CHIEF EXECUTIVE OFFICER’S REPORT

 

 

 

FINANCIAL RESULTS

 

 

For the year under review, the Group has produced excellent results.  Third Party Revenue increased by 18.2% over the previous year reaching $4.2 billion while Operating Profit increased by $64 million to reach an all time high of $402 million. Our Earnings Per Share of $3.37 was 20.4% higher than the previous year.  This is the eighth successive year in which we have achieved increases in Revenue and Earnings which is in keeping with our stated goal “to provide sustainable growth for our shareholders”.

 

All our Business Units performed creditably and are poised for further improvement in the new financial year.

 

Our growth in Revenue did not come from existing operations only as during the year we concluded a number of acquisitions, namely:

 

      100% shareholding in Gas Products Limited - (Jamaica)

      40% shareholding in Cool Petroleum Holdings - (Jamaica)

      100% shareholding in Insertech Caribbean Limited

      100% shareholding in Insertech Aruba Limited

      60% shareholding in Pres-T-Con Holdings Limited

 

These acquisitions, although contributing to our Revenue growth, did not make a significant impact on our earnings as they occurred late in the financial year.   We expect, however, that they will do so in the new financial year and beyond.

 

REVIEW OF OPERATIONS

 

AUTOMOTIVE/INDUSTRIAL EQUIPMENT

 

Neal and Massy Automotive Limited continued to be the leader in a very competitive new vehicle market. For the period under review, the company achieved double-digit growth in both sales and profits and for yet another year, the Nissan brand enjoyed the No.1 position in the local market.  In June 2006 the revolutionary new Nissan Tiida was launched and already has gained early market acceptance with its spacious interior, superior suspension and overall affordability.

 

Sales of Hyundai vehicles improved significantly to capture fourth place in the local market with the popular Hyundai Tucson being the leading medium-sized Sports Utility Vehicle (SUV).

 

In the Extra Heavy truck segment, Nissan Diesel (UD) retained its market leadership with revenue growth of 37% over the previous year.

 

The acquisition by the Company of six acres of land contiguous to the Morvant location will offer tremendous possibilities to improve efficiencies and customer satisfaction.  In addition, recently introduced quality initiatives will impact positively on the level of customer service, especially in the after-sales activities. 

 

City Motors (1986) Limited - the Peugeot dealership, did not perform as budgeted. Steps have been taken to address the situation which include the relocation of the Showroom to Morvant.  This move is consistent with the Parent Company’s long-term vision of building an “Auto City” at its Morvant location on the outskirts of Port of Spain.

 

MasterServ Limited improved its overall financial position and achieved profitability during the last quarter of the year. Entry into the after-market spares business has provided another source of profitable income. Fleet management services are being developed and will complement the core operations of the Company.

 

Tobago Services Limited transformed its operations from that of a general distributor to being a dedicated motor vehicle dealership.  This decision was justified as net profits increased by 40% over the previous year. Now that the Company’s business operations have been regularised, additional focus will be placed on increasing sales and improving customer service.

 

Best Auto Limited (50% owned).  The successful launch of the prestigious Volkswagen Touareg impacted the results of this joint venture positively. The Company’s product portfolio is expected to improve in 2007, as arrangements are being finalised to transact business directly with the Volkswagen organisation instead of the present situation where this is being handled through a distributor in the United States.

 

For Automotive Components Limited (ACL) this year was particularly challenging. The turmoil in the world’s commodity markets (especially lead), upheaval in the shipping industry and the scarcity of key raw materials contributed to this state of affairs.  However, ACL was able to meet  each challenge head-on and achieve the major financial and other objectives that it had targeted.

 

Export sales, which provide the single greatest avenue for growth, were given a boost with the implementation of new marketing arrangements in the Jamaican market, the expansion of the distributor base in the Dominican Republic, and new product offerings in the form of maintenance free batteries. Local sales have also grown through improved customer relations and an ever-expanding vehicle population.

 

The Central Warehousing project, which commenced at the start of the financial year, was completed on schedule and within budget.  This has contributed to improvements in  inventory management and logistics.

 

Tracmac Engineering Limited had another excellent year, exceeding its financial targets. High levels of activity within the energy and construction markets, together positive customer relations with the major players in these industries, supported the record growth of the Company’s core business.

 

Significant progress was made in expanding the technical capability of the Company. Workshop facilities were also upgraded with additional investments being made in a state of the art track-press, engine dynotesting and advanced diagnostic tooling.  As a result of these initiatives, the Company is now well poised to expand its specialised service offerings, which include engine and fleet management services.

 

ENERGY

 

Neal & Massy Energy Limited (NMEL) made strides in its objective to become an integrated energy services provider.  This Business Unit made significant advances to become recognised as a role model for local energy companies. These advances came through the strengthening of the leadership team, successful acquisition of Insertech (Caribbean) Limited and Insertech Aruba N.V., and through its affiliate Neal & Massy Wood Group Limited. While the Business Unit’s profits for the year were flat, the coming year’s profits are expected to grow significantly as the benefits of the recent investments become reflected in the 2006/2007 results and beyond.

 

Neal & Massy Wood Group Limited (NMWG) entered the year committed to focus on strengthening its administrative processes through closer ties to NMEL and on further enhancing its engineering capability through more formal relationships with the Wood Group organization for technical support and personnel.  Accordingly, NMEL increased its shareholding in NMWG to 50 percent.  NMWG also established a formal relationship with Vepica, Wood Group’s Engineering and Production Facilities operation in Venezuela. Vepica provides engineering management support, professional development services and engineering and production facilities management. NMWG continues to enjoy the advantages of its association with other Wood Group companies including Alliance, Mustang and J.P. Kenny, who also work with NMWG to serve clients in the local market.

 

In 2006, NMWG was awarded the first-ever integrated maintenance management contract from bpTT to take responsibility for the safety and integrity of its operations.  Under this arrangement, NMWG will have single point accountability for the management and execution of all maintenance, minor plant modification, operations materials management, training and development of maintenance personnel.

 

In addition to the long-term maintenance contract with bpTT, NMWG has also signed long-term contracts for call-off engineering services with BGTT and Repsol.  The Company is also undertaking major projects for BGTT (Central Block) and EOG (Toucan Platform).

 

NM Insertech (Caribbean) Limited - Another major accomplishment in the year was the acquisition of the Insertech businesses in Trinidad & Tobago and Aruba.  Insertech operated in Trinidad & Tobago for over eleven (11) years before it was acquired and has developed an international reputation for the quality of its work and its HSE record. The Company is the leading provider of electrical and instrumentation products and services for plants and platforms. NMEL sees the strategic acquisition of Insertech Caribbean Limited as a key component in its thrust towards establishing itself as an integrated energy service provider. 

 

Neal & Massy Energy Services Limited (NMESL) -   the products and services arm of the Business Unit enjoyed some mixed fortunes in the year.   Although the Company recorded improved profits above last year these were nevertheless below target. 

 

NMESL continued the expanding of its product offerings and included the packaged solutions in addition to traditional equipment sales.  It executed and won a number of successful projects during the year with some of the major oil companies.

 

Neal & Massy Energy Resources Limited - the oil producing operation of NMEL, also had a year of mixed fortunes. The production of oil was significantly below target mainly due to water encroachment displacing the oil production. However, disappointment in production was offset by much higher than anticipated oil prices resulting in the company achieving its budgeted profits.

 

The Company is embarking on a number of initiatives to sustain and increase production. These include new options for further exploration activities (including risk share partnerships) in the Moruga West field and partnering to pursue new exploration and production licences.

 

INDUSTRIAL GASES

 

NM Industrial Gas Holdings Limited (NMIGHL) - achieved substantial growth in revenue during the financial year with its re-entry into the Jamaica market.  In February 2006 the Group together with Cool Corporation Limited, a Jamaican company, jointly acquired the LPG retail and chemical businesses of Shell Company West Indies Limited (SCWI).  As a result of the acquisition, Gas Products Limited, a fully owned subsidiary of NMIGHL was formed to own and operate the LPG business.  The remaining retail and chemical businesses were integrated into a new company, Cool Petroleum Limited, in which NMIGHL has a 40.0% shareholding.

 

These acquisitions, together with moderate but steady growth of industrial gases in the local market, contributed to this Business Unit exceeding its financial targets.

 

Industrial Gases Limited (IGL) - the major subsidiary of the Industrial Gas Group, surpassed both its previous year’s and budgeted targets. The continued growth of the local petrochemical sector provided opportunities for IGL to expand, essentially through the sale of nitrogen for plant commissioning and maintenance.  Additionally, the Company’s low-cost and high-quality liquid carbon dioxide is being requested by a number of regional beverage Companies.  IGL’s existing carbon dioxide production facilities, however, are fully utilised and in order to meet market demands the Company has invested in a new plant which is scheduled to be commissioned in January 2007.

 

Trintogas Limited (TGL) - The management of TGL was strengthened during the second half of the financial year in an effort to pursue growth in the highly competitive welding and medical supplies business.  The Company is now reaping the benefits of this initiative.

 

Trintogas Carbonics Limited -  The high demand for carbon dioxide at IGL provided an opportunity for increased sales resulting in the Company exceeding its budgeted targets.

 

NM Petrochemical Services Limited - experienced a small decrease in revenue and profit resulting from a low level of catalyst “replacement” activity at process plants on the Point Lisas Industrial Estate.  This situation is expected to correct itself in the New Year with a number of planned plant turn arounds.

 

Caribbean Industrial Gases Limited (CIG) and NMAP Services (NMAP) - CIG and NMAP are 50:50 joint venture companies with Air Products Inc.  They own and manage dedicated on-site facilities to Methanex Trinidad Unlimited for the supply of large volumes of oxygen, nitrogen and instrument air.  During the year the companies met all their targets.

 

Since the acquisition of the LPG business in Jamaica, the main focus of Gas Products Limited (LPG distribution in Jamaica) has been the restructuring of the organisation and the integration of the Neal & Massy culture into the Company, while regaining lost market share.

 

Significant strides have been made in establishing the Company’s new brand of LPG in the market place from “SHELL GAS” to “GAS PRO”. 

 

The foundation has been laid for the Company to make major strides in the new financial year.

 

Cool Petroleum Limited (CPL) - The first seven (7) months were challenging as emphasis was placed on transforming the organisation from being “Shell” managed to being managed by a local company - Cool Petroleum Limited.  In spite of this challenge, there has been a seamless transition in the market place since CPL continues to operate under the Shell brand name and is the market leader for retail fuel sales.  The Company has achieved satisfactory returns over the last seven months.

 

A new financing structure is being put in place to ensure that the Company has a stronger and more cost effective financial base.

 

One major initiative for the new financial year is to upgrade and expand the Convenience Stores network and to introduce “Fast Food” outlets at strategic locations.

 

These initiatives are expected to improve the profitability of the Company.

 

INFORMATION TECHNOLOGY AND COMMUNICATIONS (ITC)

 

The ITC Business Unit continued on its profitable growth path, exceeding its target for the year.

 

In Trinidad & Tobago, the Illuminat operation’s profits increased significantly over the previous year with strong performances from the Education, Communications and Technical Support teams. Major contracts were obtained for primary school computerisation, technology for the disabled, telephony solutions and carrier services.  Additionally, the Communications team’s success in being awarded a concession for the provision of IP-based long distance services (voice and data) has provided a key platform for future growth in the liberalised telecoms sector in Trinidad & Tobago.

 

The Illuminat Barbados operations had a successful year capturing major internationally funded contracts for the education sector in both Barbados and the E.C.  The Company was also awarded the first phase of the Barbados Government’s Portal and, in the banking sector, enhanced payment solutions projects were delivered to a number of key institutions.

 

In Jamaica, the Illuminat operations had a good year. The restructuring into a Services Organisation contributed to increased profits over the previous year. The improved profitability was derived mainly from growth in services revenues and from the Systems Solutions team which won a large share of major government ICT projects, including a turnkey Justice System, and an Education sector project.

 

In light of reduced demand for its services Nealco Datalink - a company servicing the international data capture market, performed poorly.  This company is now engaged in efforts to change is business model.  Two potential Joint Venture partners were identified and an outline agreement reached with one of them..

 

The future outlook for the ITC Group is positive as it seeks to consolidate its regional presence through capitalising on its Human Resource capabilities to better serve the needs of its customers.

 

FINANCIAL & OTHER SERVICES

 

Nealco Properties Limited experienced changed market conditions during the period resulting from a less buoyant investment climate.  The Company expects to experience growth in its current operations and new property development opportunities.  

 

The operations of the Company have also been restructured to allow the Real Estate Division to focus in its main area of activity with the flexibility and autonomy that is required in the more competitive market. This Division will now operate separately as Nealco Real Estate Limited.

 

General Finance Corporation Limited performed satisfactorily, achieving new business growth in excess of targets and widened its customer base. However, profit growth has been less than expected due to the short-term impact of higher interest costs.  Neal & Massy Remittance Services Limited (Moneygram) improved its performance over last year with a substantial volume increase in remittances.

 

During the year Neal & Massy acquired 60% of Pres-T-Con Limited and its associated Companies, Rabco Limited and Pres-T-Con Equipment Limited.  Pres-T-Con has been the leading manufacturer of pre-stressed concrete products in the Caribbean for many years with an excellent reputation for integrity, quality, health and safety.

 

RETAIL, DISTRIBUTION/LOGISTICS

 

Marketing & Distribution (M&D) improved its performance significantly. This company achieved revenues and profits in excess of budget and the previous year.

 

Strong results were reflected in all major trading departments:- Food & General Merchandise (F&GM), Pharmaceuticals and Agricultural & Industrial Products, with each department consolidating and building on the performance of its current range of products as well as acquiring and growing new lines. The F&GM and Cigarette departments were both recognised by their major principals for outstanding performance during the year.

 

M&D successfully completed all external ISO 9001:2000 post certification audits conducted by Underwriters Laboratories of the USA during the year, and is also well advanced in implementing the Occupational Health & Safety Management System based on the requirements of OSHA 2004 and the BSI 18001 standard.

 

Hi-Lo Food Stores - enjoyed another good year as it performed above expectations in both revenue and profit. This performance is commendable given the delays (up to four months) in the re-opening of the rebuilt stores at St. Ann’s and St. Augustine.  In the light of rising food prices, Hi-Lo is committed to providing real value to its customers.

 

The other retails stores, LB’s and Food Master, performed much better than the previous year and are poised for improved results in the new year.

 

The provision of excellent customer service remains a key objective, and the management and staff are committed to overcoming the challenges in this critical area of the business.

 

Huggins Shipping and Customs Brokerage Limited had another successful year, during which brokerage and shipping contracts were secured for certain large energy projects.  The Company also expanded its logistics services to include  a “one-stop shop” to clients requiring door to door service and deepened its presence in the LCL cargo business while strengthening its airfreight agency activities.

 

The Company was successful in maintaining its ISO Certification.

 

H.D. Hopwood & Co. Limited achieved satisfactory results against the background of an extremely difficult year for the retail and distribution business in Jamaica.

 

The Pharmaceutical Division performed creditably, and maintained its market position    in an extremely competitive and mature market which is increasingly characterised by       co-distribution, mergers and acquisitions. The Consumer Division showed a marginal increase in sales.

 

The Company will be seeking to focus on revenue growth through an expansion of its product portfolio and improvements in productivity.

 

Windsor Laboratories Limited’s performance was disappointing due largely to reduced throughput that was precipitated by reduced demand for its products and an increase in the cost of some raw material inputs.  In the coming year the Company will focus on improving the efficiency of its operations and rationalising its product range.

 

Melville Shipping Limited increased its customer base and as a consequence consolidated its position as the preferred shipping agent in Trinidad and Tobago, handling more vessels than any other competing Agency. Customer service and communication were the key factors in this success. This performance was achieved despite a setback resulting from the buyout during the year, of their major liner principal, P&O Nedlloyd, by the world’s largest container line, Maersk and the consequential loss of the P&O agency business.

 

REGIONAL OPERATIONS

 

GUYANA

 

The Guyana Group produced very good results with all the operations exceeding expectations. This performance was commendable especially in view of disruptions caused by criminal activities over the past year. The core businesses of the Group remain strong and investments are being made to expand infrastructure and capacity to achieve improved market penetration.

 

National elections held in August 2006 resulted in the PPP/Civic party, led by incumbent President Mr. Bharat Jagdeo, winning its fourth consecutive term in office.  The post elections period was peaceful and without the violence which has characterised previous elections.

 

Associated Industries Limited (Ainlim) - The Company’s core business performed very well for the period under review. Tenders were won from Government agencies for the supply of excavators and motor vehicles, which enhanced the Company’s performance. Ainlim will look to strengthen its competencies in machinery and equipment supplies and services, a segment which is expected to grow as the economy expands.

 

CCS Guyana Limited continues to be the leading provider of radio communications equipment and office products in the territory. Its emphasis during the year on upgrading technical support services, led to significant improvements in sales and profits.  In the IT solutions business the Company is progressing its plans to become a total solutions provider.

 

Demerara Oxygen Company Limited (Docol) enjoyed another successful year. During this period the focus was on building a strong HSE culture and the Company is proud to surpass the milestone of 365 days without any lost work day due to accidents. As part of the safety process, a new fire fighting system was recently installed.

 

It is anticipated that high petroleum prices worldwide will continue to affect the market for LPG, but demand for industrial gases is expected to show some improvement due to increased industrial activity in the country.

 

NM Services Limited continued to experience growth in its Moneygram remittance operation and also enjoyed improved performance in its equipment financing business.

 

 NM Security Solutions Inc. - In March 2006, the Group purchased Securicor International’s 51% shareholding in Securicor Guyana Limited, thereby assuming 100% ownership of the Company.  As part of the agreement, the Company’s name was changed.  Efforts over the remainder of the year were concentrated on restructuring the business and upgrading the asset base to provide a platform for sustainable growth.

 

Trading & Distribution Inc. - The Guyana Group consolidated its distribution businesses under a single entity, Trading & Distribution Inc. The restructuring was well managed and the results for the combined unit surpassed expectations. Efforts will now be directly towards acquiring new lines to fill gaps in product offerings expanding distribution coverage and increasing market share.

 

BARBADOS AND THE OECS

 

In Barbados, we continued the refurbishment of the Group’s properties, most of which have been leased to third party tenants.  We have largely completed the sale of the lots at our residential development in St. Silas.  We are now in the process of acquiring new land for development.

 

In St. Vincent the cement distribution operations were disrupted by inconsistent supply.  Nevertheless, the operations made a satisfactory return.

 

JAMAICA

 

Apart from Tyre Sales Limited,  which performed according to plan, the performances of the operations of our other companies have been described under their respective Business Units.  We are now in the process of liquidating the former parent company in Jamaica - Neal & Massy Group (Jamaica) Limited - as this company’s existence is no longer relevant in our new management structure.

 

 

ASSOCIATED COMPANIES

 

Barbados Shipping & Trading Limited (BS&T) (ownership 20%)

The Company showed a decline in profits over the previous year.  Despite an increase in this year’s operating profits, the overall position was lower, as the previous year’s results were impacted positively by a one-off gain from the sale of investments.

 

Group 4 Securicor (ownership Trinidad - 22.5%/Barbados - 49%)

This Group has now re-branded its worldwide operations under the new corporate identity G4S.

 

During the financial year the operations in Jamaica and Guyana were sold, the latter to the Neal & Massy Guyana Group.  In spite of manpower shortages in Trinidad, the Company performed reasonably well in its two major markets - Trinidad and Barbados and is poised for further growth and expansion.

 

GGI Limited (ownership 27%)

This company, which is involved in the manufacturing of building materials, performed satisfactorily.  During the year it consolidated its manufacturing operations with the construction of a new factory building at its O’Meara location.

 

NM Wood Group Limited, Caribbean Industrial Gases Limited (ownership 50%)

The operations of these associate companies have been discussed under their respective Business Units.

 

HEALTH SAFETY & ENVIRONMENT (HSE) UPDATE

 

In 2005 the Group took a decision to prioritise improved performance in HSE.

 

An experienced HSE management professional was recruited at the Group level, and a purpose designed Group HSE Management System, was implemented.  All Group Companies began the journey to improve systems and processes as a foundation for improved performance.

 

HSE Policy statements were formulated and HSE Committees were established in all companies.  Facility risk assessments were executed and Loss Control programmes were upgraded.   Emergency response plans and capabilities were enhanced.  As such, Group companies have made significant strides in installing a framework for improved HSE performance in the coming years.

 

These systems have also had the effect of bringing the Group companies into a high degree of compliance with the Occupational Safety and Health Act, which was proclaimed in Trinidad & Tobago, in February 2006.

 

The Executive Management recognises that critical to its success in achieving HSE excellence will be the quality of leadership displayed and the creation of a safety culture among all members of the Group.

 

It is with this in mind that, over the next twelve months, the Group will focus on improving its HSE performance against the results of base year 2005/2006.  In addition we will increase training in safety practices, strengthen safety audits and ensure that all unsafe acts and conditions are promptly reported.

 

FUTURE OUTLOOK

 

There is no doubt that the Group has performed exceptionally well over the past eight years. 

 

In the year 2000 we indicated that one of our objectives was to double our 1999 E.P.S. of $1.14 by the year 2004.  This target we achieved.

 

We have now set ourselves another milestone which is to double our 2004 E.P.S. of $2.43 by the year 2009.  To achieve this target we will have to grow at a compounded annual rate of over 15%.  Already we have achieved this target in the first two years of our plan.

 

We believe that the recent acquisitions we have made, together with others that are proposed, will give us the capacity to get involved in new growth industries and also expand our geographic reach in the English-speaking Caribbean and beyond.

 

One of our senior Executives, Christian Maingot, is now located in our Miami office and among his responsibilities will be to pursue investment opportunities in the North and Central American markets.

 

Our continuing emphasis on recruiting top class executives and the training of in-house personnel, as well as our active succession planning programmes, are all geared to ensure that we meet our growing demands and achieve our financial and growth targets.

 

During the coming years we will intensify our training activities at all levels, as we believe that it is the quality of our people which will make a quantum difference in our goal to being a world-class enterprise.

 

We are excited and optimistic about our Group’s future prospects.  To this end we are committed to ensuring that existing businesses continue to perform while we actively explore new opportunities.

 

ACKNOWLEDGEMENTS

 

There is no doubt that the Group has benefited from generally stable economic conditions in the region and a buoyant Trinidad & Tobago economy as well as from the strategic initiatives taken in the past.  Nevertheless, the excellent performance of our companies is also reflective of the efforts of a highly dedicated and motivated group of Executives ably supported by “Team Neal & Massy”.  I wish to thank and commend all our Directors and associates at Neal & Massy for their loyalty, commitment and hard work.

 

I wish to acknowledge the guidance and support of our Board of Directors whose wise counsel has positively influenced many of our deliberations and decisions.  Also to record my thanks and appreciation to our customers, shareholders and well-wishers for their continued support.