Corporate Governance Report - The United Basalt Products Ltd

Chairman’s
Report (continued)
Our subsidiary, Compagnie de Gros
Cailloux Ltée made a profit after tax
of Rs 2 million for the year compared
to Rs 8.9 million in 2007. The sugar
crop was an average one with a total
of 1,950 tons (2007: 2,133 tons)
of sugar sold at a reduced price of
Rs 18,620 per ton. This drop in
profits is to a large extent due to the
revaluation of the standing crop at
a reduced future price of sugar. The
non-sugar revenues, made up of sale
of plants from our nursery, increased
significantly during the year. This
upward trend is likely to persist given
the drop expected in the price of
sugar by 2009-2010.
Our share of results from associate
companies increased from Rs 11.7
million in 2007 to Rs 29.3 million
this year. The results of our associate
Highway Properties Ltd were recognised
up to May 10, 2008, date on which our
stake was disposed of.
Finance Costs
The Group’s finance costs rose from
Rs 101.1 million in 2007 to Rs 123.5
million this year due to the financing of
overseas operations and the servicing
of long-term borrowings.
Earnings and Dividend
The Group’s profit for the year
increased from Rs 34.2 million in 2007
to Rs 158.8 million this year. Earnings
per share increased from Rs 1.54 in
2007 to Rs 7.17 this year. Excluding
exceptional items, the earnings per
share increased from Rs 1.03 in 2007
to Rs 3.31 this year.
Consequently, an increased dividend
of Rs 2.00 per share (2007: Rs 1.50)
was declared by the Company on
June 11, 2007 and paid on July 21, 2008.
Financial Situation
The Group’s financial situation was
positively affected by the investments
disposed of during the year. The sale
of our stake in Highway Properties Ltd
gave rise to the refund of a loan
amounting to Rs 123 million receivable
from that associate company, disclosed
as other financial asset on the balance
sheet for the previous year. The total
cash inflow generated amounted to
Rs 210 million. Out of these funds,
Rs 192 million was used to anticipate
the refund of the ten-year-period loan
contracted in 2004 to finance the
acquisition of Compagnie de Gros
Cailloux Ltée.
Investments in property, plant and
equipment amounted to Rs 181.8
million (2007: Rs 191.3 million) for
the year under review, out of which
Rs 28.1 million was financed through
leasing facilities. Besides financing
new developments, this amount
was mostly spent as part of normal
recurring capital expenditure for
upgrading and replacement of plant
and equipment for both our core
business and Espace Maison activities,
locally and overseas. The major items
of capital expenditure comprise the
installation of a new primary crusher
at our plant in Plaine Magnien, the
acquisition of a new concrete mixer
for our PPB concrete slab factory, the
acquisition of quarrying equipments
and a new batching and mixing
plant for our subsidiary company
Sainte Marie Crushing Plant Ltd.
The other significant group cash
outflows comprise the servicing of
the remaining term loans and the
funding of operations in Madagascar
and Sri Lanka.
As already mentioned, a major part of
quoted available-for-sale investments
was disposed of during the year. The
remaining available-for-sale investments
were revalued at Rs 71.3 million as at
the balance sheet date giving rise
to a fair value reserve loss of Rs 1.7
million due to the downward trend
experienced on the Semdex since
February 2008. Once the trend is
reversed, the Board of Directors
intends to pursue its disposal strategy
in view of financing future capital
expenditure and thus keep the level
of borrowings at a minimum.
The Group’s total assets moved from
Rs 2.8 billion in 2007 to Rs 2.9 billion this
year, total borrowings from Rs 1 billion
to Rs 921 million and shareholders’
interests from Rs 1.5 billion to
Rs 1.6 billion. Consequently, the
Group’s debt to equity ratio improved
from 0.65 times in 2007 to 0.56 times
this year, whilst the Group’s net assets
value (NAV) per share increased from
Rs 70.18 to Rs 74.26 this year.
Developments
and Projects
As part of developments and projects
for our core business activities,
the recently acquired plot of land
of eleven acres next to our site at
Geoffroy Road was landscaped in
view of transferring our PPB concrete
slab factory and the re-engineering
of our crushing plant following the
request from the land owners of our
plant at La Mecque to recover the site
for property development projects. At
Terre Rouge, the production of blocks
was ceased and the site is now a sales
point for blocks produced by our plant
at Poudre d’Or, thereby benefiting
from economies of scale. As part of
improving our service, two trucks
fitted with cranes were acquired for the
transport of blocks all over the island.
Furthermore, iron bars were imported
and sold on our sites with satisfying
results. In Madagascar, besides the
acquisition of lorries and loaders for
the supply of new contracts, some
34 hectares of land were acquired in
Tamatave for quarrying and property
developments.
The budget for the financial year 2008-
2009 provides further investments for
enhancing and improving the capacity
of our core business production
units and our quarrying operations
including the production of blocks
on our site at St Julien. The abovementioned
transfer of our PPB concrete
slab factory and the re-engineering of
our plant at Geoffroy Road constitute
a major capital expenditure which
should span over the next two
financial years. At the time of writing,
the EIA permit for these projects has
been obtained.
As regards our Espace Maison
activities, much effort and resources
were put into advertising and
communication to build up the
branding and corporate image of our
outlets. In terms of developments and
projects, the budget for financial year
2008-2009 provides for the extension
of our warehouse at Roche-Bois, the
upgrading and extension of our
marble factory and the acquisition of
lorries aimed at improving the delivery
service. Further investments are being
engaged in land and buildings for
the construction of a fourth Espace
Maison retail store in Flacq which is
due to open in October 2009.
As regards our subsidiary company
Compagnie de Gros Cailloux Ltée,
the nursery is being continuously
extended to satisfy the increasing
demand. A landscaping division is
being considered in an aim to widen
our range of services and increase the
non-sugar income on a permanent
basis. A ‘Festival du Jardin’ was
organised in November 2007. The
event was a success and is becoming
a yearly event.
In terms of property development,
the residential compounds project
referred to in our previous annual
report is being developed with the
input of foreign and local consultants
as well as estate agents. The benefit
of such projects is that it enables
maximum use of our own building
materials and fittings and involves
our major clients engaged in the
contracting business. The conversion
permit was obtained under the Sugar
Industry eight hundred acres scheme
for which 10 acres of land was given
to the State. The installation of an
electrical network to connect the coal
power plant project of CT Power Ltd
at Pointe-aux-Caves was altered at
our demand to avoid the site of our
project. The master plan prepared by
foreign consultants is being modified
to make optimum use of the site
location and characteristics.
Future Prospects
The trend noted in our revenue since
July 2008 is encouraging for the future.
In terms of our core business, the
prospects are good locally, given the
announced hotel, road infrastructure
and property development projects.
However, no significant improvement
is being foreseen in the private
dwellings’ market. As regards our
Espace Maison activities, the forecasts
are good given our future expansion
plan aiming at more proximity to the
market. In terms of foreign operations,
both of our entities are focussing on
potential business opportunities with
important development projects both
in Tamatave, Madagascar and in the
harbour of Colombo in Sri Lanka.
Assuming favourable economic
conditions and the timely realisation
of projects, the results for the financial
year 2008-2009 are likely to show an
improvement over those of 2007-
2008, ignoring exceptional items of
revenue.
Acknowledgements
On behalf of the Board of Directors,
I wish to acknowledge with thanks
the continuous efforts made by the
Managing Director, his management
team and the personnel during the
year under review.
I also wish to express my thanks and
appreciation to my fellow-members
of the Board of Directors for their
support and contribution.
Thierry Lagesse
Chairman
September 24, 2008
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