Group Finance Director's Report 2011

"The Group's fundamentals are strong"

• Revenues at $5.3 billion, up 4% from 2010 ($5.05 billion).
• Operating profit exceeds $1 billion for the second consecutive year.
• Profit before tax (PBT) of $905 million down 5% (-2% without Almond impairment).
• Almond Resorts Inc impairment $30 million (non cash) taken as a charge against earnings.
• EPS at $3.46 vs $3.61 (2010). Without Impairment EPS is $3.64.
• Cash generation up $268m up 30%.
• Total assets base at $11.4 billion.

Earnings Performance

Group revenue grew by 4% to $5.27 billion ($5.05 billion - 2010) whilst earnings before tax declined by 5% to $905 million ($954 million – 2010). Free cash generated from operations increased by $268 million (30%) to $1.17 billion ($905 million -2010) with total assets now standing at $11.4 billion. Reported EPS stands at $3.46 compared with $3.61 in the prior period and expenses continue to be well managed.

The primary reason for the decline in reported earnings was discretionary $30 million impairment (non-cash) on the Almond Resorts Inc investment in which Ansa McAL has a minority (non-operator) position of 10% through an associated company. This impairment is conservative as it excludes any potential sale proceeds.

It is important to note that on a like-for-like basis, without the non-cash Almond impairment, underlying EPS actually improved by 1% ($0.03) from $3.61 in 2010 to $3.64; the highest in the Group's history. This is an encouraging indicator, the fundamentals are strong and growing.  Cash generated from operations improved due to increased revenues and ongoing expense management across each sector. The Group's expenses / sales ratio was reduced by 1% and continued to be well controlled. There is however room for even further improvement and we have identified opportunities which will be actioned in 2012.

I am pleased to report that the overall quality of the earnings has improved consistently over the past five (5) years. Whilst the Group continues to rely on the second half performance (ie Q3, Q4) to boost its full year's result, the actual performance in Q1 and Q2 has been improving year on year at a faster pace (Chart 2). For instance the 1Q 2011 and 2Q 2011 published EPS and PBT were the highest in the Group's history surpassing the peak periods in 2007 and 2008.

Cash Management

The Group generated cash flow from operations of $1.17 billion in 2011 compared to $905 million in 2010. This is a 30% increase over prior year and represents 92% of earnings before interest, tax and non cash charges ("EBITDA"). This metric is a measure of how efficiently the businesses converts profitability into cash flow and is a notable improvement over 2010.

In addition, we have found ways to more efficiently utilize the surplus cash reserve, which two years ago was approaching $750 million - earning 0.5% to 3.0% interest, due to the excess liquidity within the commercial banking system.

Surplus cash was redeployed to:

• Fund the acquisition of the publicly held shares in our Barbados business ($100 million).
• Fund ongoing construction of the clay block plant ($127 million)
• Acquire and fund the Trimart supermarket chain and the SLAM radio frequency.
• Expansion of the business (e.g. new BMW showrooms)
• Repay TT$160 million high cost debt (5.25%) in Barbados
• Fund the ongoing common business technology platform (ERP) across the manufacturing and beverage sectors ($42m)

These investments will result in future growth at improved efficiencies with lower finance costs. Cash outflows from financing activities amounted to $466 million in 2011 (2010:$189 million), that included dividend payments of $189 million to shareholders of the Group.

The Group was also able to improve its gearing ratio form 54% in 2006 to below 20% in 2011 by leveraging its strong cash position to repay the more expensive debt and position itself for the investment in growth opportunities that will arise in the future.

Capital Expenditure, Depreciation & Amortisation
$387 million reinvested in 2011 to drive future volume growth and efficiency.

In 2011 the Group invested over $387 million ($321 million - 2011) in long-term assets with a capitalization/depreciation rate of 1.87 compared with 1.56 for 2010.  Depreciation for 2011 was $206 million (2010: $205 million) and we expect this to increase when our ERP and brick making plant projects are commissioned in 2012 and 2013 respectively.

Growth in Shareholder Value
Up 37% over the past two years; 26% over the past five years.

Shareholders would be pleased to note that earnings per share increased by $0.69 over the past five years and the two year shareholder return was 37%. The value of shares in AML has appreciated by $11.25 or 26% over the last five years and is the highest value growth since 2008.  Your Board of Directors have recommended a final dividend of $0.80 per ordinary share (2010 – $0.80). This together with the interim dividend paid of $0.30 (2010 - $0.30) will bring the total dividend payable to shareholders $1.10.  Based on the closing share price, the dividend yield was 2%.

Debt Management
The Group has a debt capacity well in excess of $2 billion, with substantially improved gearing levels.

As at December 31, 2011, the Group's debt stood at $937 million, down by $166 million or 15% from 2010. This is the lowest debt level over the past five years and is a direct result of the execution of its strategy to repay high cost debt from its free cash flows. Specifically, the Barbados debt (mainly the cost of the Brydens acquisition in 2004) was reduced to under TT$90 million in 2011 down from approximately TT$300 million three years ago. At a conservative interest cover of 8 times the Group has the capacity on its balance sheet to leverage well in excess of $2 billion in debt and still meet an interest cover of 8 times. This signifies the strength of the group's balance sheet and is an indication of its capacity to manage a sizeable acquisition.

The Group's Interest cover (one measure of debt capacity) continues to healthy at 9.2 and is expected to further improve in 2012. Of the cash generated from operations, 9% has been utilized to service financing costs whilst the gearing ratio at 19% is at the best level since 2006, with further improvements expected in 2012. The Group has complied with all covenants and conditions of the various lending institutions.

Balance Sheet Management

Total assets stand at $11.4 billion ($11 billion - 2010); an increase of 4% over the prior year. The net asset position is $4.9 billion and our balance sheet continues to be pristine and solid. The liquidity ratio (a measure of short term solvency) is healthy and has improved to 1.63 (2010:1.53) with working capital increasing by $280 million.

Our inventory holding at December 31, 2011 was $1.014 billion ($971 million - 2010) the increase largely attributable to the BMW franchise and Trimart Supermarket acquisitions however stock levels remain reasonably well managed. The Group has adopted a conservative approach to provisioning its stock and is increasingly vigilant to ensure that the inventory holding is balanced between meeting customer demand and minimizing warehousing and obsolescence costs.

We believe that we can further improve in our management of working capital by reducing the conversion cycle time between receipt of inventory and cash collection from customers. This is an initiative which will be accelerated in 2012 via institutionalizing of demand planning as part of our production and sales forecasting.

Segmental Performance
The portfolio is concentrated in Trinidad & Tobago with growing export sales and an expanding regional presence.

The Ansa McAL Group has a sector based business model with over thirteen business lines which drive the Group’s revenue and earnings stream. Over 83% of the Group’s non-current assets are based in Trinidad and Tobago, 15% in Barbados and the rest in other territories throughout the region and North America.  Top line revenues and PBT are similarly spread with the majority of revenues coming from companies in Trinidad and Tobago (71%), Barbados (18%) and the rest from the region and USA.  The Group’s overseas business has continued to demonstrate growth; in the case of its Guyanese  operations, there has been double digit growth since 2008. Guyana and Barbados continue to play a significant role in the Group’s regional business ‘footprint’ and have contributed earnings of $201 million and $933 million respectively. 

Summary & Outlook

In conclusion, 2011 can be described as a year of growth in an environment of contracted spending and highly discerning customers. We will continue to give primary focus on managing the financial performance of our core business and in extracting maximum cash and margins while aspiring to higher service levels and customer satisfaction.

Delivering discernible value to customers and stakeholders will define our position in the highly competitive markets in which we operate and secure our future prosperity. The financial benefits of growth initiatives undertaken in 20111 (eg Trimart, SLAM, BMW, Clay block plant etc) will be seen in 2012 and 2013.

The Group's balance sheet is pristine; we have redeployed cash earning low interest rates to higher yielding, sustainable projects; managed expenses in line with prior year despite the growth in revenues; further reduced expensive debt; strengthened the governance structure and improved the overall quality of the earnings stream.