Directors - Caribbean Cement Company Limited

Management Discussion & AnalysisOperating profit for 2008 grew to $949m (US$13.2m), an increaseof $129m over the prior year’s performance. Profit before otherincome actually grew by $374m or 82% to $831m (US$11.5m) asthe 2007 operating profit included an exceptional gain of $167mfrom the disposal of plant, property and equipment.Caribbean Cement Company Limited recorded aconsolidated profit of $416m, 49 cents earnings pershare in 2008. Operating profit actually grew by 16%year over year but a 14% devaluation in the Jamaicandollar led to translation losses of $213m, resulting ina 20% deterioration over the previous year’sperformance. In a year of deteriorating macro-economicconditions, softening domestic markets and thecontinuing presence of dumped competitor products,2008 was marked by the successful completion andstart-up of our new pyro-processing line, Kiln 5,with consequential improvements in environmentalperformance and cost reductions, and our re-entry intothe export markets in a significant way.FINANCIAL PERFORMANCE REVIEWOperating ProfitGroup Revenues grew by $1b with increases in income ensuingfrom both the cement and gypsum operations. Cement salesvolumes actually fell by 8% but two price increases during the yearled to the increased revenues. Gypsum sales volumes increasedby 41% as Jamaican Gypsum and Quarries was able to win newcustomers in 2008.There was strong upward pressure on costs for most of the year asthe price of energy and other production inputs rose inexorably,until the collapse of the global financial markets in the third quarterof the year. This was followed by a rapid devaluation of theJamaican dollar that kept inflation levels high throughout theperiod. In the fourth quarter however the Company saw significantimprovements in operational efficiencies with Kiln 5 coming intoproduction, resulting in substantial reductions in the variable cost ofproduction.14F. L. A. HaynesGeneral ManagerLiquidity and Cash PositionCash management continued to be challenging, especially withcost escalations associated with the Expansion and ModernizationProgramme and rising inventories with the slowdown in sales. Netcash from operating activities increased by 19% to $864m.Inventories increased by $1.0b as clinker and cement stocks weresignificantly higher at the end of the year. Trade payables andaccruals increased by $1.4b. This increase related primarily toamounts owing to contractors who worked on the Kiln 5 project.Most of this debt will be paid in 2009 by the parent Company,Trinidad Cement Ltd. Carib Cement invested $572m in the newplant. Funding from Trinidad Cement Ltd. amounted to $4.88b.The Company maintained compliance with the covenants of itsloan agreements in 2008MARKET REVIEWThe domestic market contracted by 11% during the year,influenced by the collapse of the unregulated financial schemes,rising inflation, Hurricane Gustav and the general deterioration inmacro-economic conditions. Carib Cement was able to maintain itsmarket share despite aggressive competition from dumpedproducts. The Government of Jamaica chose to extend the waiveron the Common External Tariff despite the depressed marketconditions and did not implement the countervailing dutiesimposed on Chinese cement by the Antidumping and SubsidiesCommission. This has led the Company to once again seek legalredress.The total cement sales for the year were however 8% below 2007sales as during the last quarter of the year the Company exported28,463 tonnes of cement, the highest since 1995. During thisperiod the Company also exported 15,878 tonnes of clinker andmade its first ever export sale of 14,775 tonnes of pozzolan.OPERATIONS REVIEWOccupational Health, Safety and EnvironmentManagement continued to focus on the strategic objectives of“zero incidents, zero accidents and no harm to person or theenvironment”. Neither Jamaica Gypsum Quarries nor CaribCement suffered any lost time accidents, achieving the previouslyelusive goal of no accidents in a calendar year for the first time.At the end of the year, Carib Cement employees had worked 727days and Jamaica Gypsum and Quarries had achieved 462 dayswithout a lost time accident.The environmental performance also improved significantly withthe idling of the two old kilns and the start-up of Kiln 5. Dustfallouts have reduced considerably as did other trade effluents.The Company also maintained its ISO 14000 environmentalmanagement system certification.CARIBBEAN CEMENT COMPANY & ITS SUBSIDIARIES