In a year in which CAC 2000 Ltd (CAC), air-conditioning and engineering firm, saw revenues of more than $1 billion for the first time, it also faced twin challenges of higher operating costs and a lawsuit which impacted earnings.

On October 21, 2016, the Supreme Court ruled in favour of X-ray Diagnostics and against CAC, awarding damages of US$372,100 ($48 million) and $568,186.64, plus loss of profits of some $7,077,874.

Interest at commercial rates and legal fees were also awarded.

On December 2, 2016, the CAC lawyers filed a Notice of Appeal, “on the basis used by the trial judge to determine the interest component of the award for the period June 2009 to 2016,” as noted in the CEO’s statement attached to financials for year end October 2016.

Court documents for the case which began in 2003, and in which CAC was the appellant and X-ray Diagnostics and Ultrasound Consultants Ltd were the respondents, indicate CAC 2000 was contracted to provide equipment maintenance services to the respondent for an air conditioning unit it had purchased from CAC.

The allegation is that on 11 May 2003, combustible material within the fan coil of the air conditioning unit ignited and started a fire which destroyed a section of the respondent’s premises as well as items of essential equipment.

The respondent contended the fire and subsequent loss were due to the appellant’s failure to adequately maintain the air conditioning unit — and alleged a breach of contract as well as negligence.

CAC 2000 denied the allegations and, according to the Court of Appeal document, “averred that the respondent had operated a nuclear gamma machine that it owned in a manner which it knew or ought to have known was dangerous and against specification; and that its positioning and handling of the machine had caused or was the main contributor to the fire in question”.

CEO Steven Marston, in his report in the 2016 audited financials, described the judgement as a “major surprise”.

He said CAC has “already paid the damages and loss of profit for the X-ray judgement, but has filed an appeal, as we intend to challenge both the term (13 years awarded despite the claimant being back in operation with new equipment in less than 6 months) and the unrealistic interest rates (9.25 per cent on US$ and 14.13 per cent on J$ portions) awarded to the claimant”.

NThe judgement significantly impacted net profit. CAC recorded $1.02 billion sales — a growth of 16 per cent over the $877.39 million for 12 months ending October 2015.

Gross profit was $410.08 million — 25 per cent more than the $329.41 million in 2015. Growth was credited to the CAC’s entry on the Junior Market of the Jamaica Stock Exchange in January 2016, which increased visibility but also increased demand on working capital.

Profit before tax increased to $115.5 million or 10 per cent over 2015, but this fell to $11.33 million after the full provision of the $104.18 million for the judgement.

While taxation was also reduced (because of the JSE listing), profit after tax ended up at $10,469,979 or 8 cents per stock unit, down from 65 cents in 2015.

The court-awarded damages were listed as costs on the profit and loss statement of the audited financials. Included in other payables and accruals was an accrual of $124,181,618 covering the damages, loss of profits, related interest on charges and estimated legal costs payable to the claimant’s lawyers.

Included in other receivables is $20 million, representing proceeds from the insurance claim receivable from the company’s insurers.

Marston noted that with the higher volume of work for CAC, the company had budgeted “a sizeable increase in resources”, with operating expenses increased to $287.35 million — 28 per cent more than 2015.

He said finance costs reduced significantly to $7.4 million, down 43 per cent, mostly due to foreing exchange gains which countered interest (with rates currently at 8.44 per cent) on the company’s preference shares.

Marston concluded, “We continue to see new opportunities in the 2016/17 financial year and, despite the adverse one-off judgement, we are anticipating an even more successful year.

“Our focus will be on quickly building back our cash reserves (to facilitate working capital and further growth) along with some initiatives to improve our operational efficiencies; these are expected to improve our best-in-class service and delivery of engineered air-conditioning and energy solutions to our customers.”