2006 - Eastern Caribbean Securities Exchange

Group Chief Executive Officer’s Report and Management Discussionand imported clinker costs. Imported clinker wasrequired to facilitate increased production in responseto a strong cement demand.In Trinidad and Tobago, cement sales volume increasedby 10% to 619,739 tonnes due to heightenedcommercial and residential construction, while inBarbados, it increased by 22% to 201,239 tonnesdue in part to construction activities associated withCricket World Cup. In Jamaica, our cement salesvolumes declined by 3% to 843,295 tonnes, althoughthe overall market registered a 4% increase as a resultof imported cement sales following the relaxation ofthe Common External Tariff (CET) in order to easecement supply. Export cement sales volume increasedby 15% to 366,169 tonnes as demand was enhancedby construction activity related to Cricket World Cup.Revenue from our pre-mixed concrete businesses alsogenerated healthy growth of 41% or $75.0m mainlydue to price adjustments as volumes increased by 4%.These price adjustments were necessary to mitigateincreased input costs especially for aggregates, someof which had to be imported for the Trinidad andTobago market due to tight supplies. Our packagingbusinesses recorded significant increases in third partysales volume of 110% for paper sacks and 92% forslings. This translated into a 64% or $8.3m increasein revenue compared with 2005.2007. There was also the need to utilise importedclinker and cement, which resulted in additionalexpenses of $125.2m compared with 2005, for rawmaterials and consumables. Propelled by high cementdemand, the Group produced 106,284 tonnes (6%)more cement and 81,308 tonnes (5%) more clinkerthan it did in 2005. In February of 2006, a quantity ofnon-conforming cement was inadvertently releasedinto the Jamaica market. This quality issue was quicklyresolved but the Group has had to address claimsfor damages from customers who used this cementin construction projects. An amount of $30.3m hasbeen estimated to settle these claims. In addition tothe direct cost of claims, $29.3m has been calculatedas reduced operating profits caused by curtailedproduction levels and other expenses associated withthis nonconforming cement issue.Net Finance CostNet finance cost increased by $7.2m due mainly toloan funding of TCL’s cement mill capacity expansion,which came into production in early 2006.TaxationProfit before taxation increased by $73.7m or 85%to $160.5m. For 2006, there was a net tax charge of$8.7m compared with a credit of $67m in 2005, whicharose from one-time tax credits of $67.5m.Operating ProfitOperating profit (before the $30.3m charge forcement claims) increased by $111.2m or 60%over the previous year. This was achieved againsta background of continued high energy prices andhigher wage rates, which were reflected in theincreases of 14% and 11% respectively in expenses for‘fuel and electricity’ and ‘personnel remuneration andbenefits’. In addition, there were periodic shortagesin the supply of Orimulsion that resulted in the use ofBunker C, a more expensive fuel. Consequently, theGroup is installing a pet coke fuel system at ArawakCement in Barbados to eliminate the Orimulsionsupply problem with completion expected by JulyLiquidity and Financial PositionCash from operations, before changes in workingcapital, amounted to $378.2m, an increase of $88.7mover the prior year. After accounting for changes inworking capital and payment of interest and taxation,net cash generated by operating activities amountedto $231.8m compared with $170.6m, an improvementof $61.2m.The Group invested $381.7m in property, plant andequipment. Our Expansion and Modernisation Projectat Caribbean Cement Company Limited, Jamaicaand Trinidad Cement Limited, Trinidad accounted for$278.6m of the total spent, while $24.1m was expendedAnnual Report 200625