The upgrade of the BaIDS rating to A+ID(bg) follows the upgrade of the lowest rating of the group of banks providing the Kafalah guarantee. The affirmation of the short term rating of MARC-2 and upgrade of the long term rating to A-ID for the MUNIF reflect the improvement of Negeri Sembilan Cement Industries Sdn Bhd’s (NSCI) financial profile following the consolidation of the Perlis Plant and the Company’s position as one of the larger integrated cement producers in the domestic cement industry. However, moderating the ratings is the Group’s vulnerability to the industry and economic cycles.

A wholly owned subsidiary of Cement Industries of Malaysia Berhad (CIMA), NSCI is the third largest integrated cement producer in the country, behind Lafarge Malayan Cement Berhad and Perak-Hanjoong Simen Sdn Bhd. The ranking is based upon its cement and clinker production capacity of 3.4 million tonnes (m.t.) and 2.8 m.t. per annum respectively. Operating out of two plants, each located in Negeri Sembilan and Perlis (where there are two production lines), NSCI has demonstrated year-on-year growth of its cement and clinker production since the 1997 economic crisis. Going forward, NSCI plans to run the Negeri Sembilan Plant and the first line of the Perlis Plant at optimum capacity, whereas the second line of the Perlis Plant, shall provide the flexibility for NSCI to increase its production volume when the demand for cement and clinker increases.

The growth of the cement industry is dependent on the level of construction activities. In the near term, higher demand for cement is expected, in tandem with the construction sector’s growth. Although the demand for cement would be comfortably met by the industry’s installed capacity, future cement prices may still be subject to downward pressures from the overcapacity situation. Nevertheless, for the near to medium term, MARC expects the price level to be stable given that the cement consumption level is back to pre-crisis level and the surplus in capacity is further reduced as the Malaysian economy continues to improve.

For FY2003, NSCI’s revenue and pre-tax profit increased significantly to RM363.9 million and RM14.9 million respectively, following the completion of the transfer of CIMA’s plant in Perlis into the Company. The increase in demand for cement and prices of cement being stable throughout the year also contributed positively to the Company’s result. However, the operating profit margin was lower at 11.7% as compared to 16.6% in the previous year due to increases in costs of raw materials. For the first ten months of FY2004, NSCI achieved total revenue of RM312.4 million and a pre-tax profit of RM22.0 million. The operating profit margin for the period was 11%. NSCI’s sales were relatively unaffected by the slowdown of the construction activities in the first half of 2004 as its revenue was only 3.8% below the budgeted amount.

The debt-to-equity ratio of 0.7 times as at 31 December 2003 was almost half of the previous financial year’s ratio as NSCI’s shareholders’ funds increased to RM528.7 million, resulting from the issuance of new ordinary shares and non-cumulative convertible redeemable preference shares amounting to RM331.2 million. The preference shares rank below all secured and unsecured obligations of the Company. The debt leverage ratio as at 25 October 2004 was 0.6 times, below the covenanted level of 0.8 times. Going forward, the leverage level is expected to improve progressively with the amortization of the BaIDS and MUNIF.