ANSA McAL: Deft touch pushes growth

At year-end December 2002 Ansa McAL Group of Companies posted an after tax profit of TT$243.4m, which was a 13.7% increase over the 2001 figure of TT$214.1m.  Earnings per share increased from TT$1.1 in 2001 to TT$1.24 (13.7% increase) “Shareholders should note that the level of earnings per share achieved in 2002 is a record for the Ansa McAL Group,” reports the Chairman A Norman Sabga.

We cannot discern which industry segment is the biggest contributor to the after tax profits as the Segment Information in the Annual Report only shows the before tax profits as:
* Manufacturing and packaging “diversified supplier of beverage, glass, chemicals and paint products” —  TT$119M,
* Automotive and distribution segment which “ provides services in passenger vehicles, spare parts and household and consumer products”  — TT$118M,
* Insurance and financial services “supplies life and general insurance , vehicle financing and merchant banking business  — TT$55.8m
* Media service and parent company — includes newspaper, radio, shipping and corporate services — TT$30m
The manufacturing and packaging segment increased before tax profit by 6% over the  2001 positions, while other segments remained the same, save for the automotive and distribution figures where before tax profits declined by 5%. The financial ratios for the Group show a solid company, which is expected for a true “conglomerate.”  (ANSA McAL involves itself in different and unrelated industries to defy any single industry categorisation.)

Current ratios for the company are 1: 0.68 (current assets to current liabilities) and does not suffer with the removal of inventories. The debt to equity ratio stands at 56%, which is a reasonable figure for the local environment. In 2001 the company financed its investment and expansion projects through the issue of bonds that become payable in full in 2016. The interest rate is at a fixed rate of 12.625% payable per annum. The choice of issuing bonds instead of incurring debt allows the company a better cash flow, as only interest charges — as opposed to principal and interest with loans  — have to be paid on an annual basis. 

Utilisation rates for total assets stand at 49% which reflect the expenditure on capital investment in 2002 :
* New equipment at ANSA  Polymer and ANSA Chemicals
* A refurbished kiln at ABEL,
* TT$1m world class ICI Autocolor Training centre at Penta
* Commissioning of a new wing, Building R at Grand Bazaar,
* Rebuilding of the bar and restaurant at Club Pigeon Point. 
Expectations are that this ratio will dip further in 2003 before it can recover because of
* The commissioning of the “one of the most advanced block manufacturing facilities in the world” at Bestcrete;
* The rebuilding of the furnace at Carib Glassworks;
* The  new state of the art match line installed at Trinidad Match.
Insufficient data makes it difficult to pinpoint companies that were less than profitable for the year 2002 within the Group, but those that are reported as having “challenging” or “difficult” trading positions were: Hardware and Oilfield/ ANSA Technologies, St Kitts & Nevis Carib Brewery, Crown Industries/ Standard Equipment. Trinidad Publishing Company remains highly optimistic about prospects in the new financial year.  
 
The companies that excelled were:
*ABEL was able to achieve superlative growth in sales and managed to double its profits compared to the results achieved in 2001.
* Bestcrete surpassed both sales and profitability targets
* Carib Brewery —“successfully defended and enhanced its domestic market share.  The company increased both its sales volume and operating profits.
* Classic Motors — “in a total market that has its fourth consecutive year of decline, Classic Motors has managed to grow its profits in each of these years.”
* ANSA Finance and Merchant Bank — reported a profit after tax figure of TT$21.9m a 12% improvement over 2001 results
* Trinidad Lands/Grand Bazaar — 22% increase in gross profits over the prior year and enjoys an almost 100% occupancy.
Companies within the Group have various rates of growth, and can take risks to dominate markets e.g. Carib’s successful price wars, which other companies without the financial backing of a larger group cannot do. 

For the Group, combining the effects of lethargic industries with high paced segments allows a smoothing of earnings, that ensures the combined bottom line does not suffer negatively.  The cash cows ensure cash flow for the group while loss leaders provide tax write-offs. For the investor, the stock affords a stable position with moderate returns. However it is self-defeating, as any gains made by a strong company will be mitigated by the losses in other companies. The investor has to take the entire mixed baggage and invest in companies in which he is interested as well as in others he is not. Group companies buy and sell goods and services from each other.  If a company needs to purchase an item, the Ansa McAL Merchant Bank may finance it, ANSA McAL (US) Inc procures it, Alstons Shipping air freights it. The larger Trinidad economy does not benefit from any group transaction and the net VAT position is zero for group transactions. The plus side for the economy is that the group provides some level of stability as it maintains companies through strategic changes or expansion processes that ordinarily may be difficult to sustain. There is a great opportunity for ANSA McAL to be involved in sustainable growth and development of a larger portion of the Trinidad and Tobago economy by involving itself with entrepreneurs and providing seed capital through joint venture programmes.  The entity has the track record of growing businesses strategically and can provide the mentoring necessary to ensure that the flagging tradition of entrepreneurship is revived.    (Most new business are selling something not creating it). Not only do they have the power to lobby for the tax incentives that would make it worth their while, but in terms of being able to buffer the fallout of one or two bad investments — who better to take the chance.

Maxine Attong is a financial and management consultant Email: enhanceink@hotmail.com