Sep 2009 Financial News

ANSA McAl rides the storm

Sep 03, 2009

TOUGH talk of tighter and leaner business operations by Ansa McAl to weather the economic downturn turned into tough action which has made the regional conglomerate nothing short of a success story so far in these tough economic times.

Despite a reduction in revenue of six percent for the first half of 2009, compared to the first half 2008, the company reported a profit after tax of $323 million, equal to that recorded for the same period in 2008. The company’s strategy which included reducing operation costs in a variety of ways, also includes plans to expand and Ansa’s Chairman, A. Norman Sabga said there are plans in the pipeline geared towards achieving this.

At the company’s shareholder meeting last Thursday held to reveal first half results, Sabga said the group is currently exploring the possibility of some acquisitions which would create the opportunity for expansion in 2009 and 2010. When asked by one shareholder if Ansa expects to end the year on a positive note in terms of growth, despite the economic situation, Sabga said, “Not only are the prospects there, but we are actively looking at one or two acquisitions which, if brought to fruition, could see significant growth in the Group’s asset base and hemispheric spread. At this point, however, I would rather not say more. We are also reviewing projects with existing businesses in terms of reducing costs and increasing outputs.”

The group believes in a firm steady course through these times, Sabga said as he explained that the diversity of Ansa’s business portfolio also assisted with the group’s success. “The conglomerate model is a successful one if you know how to manage it. Our executive team also reacted in an affirmative way and took action when it was needed and going forward, we will continue in that same vein, holding onto our targets and not at any time saying that we will not hit our targets,” he said.

Group Chief Operating Officer, Gerry Brooks broke down the results according to sector and was able to show just what Sabga meant. He explained while their automotive, manufacturing and media arms suffered blows from the crisis, their financial, distribution and beverage sectors propped up results for the half year.

The brewery sector sales have grown by three percent to $542 million for the first six months this year compared to $531 million recorded for the same period last year, he said, noting that Caribbean and North American case sales have recorded double-digit growth.

Sales of the sector’s flagship brand, Carib beer and the Mackeson Stout brand are on a growth trajectory with Carib’s European sales continuing to post double-digit growth. Another Ansa beer brand, Stag, expanded its regional sales. Brooks explained that throughout the region where the group has beverage sector operations, supply chain initiatives have produced savings on raw materials and spares across the sector . The group was also able to strengthen its executive team in terms of operations and marketing.

Work being done on infrastructure to link services for like companies under the Ansa umbrella(shared services) across the region was also continued. Brooks noted for this sector to maintain success, it is critical that labelling and health regulations be enforced locally to protect consumers and that the playing field be levelled for Ansa in terms of their non-alcoholic malt drink, Malta.

“We would like to see the removal of Value Added Tax on Malta. Unlike other soft drinks, VAT has been imposed on Malta and we feel this is an aberration, especially given the nutrient value to children and athletes,” he said.

Distribution experienced an 11 percent revenue growth to $585 million compared to the first half results of 2008 which was $528 million. Growth, Brooks said, was particularly noted in their Guyana business Ansa McAl Trading (Guyana), which accounted for 37 percent of expansion in that sector for the first half of 2009.

A shared services project has already been implemented in this sector and as a result, the group has experienced greater efficiencies across the sector. Brooks expressed confidence that the sector will continue to perform well and grow with the construction of a 20,000 square feet cold storage facility by subsidiary, Alstons Marketing Company (AMCO) and a 27,000 sq ft AMCO office facility. Ansa was also recently awarded the portfolio of rum brand, Barcardi, in Guyana and in Trinidad and Tobago.

Despite the economic turbulence, due to financial and economic crises globally, the financial sector experienced growth of 4.5 percent to $383 million over $352 million recorded for the first half of 2008.

Sector premium levels increased by seven percent, he said, but there has been an upsurge in motor claims. Investment portfolios performed better as a result of portfolio positioning and improvement in overseas market yields in 2009. Expense management is ten percent less than the corresponding period last year. Premiums from the insurance subsidiary, Tatil Life, are on budget and better than prior year. Investment portfolio yields have improved by eight percent versus the same period in 2008.

The company he added, realised gains on certain trades to “lock-in” gains while the company continue to exceed CBTT/Insurance Capital adequacy benchmarks.

Manufacturing was one of the sectors hardest hit with a 23 percent decline in revenue from $427 million in the first half of 2008, to $331 million for the same period in 2009. Brooks said this was mainly felt in the group’s construction related business. Cost cutting and supply chain initiatives, he said however, have begun to bear fruit, with cost savings being passed onto the customer. Inventory has also been realigned and where appropriate, additional shifts have been reinstated in their clay business.

The group acquired the paint brand, Sissons, recently and this acquisition and integration into Ansa, he said, has been seamless and successful. A joint venture with U.S. Tile in North America continues to garner market-share in a tough Florida market, Brooks said. Although affected by the mortgage crisis, which resulted in a slowdown in the number of new homes purchased, Brooks said the real estate market is showing signs of bottoming out.

Their shared services project for this sector is progressing with software selection carded for the third quarter and phased implementation schedule to commence in the last quarter of 2009 and in 2010.

Brooks said despite the poor performance, Ansa Chemical has performed well by entering new markets in the Dominican Republic and Jamaica. A building solutions project is expected to come on stream in September 2009, which will allow a single point interface with key customers in the construction sector.

Automotive sales locally have dropped off significantly with Ansa experiencing double-digit decline in revenues to go from $467 million in the first six months in 2008 to $300 million for the same period 2009. The group, Brooks said, is continuing to streamline its business by working off inventory. Ansa also remains optimistic that the automotive sector will bounce back because of its powerful asset of brand strength. New services geared towards enhancing the customer’s experience were also introduced as a means of maintaining this asset.

The media sector also showed a decline in revenues falling from $75 million in first half 2008 to $69 million in 2009. New investments and strength in its executive is expected to reap rewards for the sector.

The Services Sector showed little decline moving to $185 million in the first six months of 2009 from $190 million for the same period in 2008.

Group Finance Director, Aneal Maharaj, explained that despite poor performances in certain sectors, the group still maintains a strong balance sheet, which allowed the repayment of an additional $80 million in debt for the second quarter.

This meant that Ansa paid off $250 million in debt over eight months which will reduce higher cost debts and also assist in capital for acquisition opportunities in the region.

“This, coupled with Anse McAl’s vigorous governance framework has ensured the Group has been able to not only navigate the global financial crisis, but also operate in a manner that quite resembles our performance last year, when economies were far more stable and buoyant that they are today,” he said.

Article by: Leiselle Maraj
Source: Trinidad Newsday
http://www.newsday.co.tt/businessday/0,106678.html
Date Published: Thursday, September 3 2009