength and quality of the traditional clay clocks and launched the new Hercules Block clay alternative – providing lightweight, compressive strength and better rendering. ABS enjoyed the highest level of block sales in its history in 2014. Our Cladding Curtain Wall, Metpro and Air-conditioning lines have also grown substantially.

Trinidad Match continues to reinvent itself and dominates the local and regional market. A new BBQ match line was launched and several other initiatives are planned for 2015. It has also successfully penetrated several new export markets.

ANSA Polymer has some key transformative initiatives in progress including investment in new Blow Moulding equipment and planned investment in flexible packaging which will better position the company to service existing and new local and regional customers.

ANSA McAL Chemicals enjoyed another excellent year following our successful plant expansion in 2013. The company is well positioned to garner new export markets in both the water treatment and traditional bleach, chlorine and chemical segments. The future is very encouraging.

ANSA Coatings also enjoyed a year of historic achievement, exceeding budget targets for profitability. The Company launched several shops in Trinidad & Tobago and Jamaica, raising the bar on shop customer experience. Future prospects are very encouraging.

RETAIL, SERVICES & MEDIA

Media – Guardian Media Limited (GML) earned revenue of $209.2M in 2014, which compared favourably with $209.8M for the prior year considering this included windfall advertising revenue associated with four national elections.

Editorial content and people remain the key drivers of this business and GML has continued to invest in attracting the best talent and delivering programming and content that grows market share. Higher operating costs in 2014 are associated with our investments in producing programming content, new technology and developing and training our talent. The company reported profit before tax of $44.5M (2013: $58.8M). Net assets stood at $316.2M (2013: $311.8M).

Traditional media remains relatively strong and the GML portfolio has again demonstrated strength and improvement. The Guardian continues to grow circulation and has added a Sunday Business Paper while CNC3 commands prime time and Radio delivers the widest network reach and diversity throughout T&T. In the digital space, the company continues to innovate and invest where they identify new revenue streams and the opportunity to grow the number of consumers of this rapidly evolving channel. The digital Guardian continues to record significant growth and has introduced a number of digital products that will enhance the user experience. GML is in the development stage of several other digital and non-digital projects and initiatives, including electronic billboard advertising, which enhances the media group’s network advertising capacity.

Furthermore, consolidating key elements of our operations with the print production division at the Guardian Building in Chaguanas will open new opportunities for in-house production, efficiencies and cost savings.

Retail – Standard Distributors T&T, Barbados and Bell Furniture Limited experienced significant changes during 2014. Standard Trinidad appointed a new Managing Director and commenced the rejuvenation and upgrade of their showrooms, starting with the renovation of the St. James showroom.

Standard Barbados also got an enhanced look with the relocation of that showroom from Haggatt Hall to Wildey which promises to bring improved performance and results into the operations in Barbados. Similarly, Bell Furniture welcomed a new General Manager and revitalised their offerings with more modern designs being introduced during the year.

The Sector will continue along its transformational path with new initiatives being launched in 2015 geared toward improvements in efficiencies, product offerings and market reach. Focus is also being placed on brand experience and communication to the next generation of customers. The management is very excited by these initiatives and looks forward to successful implementation and growth.

Services – Gross Revenue grew 10% over 2013 mainly due to new business growth at ANSA Technologies. As we plan for the next 5 years, our thrust and focus in the ever changing IT space is receiving the most attention and under recently appointed Sector Head, Ian Galt, we anticipate substantial improvements in profitability over the medium term. We are confident that the changes in structure and management in 2014 have re-aligned the businesses in the sector to address the future trends in these businesses.

Barbados – Our Barbados subsidiaries delivered much improved results versus the prior year despite operating in a difficult economic environment.

This was achieved due to the cumulative positive effects of 2 years of organisational restructuring and consolidation, which resulted in operating expenses being reduced by 16%, improved GP% by 2% and reduced Finance Costs by 90%, all of which improved our cash flow performance.

With the Group now on a more sound footing, we have moved from a period of consolidation to one of investment for growth, beginning with the investment in a new state-of-the art Standard Showroom, which opened in November of 2014. In 2015, we look forward to opening a world-class branch of our Trimart Supermarket chain, while making significant investments in our IT infrastructure at Trimart and our Automotive companies. These investments in combination with an expectation of an improvement in the Barbados economy in 2015, position ANSA McAL Barbados Ltd for still further improvements in performance for the future.

Beverage

BEVERAGE
Andrew N. Sabga – Sector Head

The Beverage Sector’s growth in 2014 was driven by increased sales in our soft drinks and brewed products portfolios. Of note, Smalta, Carib Light and Mackeson showed healthy growth over prior year. Exports increased from all three breweries.
In spite of economic challenges within the OECS, both Grenada Breweries Limited and Carib Brewery (St. Kitts & Nevis) Limited performed admirably, as they grew both local and export sales while managing their costs.

Carib Glassworks Limited had a challenging year with a 50% reduction in plant capacity as a result of the shut down of one of the two furnaces. Nevertheless, the management has been successful in maintaining supply to key customers. Management has also done an excellent job in managing expenses during this period, this ensured the company remained competitive.

Financial Services

FINANCIAL SERVICES
Chip Sa Gomes – Sector Head

The Sector delivered good operational performance in 2014 but volatility in investments constrained PBT to $270 million in 2014 compared to $360 million in 2013.

In ANSA Merchant Bank, the loan portfolio grew while maintaining best-in-class quality and returns. The Bank also led capital markets transactions with volumes in the multiple billion dollar range for the third year successively.

In Barbados, Consolidated Finance delivered significant profit levels in 2014 well in excess of 2013 and also diversified its product offering by introducing “Green Financing” for renewable energy photovoltaic systems and electric cars in 2014.

Our insurance companies Tatil Life and Tatil General also had good underwriting results in 2014.

I am proud to note that TATIL grew both gross and net premiums and managed claims and other expenses to produce a combined ratio of less than 85% reflecting TATIL’s best underwriting performance to date.

We are working on exciting initiatives across the Financial Services Sector that will continue to build our strong, stable and diverse base of operations to ensure that our products and services remain efficient and relevant to our customers.

SHAREHOLDER VALUE
85TH ANNUAL SHAREHOLDERS’ MEETING AND GROUP EXPO 2014

In July 2014, ANSA McAL Limited hosted our 85th Annual Shareholders’ Meeting at the Regency Ballroom of the Hyatt Regency Hotel. This was followed by our first Group Expo for shareholders of ANSA McAL Limited, Guardian Media Limited and ANSA Merchant Bank Limited who were all welcomed to the “City of ANSA McAL”. Each participating subsidiary hosted a booth at the Expo showcasing their various products and services. Group shareholders were able to interact with our Executives and employees. This historic event was produced to celebrate the financial achievements of the Group and to expose our shareholders to the very different facets of our business.

CORPORATE RESPONSIBILITY

One of the most valuable pillars of our collective 134 year Legacy is ‘doing the right thing, is good for business’ – it deepens our connection with our customers, makes our companies more attractive to talent and builds goodwill in communities in which we operate.

In 2014, The Anthony N. Sabga Caribbean Awards for Excellence selected a further three Laureates bringing the total number of persons to be inducted in its College of Laureates to 23. This represents awards to the value of $10.5 million. The Awards Programme spans all of the English speaking Caribbean with Nominating Committees in Barbados, Guyana, Jamaica, the OECS and Trinidad & Tobago. I regret to say that in November 2014, the Chairman of the Regional Eminent Persons Selection Panel, Mr. Michael K. Mansoor, passed away. Mr. Mansoor was instrumental in the inauguration of these Awards and was Chairman from 2009, having been appointed on the retirement of Sir Ellis Clarke, TC.

The ANSA McAL Group has long been one of the most successful and respected conglomerates in the region, both for our results and integrity. We see our integrity as integral to our success.

HISTORIC SIGNING BETWEEN ANSA McAL LIMITED AND UNIVERSITY OF THE WEST INDIES – ST. AUGUSTINE

In December 2014, a Memorandum of Understanding (MOU) was signed by the University of the West Indies – St. Augustine Campus and ANSA McAL Limited for the construction of the Anthony N. Sabga School of Entrepreneurship, the Guardian Media School of Journalism and a new home for the ANSA McAL Psychological Research Centre. This contribution to the University is the largest benefaction it has received from any private sector entity.

The partnership with UWI is not a new one since the ANSA McAL Psychological Research Centre at the University has been in existence since 1969. Additionally, many of the Laureates who benefited from The Anthony N. Sabga Caribbean Awards for Excellence originated from the University. It is our hope that these institutions will create future generations of high-minded journalists and commercially astute business professionals in the region. Construction of these schools is expected to begin in 2015 at the University’s St Augustine Campus.

OUR PEOPLE

We have a long-standing culture that embraces diversity and fosters an inclusive work environment with equal opportunities. Our employees are vital to the implementation of our business strategy and we continue to recruit, train and reward them to build business capabilities. In 2015, we will be honouring over three hundred and fifty employees who have committed, dedicated and delivered sterling service to our customers, at our Long Service and Group Awards.

I would like therefore to take this opportunity to express my pride and gratitude to the 6000 members of the ANSA McAL Team and thank each and every one of them for doing what it takes to add strength and value to our Legacy of performance.

The ANSA McAL family was deeply saddened by the passing of Mr. Michael K. Mansoor on the 11th November 2014. I take this opportunity to again honour his memory and pay tribute to a colleague who contributed immensely to our Group, the Nation and the Region. We are all better for having known him.

Finally, I appreciate the candour of our nonexecutive Parent Board and operating company directors for enriching our deliberations with their wisdom and experience.

I look forward to another year of value creation for all our stakeholders and building on our Legacy.

A. NORMAN SABGA
Group Chairman & Chief Executive