Chief Operating Officer's Report 2011

Report of the Group Chief Operating Officer

Against the backdrop of a very difficult international and regional economic environment, I am pleased to report another good year in which your Group recorded revenue of $5.267b, the highest level of revenue in the Group’s history.

Group Profit Before Tax crossed the $900.0m threshold at $904.8m. Comparatively, this continues to be the best regional conglomerate performance! I would like to congratulate the leadership teams and our staff for another year of excellent results in a challenging environment.

A REVIEW OF OUR SEGMENTS

Architecturally, the Group Sector structure continued to align well with the Groups overall business strategy for the period under review. In 2011, it has been refined to sharpen business focus and optimize business synergies at Sector Level. These refinements are already bearing fruit. The full benefit will be manifested in 2012 and beyond.

Recognizing challenging macroeconomic conditions are likely to persist for the medium term, the Group is very deliberately focusing on "new growth poles". In addition to organic growth via reengineering of business strategy and business models, the Group will therefore focus on mining new export markets and new segments. It will also continue to be acquisition driven.

I am pleased to report that export revenue of proprietary brands crossed the $300m threshold for the first time and is on an excellent growth trajectory. This provides greater portfolio balance whilst adding revenue diversification.

Our New Business Development Office, established in 2010, has been institutionally strengthened. This office has created a rich pipeline of very attractive business opportunities which are under active consideration. In 2011 your Group acquired the Trimart chain of supermarkets in Barbados. A feasibility study of a proposed Ethanol Plant in Guyana was also initiated following the execution of a Memorandum of Understanding with the Government of Guyana. Should the feasibility prove successful, the next phase will be plant construction and commercial realization of this opportunity.

In 2011, Group gross margins declined marginally by 1.0% after five years of continuous growth. A mix of increased international commodity pricing, a relatively weak US dollar and a strategic decision to reduce inventory levels in certain sectors resulted in the reduction of margins. Positively, the latter enhanced cash flows that has enhanced a very robust cash position. Prospectively, the Group will continue to tightly manage expenses, procurement and supply chain initiatives to regain margins in 2012 and beyond.

MANUFACTURING, PACKAGING & BREWING SEGMENT

The Manufacturing, Packaging and Brewing segment continue to perform well despite challenging market conditions. Overall, revenues increased 3.3% to $1.925b. Sector profit also increased $15.0m to $436.2m. This segment benefited from $217.0m (56.0%) of the 2011 Group total capex of $387.0m. This approach is consistent with our philosophy of reinvesting in key strategic segments of our business to ensure future growth, competitive advantage and underlines our continued confidence in the region.

Our transformative investment in the Enterprise Resource Planning Solution (ERP) has been implemented at CDC and CGL. Already the system has enabled management to better streamline business process and reap greater organizational efficiencies. In 2012, the production modules will be implemented at both companies providing a holistic view of the business. Additionally, implementations are taking place at all of our subsidiaries in the Manufacturing Sector with a view to full sector rollout in 2012 and 2013.

While the Beverage Sector was particularly impacted by the State of Emergency (SOE) in the months of October and November, the Sector was again able to increase case sales locally in both the brewed and soft drink lines. Export sales have again increased by double digit percentage points across the region in all Tier 1 markets. The Group is particularly excited by the growth of Stag and its brand resonance in regional markets.

Our successful entry into the light beer market in 2010 has been reaffirmed in 2011 with continued strong growth. Carib Pilsner Light is now the fourth largest selling beer locally with excellent prospects regionally. Customers continue to express delight in its full bodied taste. Our regional breweries, despite challenging economies, continue to perform well. Grenada Breweries Limited, weathered a period of intense industrial action and was able to complete mutually agreeable union negotiations and Plant operations have fully normalized. During 2011, the CDC and Heineken alliance was rekindled. It will provide stakeholders with technical, marketing and production benefits.

Government has signalled its intention to introduce legislation to limit the indiscriminate disposal of glass and plastic containers. We welcome this legislation. We have worked closely with the Chamber of Commerce, the TTMA, Government and other stakeholders in the drafting of the Beverage Container Bill and look forward to the Bill being introduced to Parliament and enacted at the earliest opportunity.

I also take the opportunity to thank the Beverage Sector Head – Andrew Sabga, Roger Mew Managing Director of CGL and Frances Bain-Cumberbatch Head of Group Legal, for their outstanding contribution to this important initiative.

MANUFACTURING SECTOR

The continued slowdown in the Construction Sector and the delay in settling outstanding money owed to contractors continue to negatively impact the Sector. Despite this obvious impediment, ABEL and Bestcrete were able to grow market share in both the clay and concrete block segments. The Group’s $300.0m Clay Block investment is progressing well and on budget. It will be the most significant and most advanced clay block plant in the hemisphere. Quite simply, it is a game changer and will offer customers a new and exciting menu of products. The Sector has also refreshed its portfolio of window offerings which has been well accepted by customers.

Our Coatings businesses (Penta & Sissons) continue to perform creditably increasing share in a challenging market. Our acquisition of International Paints has strengthened our industrial paint portfolio. Our partnership with Grace Kennedy’s Hardware & Lumber in Jamaica is progressing well. This, coupled with the acquisition of new mixing equipment for our shops, will enhance the customer experience and sales trajectory.

During the course of the year, the undersigned assumed the additional responsibility as Sector Head – Manufacturing. I thank Managing Directors for their support and also welcome John Charles and Victor Cooper who assumed Managing Director responsibilities at ANSA Polymer and ABEL Building Solutions respectively. May I also congratulate the ANSA Chemicals team on another excellent year.

AUTOMOTIVE, TRADING & DISTRIBUTION

The Automotive & Distribution segment continued to perform well. Segment revenues increased $31.0m to $2.210b while segment profit increased marginally to $131.7m. In 2011, vehicle supply in certain brands was constrained by the Japanese Tsunami and the Taiwanese floods. Supply has since been regularized. Prospectively, 2012 will usher in a range of exciting new models in our Ford, Honda, Range Rover and BMW portfolios. These will be complemented by our "In One" (Finance, Insurance & Service) product which continues to enjoy an overwhelming response by customers.

AUTOMOTIVE SECTOR

Strategically, Sector capacity has been strengthened with the appointment of two new General Managers, Rishi Basdeo – GM Diamond Motors and Riyad Mustapha – GM Classic Motors, who will add focus and divisional leadership.

The BMW brand acquired in 2011 has completed our luxury/performance portfolio offering. Demand has been strong and is expected to accelerate further in 2012.
Consistent with the Sector’s focus on service, several new showrooms including BMW & MINI in Trinidad and Barbados and Ford were completed in 2011. The Land Rover/Jaguar show room was also refreshed.

A deliberate programme of technical training has also been undertaken across the sector to improve vehicle service capability. This will enhance the customer and brand experience whilst strengthening customer service.

AMCO was able to record double digit improvement in Profit Before Tax whilst handsomely improving its revenue by leveraging prior year investments in cold storage facilities and expanded warehousing. Equally encouraging, is ANSA McAL Guyana’s continued double digit growth in revenue and profitability. Congratulations to Managing Director Beverley Harper and her team! This thrust will continue and will be deepened into key South American markets.

As promised, the Sector’s Technology 1 Project was completed in 2011, enabling every company in the Sector to operate on the same I.T. platform. This is a first for the Sector and Group! For multinationals, utilizing the Group’s distribution, provides cost efficient, brand and market access regionally. It will be further enhanced by our Shared Services thrust in 2012. Strategically, the Group was also able to acquire the Trimart chain of four supermarkets in Barbados.

This acquisition preserved the jobs of 250 Barbadians. Together with the buyback of ANSA McAL Barbados shares, these initiatives injected much needed foreign exchange into that economy. Equally important, it provides a retail uplink for our Distribution business. In 2011, a new management structure was introduced while revamping the organization. The future is very encouraging.

INSURANCE & FINANCIAL SERVICES

Unsettled Global financial market conditions continued in 2011, however Segment revenues increased from $741.8m to $747.0m, while segment profit declined to $231.7m based on provisioning for our investment in TCL and other general provisions in keeping with the Group’s provisioning policy. ANSA Merchant Bank Limited continued its consistent trajectory of improved annualized performance.

Its asset base increased from $5.1b to $5.4b – approximately 6.0%, while it generated return on assets of $3.43% Shareholders who invested in this Stock as at January 1st 2011 would have generated a 10.3% return on investment in 2011. The two new funds introduced by the Bank – the ANSA TT$ Income Fund and the ANSA Secured Fund – are being well accepted in the market. The Bank’s asset finance portfolio has grown 22.0% while containing nonperforming loans at one percent. The Investment Banking Division has structured and syndicated in excess of TT$1.0b in new deals in 2011 and has a quality pipeline into 2012.

Tatil General enjoyed an excellent underwriting year reducing claims costs by 17.0% and improving PBT by 37.0%. Its combined ratio was 88%. Tatil Life also increased Annualized Premium Income (API) by 17.7% and continues to exceed all prudential and statutory capital and solvency requirements. Jointly, they provide safe, secure investment vehicles for insureds and potential investors.

Congratulations to Nigel Romano on his appointment as Sector Head and welcome him to the Group. May I also congratulate Musa Ibrahim on his appointment as Tatil’s Managing Director.

MEDIA, SERVICES & PARENT

In 2011, revenues increased by 45.6%% to $384.3m. Paradoxically, segment profits declined from $150.2m to $105.2m. This is a direct consequence of the Almond provision of $30.0m explained by our Group Finance Director later in his report. Specifically, our Media revenues (GML) declined marginally from $187.0m to $185.0m – influenced in the main by the uplift of general elections in 2010.

GML’s Profit declined slightly to $48.0m in the face of substantially increased global newsprint prices. Several cost and margin initiatives have been implemented to reverse this decline. This is expected to bear fruit in 2012.

The radio network continues to deliver the widest cross section of listenership in the market place. Network reach was fortified by the acquisition of Slam 100.5 which provides a new genre of customers and access to the urban youth segment. The acquisition of key Carnival related properties including Soca Monarch and the integration of content across all media has given customers and advertizers unique access to over 750,000 clients daily.

Our television properties have been refreshed with exciting first season content providing entertaining and relevant programming supported by leading edge, news and current affairs programming. More important, is the deliberate integration of traditional media with new media by the Sector to ensure customers and advertizers have a 360 experience. This is an important area of focus and infrastructural build out. We will also continue to explore regional opportunities in this Sector.

OUTLOOK

The "new normal" will continue to be characterized by a challenging regional and global environment. In 2011, several new businesses were added to our portfolio including Trimart and Standards.

The Group will progress the feasibility study of the Ethanol Project in Guyana and our Clay Block Plant in Trinidad. Operationally, the Group produced $1.020b (before finance and other costs) – providing a wonderful springboard for 2012 and beyond. So what’s next?

Our new vision - "Leap of Faith" for the period 2012-2014 announced by the Group Chairman requires us to "get the people basics right", "build an entrepreneurial culture" and focus on "excellence in execution" to enhance shareholder and stakeholder value.

We believe we can! We believe we will! In closing, I thank the Chairman for his vision and support.

I also congratulate my colleagues on the Executive Team and the Management teams and Staff in the Sector that I have the privilege to lead for their commitment and passion in making 2011 another year of very good results.
 
  

Gerry C. Brooks
Group Chief Operating Officer