Corporate Governance Report - The United Basalt Products Ltd

Chairman’s Report (continued)
land and to increase our stake from
60% to 71%, the net refund of term
loans amounting to Rs 33.2 million
and a dividend payment of Rs 33.1
million in June 2007.
As a result of the above, the Group’s
financial situation was adversely
affected. The level of borrowings
was further increased during the year
under review, thereby confirming the
trend noted since 2004 as a result of
massive investments made to acquire
Compagnie de Gros Cailloux Ltée and
to finance the Espace Maison expansion
plan besides providing funds for our
operations in Madagascar and Sri
Lanka. Furthermore, a deterioration
of the ratio of cash sales to total sales
was noted during the year.
As mentioned already, some quoted
available-for-sale investment s
were disposed of during the year.
The remaining available-for-sale
investments were revalued at the
balance sheet date and gave rise to
a fair value reserve gain of Rs 51.5
million for the year under review. In
view of reducing the Group’s level of
indebtedness and to finance future
capital expenditure, the Board of
Directors intends to pursue the disposal
of a major part of the non-strategic
investments which comprise of the
remaining quoted available-for-sale
investments and the 25.5% stake in
Highway Properties Ltd, an associate
company which owns the Trianon
Shopping Park buildings.
On the assets side, the Group’s land
and buildings were revalued at June
30, 2007, giving rise to a revaluation
surplus of Rs 564.0 million, thereby
increasing the Group’s net assets
value (NAV) by Rs 25.53.
Developments
and Projects
Another development achieved
during the year for our core business
activities was the installation of a new
crusher on our plant at La Mecque at a
cost of Rs 15.4 million. Our subsidiary
company Sainte Marie Crushing Plant
Ltd at Bel Ombre spent Rs 2.3 million
to upgrade its crushing plant in view
of the on-going hotel and Integrated
Resort Schemes (I.R.S.) projects in the
region. On the foreign front, operating
leases were sought for the acquisition
of drilling equipments, lorries and
excavators needed for the extraction
of boulders on the quarries.
In July 2007, a strategic thinking
exercise was undertaken by the
management and the Board of
Directors to outline the main strategic
objectives for the development of the
Group over the next three years both
locally and overseas and to review, if
need be, the current business model
in the light of new market conditions
and opportunities. In line with this
exercise, and if the market justifies
it, the production of blocks on our
site at St Julien is being planned as
from early 2008. In addition, a new
sales point was set up on a rented
plot of land at Phoenix in an aim
to bring our products closer to the
market. Furthermore, two lorries were
acquired in October 2007 and fitted
with cranes to facilitate the delivery
and handling of blocks on sites
comprising of single-storey buildings
and houses. Last but not least, iron
bars will soon be imported and sold
on a trial basis from all our sites to
meet the needs of our customers.
The budget for the current financial
year 2007-2008 provides Rs 6.8
million for the acquisition of a
new crusher for our plant at Plaine
Magnien and Rs 4.4 million for a new
mixer for our subsidiary company,
Sainte Marie Crushing Plant Ltd,
thereby enhancing and improving
the capacity and efficiency of our core
business production units. In order
to remedy the increasing constraints
experienced on the availability of
boulders, the budget has made
provision for the replacement and
addition of appropriate equipments
for this purpose. Another major
exceptional capital expenditure to be
provided for during the financial year
2007-2008 and probably the next year,
is the transfer of our crushing plant
of La Mecque to our site at Geoffroy
Road, required since the land owners
have informed us of their intention to
use the site for property development
projects. This move will also imply
the transfer of our PPB concrete slab
factory to our recently acquired plot
of land of eleven acres next to our
site at Geoffroy Road. Given the good
performance achieved by our PPB
division this year and considering the
number of contracts in the pipe-line
for 2007-2008, the PPB factory will be
extended upon its transfer. The cost
of these major items of expenditure is
at the time of writing being worked out.
The acquisition of land next to our
site at Plaine Magnien which was
mentioned in our previous annual
reports, is still under consideration,
the aim being to enable future plant
expansion or potential industrial and
commercial projects.
As regards our Espace Maison
activities, the three retail stores were in
operation for the full financial year. The
floor amenities were further improved
with the installation of new racks
whilst our warehouse at Roche-Bois
was extended further. In aiming at
constantly improving the product
range and the service offered to our
customers, some new products were
introduced with a complete after-sales
service. Our purchasing department
is constantly sourcing new products
from Europe and Asia which offer the
best value-for-money ratings. A fidelity
card under the name of ‘V.I.B.’ - ‘Very
Important Bricoleur’, was launched
in July 2006. The response noted
was very positive as this card enables
the holder to benefit from discounts,
priority promotions and a whole range
of personalized privileges. As regards
future projects, the Board of Directors
is currently considering the setting up
of new Espace Maison retail stores in
other regions.
Concerning our fully-owned subsidiary
Compagnie de Gros Cailloux Ltée, the
nursery was extended further to satisfy
the supply to our Espace Jardin outlets
and to hotels and Integrated Resort
Schemes (I.R.S.) projects. Regarding
the two land parcelling projects
that were initiated, the agricultural
one has still not materialized whilst
the conversion permit for the
residential one has been obtained.
At the time of writing, the project is
at the shaping phase with the help
of consultants in view of deciding
between two options, namely the
sale of bare plots of land and the
construction of several residential
compounds, making maximum use
of our own building materials and
fittings and engaging several of our
clients involved in the contracting
business. This type of project is part
of our future development strategy
both at Gros Cailloux and elsewhere.
The master plan referred to in our
previous annual report was submitted
by the foreign consultant but is still
under consideration. However, we
have received and are objecting to a
notice served under section 6 of the
Land Acquisition Act to permit the
installation of an electrical network on
part of the estate to connect the coal
power plant currently being planned
by CT Power Ltd at Pointe-aux-Caves.
Should our objection fail, this project
will most certainly have a significant
negative impact on our current and
future development plans of the estate.
Concerning our new IT system, the
servers and communication network
were upgraded and backed by a
disaster recovery system whilst our
workshop service operations system
was launched in November 2007. The
computerization of our contracting
services is under way whilst that of
our core business production and
sales units is being planned for 2008.
Outlook
In the light of our results since July
2007 and assuming favourable
economic conditions and the timely
materialization of projects, it seems
that the performance of our core
business activities will be sustained
in the financial year 2007-2008
whilst that of Espace Maison is likely
to improve despite the arrival of
new competitors on the market.
The above-mentioned development
projects and new ventures should
impact our turnover and results
positively and contribute to finance
the major plant relocations which lie
ahead of us. On the foreign front, our
subsidiary in Madagascar is on the
way to a positive performance with
many contracts on hand in Tamatave
mainly. As regards our subsidiary in
Sri Lanka, the production capacity
has been increased but our future
results depend on the recovery of the
economy. Furthermore, as mentioned
above the Board intends to pursue
the disposal of major non-strategic
investments which, if crystallised
during the financial year 2007-2008,
should have a material impact on the
net results of the Group.
Appreciation
On behalf of the Board of Directors,
I wish to express my thanks and
appreciation to the Managing
Director and his management team
and personnel for their unrelenting
efforts during the year under review.
I wish to express my gratitude to my
colleagues of the Board of Directors for
their support and their contribution to
the affairs of the Group with special
thanks to Mr Jean Paul Adam who
will resign as Director as from after
the next Annual Meeting after having
served valuably the Company and the
Group since June 2001.
Thierry Lagesse
Chairman
November 19, 2007
12 ANNUAL REPORT 2007
ANNUAL REPORT 2007
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