On The Line – Banks DIH Limited 2012

I have always been perplexed why companies in Guyana consistently ignore one of the most important considerations among their shareholders. This column has lamented, year after year and company after company, the absence of comments by companies‘ CEOs and directors in otherwise often very wordy annual reports on the performance of their companies’ shares on the stock market. Banks DIH Limited, the beverage giant has many things to be proud about with respect to its 2011-2012 performance and annual report – historic levels of profits, a strong balance sheet, good industrial relations, a stable management team and growth in share price of 37.5%.

We will get back to this shortly but let us consider first the financial statements.

Banks DIH is a company with two major institutional shareholders – Banks Holdings Limited of Barbados (20%) and Demerara Life Group of Companies (10.8%) – and one that is described as a substantial shareholder under the Securities Industry Act, Trust Company Guyana Limited (6.2%). Banks DIH is also the parent company of Citizens Bank Guyana Inc in which it has a 51% interest. Only two directors of Banks DIH (Messrs Clifford Reis and Errol Cheong) have any shareholding in Citizens Bank. The directors of the company presented their annual report and its audited financial statements last Saturday at a usually well-attended but usually uneventful meeting of its shareholders.



Source: 2012 Annual Report

The company recorded an increase in turnover (sales) of 15.5%, the best increase in turnover over the past five years. However revenue for export sales remains minimal, 1.49% in 2012 and 1.24% in 2011. No doubt the directors of the Guyana company would reflect that one of the intents expressed in the Memorandum of Understanding of 2005 under which Banks DIH and Banks Holdings Limited did some cross-investing in each other was to market and distribute each other’s products in their respective home markets. Guyana’s domestic market will remain small for years to come and the company must sooner rather than later focus on the export market. Where the directors have reason to be very satisfied is in terms of the profits earned: a 25% increase over 2011 and a 30.4% increase in profit after taxation.

Strong balance sheet
As we look at the balance sheet we see a company that by standard analytical tools is strong. Current assets have increased by 21% while the smaller figure of current liabilities increased by 13%. As a result of the combination of these two variables the net current assets position has increased by 26%.

As the company continues its capital renewal and expansion programme, the directors have opted for an increase in long-term borrowings of $750 million which are expected to increase in the current year due to planned capital expenditure of some $5,124 million on several key operating assets including equipment for the soft drink, beer, water and CO2 plants and ice cream facilities and the renewal of its distribution fleet.


Source: 2012 Annual Report

Helped by a sale of capital assets that brought in some $461 million and borrowings of $750 million, neither of which is addressed in the CEO’s or the directors’ report, net cash inflow for the year was $101 million, compared with an outflow of $728 million in 2011. The directors would no doubt be keeping an eye on the cash and bank balances even as they recognise that the “company’s continued success will depend on its ability to respond to the needs of a rapidly emerging middle class.”

Shares and their returns
Now let us return to the matter raised in the introduction to this column. Here is why I believe that for the more discerning shareholder, a commentary on share price and performance is important. Five years ago the group had after-tax profits of $898.1 million and paid dividends amounting to $400 million. Analysts use these numbers to arrive at a pay-out ratio with a low ratio indicating a policy of retaining its earnings rather than paying out dividends. In 2012, profits had risen to $2,776 million but the directors recommended and effectively limited dividends to $560 million. The pay-out ratio for the two years is 44.5% and 20.2%. This apparent change in policy is hardly likely to operate in favour of the aging and retired shareholder who depends on dividends, bank interest and modest pensions for their life’s income.

The graph below shows three variables for the group: net profit after minority interest (ie profit available for distribution), dividends paid and dividend plus growth in shareholder value. Dividends remain low, despite significant increase in after-tax profits.


Source: Annual Reports and Guyana Stock Exchange

2012 provided a windfall for shareholders in terms of the movement in the share price. When examined over the period 2007 to 2012, however, a different picture emerges. Net profit after minority interest over this period was $9,902 million of which $2,810 million was paid as dividends.

The amount of available profits retained by the group was therefore $7,092,213,000 and which should be reflected in the market value of the company’s shares. This has however only grown by $5,600,000,000, a shortfall of $1,492 million. If measured against the growth in shareholders’ equity, the shortfall is $286 million.

It is to the credit of the directors of Banks DIH, with one major exception who is no longer with the company, that they have avoided any acquisitive tendency for shares in the company, either for themselves or their associates. Directors Errol Cheong, Christopher J Fernandes, Richard B Fields, George G McDonald and Michael H Pereira all still own the same number of shares they did in 2005. CEO Clifford Reis has 187,500 fewer shares now while Andrew Carto has acquired 71,312 shares since then.

It would be interesting to see whether those companies, the year-end of which is December 31 will comment on their market price performance when they issue their 2012 annual reports and financial statements over the next few months.

Barbados investment
It seems like history since in reaction to a suspected take-over bid by the Trinidadian company Ansa McAl, Banks DIH entered into a mutual investment agreement under which Barbados Holdings Limited (BHL) took a 20% shareholding in the Guyana company in exchange for Banks DIH taking a 6.7% interest in the Barbados company. BHL has two nominees on the Banks board while the Guyana company has one director on the board of BHL from which dividends received in 2012 were $39.4 million while dividends paid to Banks Holdings Ltd, Barbados were $112.1 million.

Despite what may appear to be financial returns that favour the Barbados company, consensus among observers is that the arrangement has helped Banks DIH in more than just putting the takeover threat to rest. The turnover of the company increased by approximately 75% since the investment agreement and the company continues to express satisfaction in its “dedicat[ion] to the Principles of Good Corporate Governance.”

This column can be accused of a crusade in so far as advocating better demographic representation on boards of public companies in Guyana is concerned. A look at pages 4-9 of the company’s annual report shows the youthful vitality and the gender, age and ethnic diversity which make up Guyana. The personalities in the very attractive advertisements are nine women to seven men; in higher and tertiary education women outnumber men as they do (marginally) in the population as a whole. And no doubt women also make up a large part of the company’s employees and customers, yet as shareholders turn the pages, they enter a different world, where the average age of the population is north of 50, from which women are excluded and none of whom is an Indian, even among a band of eleven. The last time this company had a woman director was in 2006 when the wife of the founder of the company died. In fact the 2005 Annual Report lists twelve directors, including Mrs D’Aguiar, so it seems possible that the company can address this limitation without the need to amend its articles or retire any director.

The Board of Directors Report is well laid out and contains the basic information required by law except with respect to section 168 (g) of the Companies Act which requires the directors to state the directors’ proposals as to the application of the company’s profits, including its revenue reserves. This common omission of companies in Guyana is perhaps because directors consider that it is implied.

While neither the Chairman/CEO nor the directors have much to say about the future, an expenditure of over $10 billion over a three year period is testimony to their confidence in the future of the company.

On the Line – The Banks Group

Co-incidences are rarely easy to explain. At the time of launching an award for the best Annual Report by any Guyanese company as one of the activities and initiatives for its 25th anniversary observed last year, this column carried a review of the financial statements of the two operating companies of the Banks DIH group: Banks DIH Limited (‘Banks’), the food and beverage giant, Citizens Bank Limited (‘Citizens’), a 51% owned retail bank and Caribanks Shipping Company Ltd, a dormant company.

This coming Tuesday – and regrettably belatedly – Ram & McRae will be announcing the winner of the award for the 2010 annual reports. That is as much as I am permitted to say at this time.

Today’s Business Page looks at the financial statements of the two operating companies of the Banks DIH group. The group comprises Banks DIH Limited, the food and beverage giant, Citizens Bank Limited, a 51% owned retail bank, and Caribanks Shipping Company Ltd, a dormant company. Banks and Citizens are both public companies whose shares are traded on the Guyana Stock Exchange. The financial statements of the group also include as an associate company B&B Farms Inc, a Guyana private company, and BCL (Barbados) Limited in which Banks holds a 25% interest.

Both the public companies in the group have as their accounting year-ends September 30 and will be holding their annual general meetings later this week – Citizens on Tuesday 17 and Banks four days later.

The shareholdings in the two companies have changed little over the past year with Banks spreading just over 60% of its shareholdings among a vast network of private individuals while in the case of Citizens, four shareholders own 82% of the shares with the remainder spread among about seventy smaller shareholders. The Boards of Directors of both companies are chaired by Mr Clifford Reis, CCH, who is also the Managing Director of Banks.

In a Corporate Governance Code published last year, the Private Sector Commission boldly called for a clear division of responsibilities at the head of the company. The Code makes it mandatory that the positions of the Chairman and Chief Executive Officer (CEO) be held by separate persons. It also requires that the division of responsibilities between the Chairman and CEO be clearly established, be set out in writing, and be agreed by the Board.

Some observations
Another contrast between the parent and the banking subsidiary is evident in their annual reports; Banks’ high-quality, glossy report is designed and produced by Ross Advertising and printed by Scrip-J of Trinidad and Tobago while Citizens’ is on flatter type paper and produced by KRITI whose address is not stated.

There has been no change in the gender composition of both boards, each remaining steadfastly all-male, despite the constant chorus from progressive women like Stella Ramsaroop and Andaiye for more recognition to be given to women in Guyana. What makes the situation even more remarkable is that both entities have a large number of women staff and in the case of Citizens, six of the seven principal officers are women!

In any case, there can be no doubt that at both entities women make valuable contributions to the “exemplary growth in revenue and profit over that of previous years” reported by Chairman Reis in his report on the group. He had every reason to exude satisfaction: group profits from operations increased by 32% on a turnover increase of 16%. On the other hand, benefiting from the five per cent reduction in tax rates announced in the 2011 Budget, taxation increased by 10%, mainly from the banking subsidiary.

Banks DIH Limited

Source: Annual Report 2011

The company’s turnover (sales) increased by 15% from $16.3 billion to $18.8 billion, and its profit from operations increased by 27% while taxation at $868 million was a mere $4 million increase over 2010. As a result, net profit after taxation increased by 42%. Profit from operations as a percentage of sales which was 13% has increased to 14.3% while taxation as a percentage of net profit before tax decreased from 38.8% in 2010 to 30.9% in 2011.

Chairman Reis attributed the improved results to revenue garnered from the increase in physical sales, efficiencies derived from plant and machinery upgrades and an improved presell and distribution system. The performance was also attributed to capital expenditure of $3,142 million on major plant and machinery for the beverage, alcohol and water plants. The modern soft drinks plant which is expected to be put into use early in 2012 is expected to continue the trend of increasing productivity and profitability.

To get a clearer picture of how the profitability has changed one only has to go back to 2007 and 2008 when the profit before operations was 9.7% and 9.9% respectively, while the net tax effective rates in 2007 and in 2008 were 38.9% and 40.1%. Most impressively, two years after the company passed the $1 billion profit-after-tax mark, it is aiming to double that figure. Without taking anything away from the Guyana directors, it is perhaps more than merely coincidental that the company’s growth trajectory has been accelerated following the accidental partnership with Banks Barbados, aimed to repel an attempted take-over by Ansa McAl of Trinidad.

What is also significant is that the entire increase in the revenues of the company came not from exports but from domestic sources. Note 20 to the financial statements which gives a broad geographical breakdown of revenue, shows sales of goods and other services increasing by $2,478 million or 15% while revenue from exports actually declined by 24% to $233 million, down from $305 million.

Whether the company is satisfied with its domestic sales is not clear, but with the reputation of Guyana rum internationally, the company may wish to expand its horizons, a feature of the group since its launch in 1957, and indeed the theme for the 2011 report – the next level.

Source: Annual Report 2011

The balance sheet for the company and the group shows net assets increasing by $1,438 million and $2,149 million respectively. Payables and accruals included under current liabilities in the table above have increased from $1,538 million in 2010 to $2,625 million at September 30 last year.

Citizens Bank Limited
After a poor year in 2009 when the Bank had to make an impairment provision of $170 million for investments in Stanford International Bank and Clico Trinidad Limited – the region’s two financial catastrophes for that year – the results for 2010 were encouraging, while for 2011 they are impressive.

Profit after taxation in 2011 increased by 50.5% from $534 million to $804 million. Net Income for the year ended September 30, 2011 was $1,949 million compared to $1,469 million, an increase of 26.7%, double the increase in 2010 over 2009. Profit before Taxation was $1,279 million compared with $887 million in 2010, an increase of 44%.

Interest income increased by 32% and other income by 7.8% while operating expenses increased by 8.8%. Net Customers’ deposits had a significant 30.3% increase while interest expense increased by a more modest 8.5%.

The Banks Chairman was careful not to encourage too high expectations about the future. He avoided any comments about the future in the Banks DIH report while all the CEO of Citizens Bank was prepared to say – unhelpfully – was that 2012 “[would] bring both challenges and opportunities.”

It is my strong view, and indeed that of the Private Sector Commission, that companies need to enhance their communication with their members and the public. I noted a few weeks ago that Demerara Bank Limited had refused to release its 2011 annual report “until after their AGM.” I was met with a similar response when I sought a copy of the Citizens’ Bank Annual report. That is not a practice that should be encouraged by any institution, and certainly not one that has its sights firmly fixed on the next level.

Half-yearly reports show increased turnover

Caribbean Containers Inc, a public company in the paper recycling business has reported turnover for the first half of 2011 increasing by 9.3% over the same period last year. This follows a 10.3% reported turnover increase by the DDL Group of Companies and a 13.8% increase in the Banks DIH Group, the only one of the three with a September 30 year-end while CCI and DDL have a December 31 year end. The increases in turnover are of course considerably higher than the rates of inflation in the economy. Banks DIH in explaining its improved performance cited higher dollar sales, a term usually used in contradistinction from volume sales.

Caribbean Containers Inc.

CCI reported a gross profit increase over 2010 of 14.3% but its losses before tax increased from $21.8 million to $23.8 million. The report shows Earnings before depreciation as having declined in the first half of the year by 31.3% and that margins were severely affected by the rapid escalation in global fuel prices which resulted in the company’s fuel bill going up by some 40%.

The company’s performance in the third quarter ended September 30, 2011 improved strongly with an 18.3% growth in Earnings before depreciation compared with third quarter 2010. The result was a modest profit before tax of $2.7 million compared with a loss of $10.2 million for the third quarter of 2010. The overall result was a sharp decline in loss before tax for the nine months from $32 million in 2010 to $21million in 2011. The report explained that over the last four years, sales in the second half of the year averaged 13% more than in the first half.

CCI has had its fair share of financial problems over the years with a number of ownership changes and substantial debt restructuring. As at June 30, the company had liabilities of $365 million including trade and other payables of $116 million and loans repayable within a year amounting to $69 million. Cash resources amounted to $37 million but this had gone down to $25 million three months later.

In what can be described as Guyana’s principal LCDS private sector company, survival is still the challenge as the company’s aging technology has high running and maintenance cost, placing cash management at the centre of management focus.

Yet the company deserved commendation for being the only private sector company other than Republic Bank (Guyana) Limited to publish quarterly financial reports. The Bank of Guyana had published and recently withdrew Guideline # 10 requiring all banks to publish quarterly statements.

Banks DIH Limited

The half-yearly report is a consolidated report of the food and beverage giant and its subsidiary Citizens Bank Guyana Inc. Given the disparate nature of the operations and business of the two entities such a consolidated report does not allow any easy informed analysis of the two businesses.

The company had unaudited profit after tax in the half-year of $689.5 million compared to $594.1 million in 2010, an increase of $95.4 million or 16%. Chairman and Chief Executive of the group explained in the report that the improved results came mainly from increased dollar sales, efficiencies derived from Plant and Machinery upgrades and the benefits obtained from the installation of Capital Equipment.

The subsidiary Citizens Bank achieved an unaudited profit after taxation of $364.6 million compared to $261.0 million in 2010.

Total group profit after taxation for the half year was $1,025 million compared with $836 million, an increase of some 22% and a resulting increase in Earnings per Share from $0.71 per share to $0.85 per share.

A meaningful cash flow commentary is not possible as the cash and bank resources of the company cannot be distinguished from those of the banking subsidiary. Inventories, the bulk of which would be for the company stood at $4,367 million, increasing from $4,069 million one year earlier. For the type and nature of the operations this seems reasonable, particularly when compared with DDL to which we now turn attention.

Demerara Distillers Limited

This group comprises several local and overseas companies in the region, North America and Europe as well as a joint venture in India and associated companies in Guyana and Jamaica. In his Chairman’s Statement Dr. Yesu Persaud reported that the group’s pre-tax profit for the half-year of $769 million had increased by 6.4% over 2011, attributed to the performances of the European subsidiary, Demerara Shipping Company Limited and Distribution Services Limited.

When account is taken of increases in the fair value of investments and exchange differences on consolidation, the total comprehensive income for the year – a measure of the sum total of all operating and financial events that have changed the value of an owner’s interest in a business – is $627 million compared with $437 million in 2010. The group may have a challenge however in exceeding the full year reported profits for 2010 of $1,139 million. The profits for that year were augmented by a $151 million “share of profit of associated company.” In the first six months of 2011 this profit was only $8.4 million compared with $3.4 million in 2010 half-year, suggesting some major development in the second half of that year.

Earnings per share (EPS) have increased from $0.65 in half-year 2010 to $0.69 in 2011.

The balance sheet continues to be fair with current assets exceeding current liabilities by a ratio of nearly 2:1. The problem lies however in the composition of the two balance sheet components. Trade payables have climbed to $4 billion, bank overdraft is $2.8 billion and loans repayable in the next twelve months is close to half a billion dollars.

Share prices
None of the reports bother to speak of one of the most important issues for shareholders and that is the performance of the companies’ shares on the Stock Exchange. A comparison of recent prices is shown below:

On the line – The Banks Group


Ram & McRae has identified and announced as one of the activities and initiatives for its 25th anniversary being observed this year, an award for the best Annual Report by any Guyanese company. The selection will be made by a panel of independent professionals from the business community, academia, the Guyana Bar Association, consumer representatives and the media.

In deference to the firm and in order to avoid any appearance of, or in any other way influencing that panel, Business Page and this feature will restrict its analysis of the annual financial statements and reports of public companies in Guyana to matters contained and disclosed in those reports and accounts. It will avoid identifying, as far as is consistent with a proper analysis of those reports, any defects or deficiencies, and will be less judgmental in its evaluation and interpretation of those documents. A consequence of this approach will be that the column will not be offering any public recommendations for addressing any perceived or actual deficiencies.

I hope that this does not detract from the interest which readers have shown in this feature over the years, which has on many occasions caused the column to be at odds with some of the companies.

Today’s Business Page looks at the financial statements of the two operating companies of the Banks DIH group. The group comprises Banks DIH Limited (‘Banks’), the food and beverage giant, Citizens Bank Limited, a 51% owned retail bank and Caribanks Shipping Company Ltd, a dormant company. The financial statements of the group also include as an associate company B&B Farms Inc, a Guyana private company and BCL (Barbados) Limited in which Banks holds a 25% interest. The financial statements of the group do not treat as an associate Banks Holdings Limited, a company in which it owns 8.6% of its issued capital, has a director on its board and with which it had transactions valued at $150 million during 2009. On the other hand, Banks Holdings which owns 20% of Banks and which has two directors on the board of the Guyana company, treats Banks Guyana as an associate in its books.

Both the public companies in the group have as their accounting year-ends September 30 and will be holding their annual general meetings later this month – Citizens on January 19 and Banks four days later. The shareholdings in the two companies reflect an interesting contrast with Banks spreading 60% of its shareholdings among a vast network of private individuals, while in the case of Citizens, four shareholders own 82% of the shares with the remainder spread among about sixty smaller shareholders.

Banks will be presenting a regionally designed and produced high-quality, glossy report in which the Chairman and CEO waxes lyrical about the iconic role of the company in the landscape of Guyana. The report of the bank in contrast, is done with the standard cover in which only the year is different. One other issue of difference is the structure and contents of the reports of the two companies which have different governance structures, with Banks having an Executive Chairman, the American model, while Citizens has split the roles of Chairman and Chief Executive Officer, the European model.

Banks has eleven directors, five of whom overlap with the nine in Citizens. In both cases, all are male, even as this week’s Economist shows on its cover a blue-collar woman flexing her muscles and boasting “We did it!”

Source: Annual Report 2009

As the Chairman pointed out in his report, the net profit of the company passed the significant one billion dollar milestone for the first time in its history, with a 32% increase over 2008. Those profits were earned on increased turnover of 5% which would be slightly ahead of the official inflation rate for the country. Net operating costs rose by a smaller 2.1% compared with an increase of 4.9% in 2008 over 2007, but with staff costs increasing by just under 10%, about double the rate of inflation. Costs for key management increased by 13.07% while for other staff the increases averaged 10.69%.

A significant contributor to the better performance reported in this year, however, is a write-back of $474 million arising from a favourable settlement of an excise tax issue between the company and the Guyana Revenue Authority. In 2007 and 2008, the company made provisions of $183M and $291M for potential excise taxes and the published half-year report at March 31, 2009 showed a cumulative provision of $617M.

Reflective of that agreement, the Profit and Loss Account for the year shows a reduction in excise tax of $268 million over 2008 or an effective rate of 11.7% of sales compared with 15%. If the write-back, which is a non-recurring benefit, is excluded from the current year’s profit the net after-tax profit for the year would have been $813M. When compared to a profit for 2008 of $1,039M (adjusted for the excise tax provision made in that year), the company would have reflected a fall in profitability of 21.72%, despite the increase in sales.

Partly due to the write-back, all the profitability ratios show increases over the preceding year, but so too do the other ratios which are less, or not directly affected by the write-back, such as activity, liquidity and solvency ratios. Both current as well as long-term liabilities have declined while current assets have increased as have cash resources which increased by $481 million or 37% over 2008.

The average rate of tax charged in the accounts for the current year is 39%, a marginal decline over the previous year. Current year taxation has jumped from 34% in 2008 to 43% in 2009, with property, withholding and capital gains tax accounting for a smaller percentage this year (11%) than in 2008 (16%). High rates of taxes and the non-deductibility of Property Tax have been a major concern of this group and the manufacturing sector for decades, but such concerns have largely been ignored by the government and such groups as the National Competitiveness Strategy Council, in which the private sector has significant representation without any apparent comparable influence.

As a result of the attempt by a regional group to wrest control of the company and the company’s defence strategy, the company’s share price based on transactions reported by the Guyana Stock Exchange, has shown a high degree of volatility. During the year, the company’s share price fell from $10 to $9.50, or by 5%, and is now at its lowest point since September 2008.

Share price

Source: Guyana Stock Exchange

Citizens Bank Limited
It has not been a good year for the banking arm of the group. While Republic Bank and Demerara Bank with similar year-ends have been reporting record profits, and with the Guyana Bank for Trade and Industry likely to follow suit, Citizens has seen its profit decline during the year from $438 million to $391 million, or by 11%. Contributing to this decline is an impairment provision of $170 million for investments in Stanford International Bank and Clico Trinidad Limited, the region’s two financial catastrophes for 2009.

Because of the difference in the governance arrangements referred to above, Citizens presents both a Chairman’s and a CEO’s report, the latter offering details and insights on some operational issues of relevance not only to members, but to depositors and the wider public who see strength in a financial institution being reflected in numbers and profitability.

Interest income increased by 5% and other income by 31% while operating expenses increased by 11%. Net customers’ deposits had a small decrease during the year with increases in savings deposits of 24% and demand deposits of 11% while the usually high-value term deposits declined sharply by 32%.

Source: Annual Report 2009

Share price
In 337 sessions since the Guyana Stock Exchange began trading in 2003, shares in Citizens have only traded on 9 occasions, 4 of which were in the last year. Given so few trades the price at which shares would change hands in usually limited volumes is not an indicator of what other transactions may fetch. The records of the Stock Exchange show a trade in the shares in Citizens in December 2009 at a price of $45 up from $18 in June 2009.

Next week we will look at the increasing abuse of the Contingency Fund as part of the deteriorating financial management of the public purse.

On the line: Banks DIH Annual Report

Banks DIH, the giant food and beverage company will be holding its 53rd annual general meeting on Saturday, January 17, 2009, close to four months following the end of its financial year of September 30, 2008. As a public company Banks is a reporting issuer for purposes of the Securities Industry Act, 1998 although like other domestic public companies in Guyana it is listed not on the Stock Exchange’s official list but on its Secondary List which consists of those securities that have not sought admission to the official list. Such securities are eligible for trading merely by virtue of being registered with the Guyana Securities Council.

Inclusion on the Official List on the other hand, according to the Stock Exchange website, indicates that that the, “stocks and shares that are listed are freely transferable and validly issued – not non-transferable, or forged, or otherwise tainted; it also means that the issuer meets the requirements of law and regulation in the management of its business and in the disclosure of adequate, timely and accurate information about its business to investors.” This distinction seems harsh, although companies’ silence on the reasons for their unwillingness to seek admission on the official list clearly does not help their cause.

The Barbados connection
The annual report to be put to shareholders at the meeting includes the financial statements of the company as well as the group. The group is made up of the company as the holding company, Citizens Bank Guyana Inc, a 51% subsidiary, and a dormant subsidiary Caribanks Shipping Company Limited, which appears to have little or no assets or income. The company also has two associated companies, ie companies in which it has significant influence but not control. The two such companies are BCL (Barbados) Limited and B&B Farms Inc.

BCL is owned equally by Banks Barbados, Valley Manufacturing Company Limited of Belize, Banks (DIH) Limited in Guyana and Blue Waters in Trinidad, all of whose export development needs BCL seeks to promote. Readers will recall that the Guyana-Barbados link-up was a defensive move by the local company reacting to a perceived hostile take-over about four years ago by the Trinidad conglomerate Ansa McAl. Under the deal the Barbados company was given 20% of the shares in the local company in exchange for 8.59% of the shares in the Barbados company, based on the respective book values of the shares at the time of the share exchange. Two of the directors of Banks Barbados sit on the board of Banks DIH while Mr Azam Khan represents the Guyana interest on the Barbados board.

Note 29 to the financial statements indicates that DIH purchased finished goods valued at $53 million from the Banks Holdings but made no sales to it. On the other hand sales to BCL amounted to $45 million and purchases amounted to $30 million.

The group accounts include mainly a manufacturing entity, a financial services institution and less significantly, laundry and hotel services, a combination which does not make the group accounts easily understandable to the ordinary shareholder. While the company is separately accounted for, any member wishing to ascertain exactly how the very significant banking arm has performed would need to refer to the bank’s annual report which unfortunately is not posted on its website.

One criticism that this column has made of the company’s financial statements – that it does not include the very important statement of cash flows for the company – has been addressed and this is now contained on page 26 of the annual report. This is commendable. Also commendable is the greater level of disclosure about corporate governance although one has to wonder why an enlightened company like Banks DIH cannot have at least one female director in a board of twelve. Where is the gender-consciousness in a company of which perhaps a majority of the employees in the food division are female, as are many of its customers and shareholders?

Inadequate information
The unusually brief Chairman’s report on pages 8 and 9 of the annual report (including picture and graphs) gives very little information on the company’s operations and even in that limited space, Chairman Clifford Reis concentrates mainly on the group results with one paragraph reporting on the profits earned by the banking subsidiary and the longest paragraph dealing with the arrangement with Barbados. The annual report of the Barbados company presents a stark contrast with respect to the discussion which the management shares with its members. Significantly, in the Barbados company, the roles of Chairman and CEO are separate with both persons presenting separate reports to the members. There, the Chairman’s report runs to just two pages while that of the CEO covers more than ten. Structures and culture are different, but the amount and quality of information offered to Banks DIH shareholders is far too sparse to enable any understanding of the performance of the various divisions.

The company v the group

Source: Annual Report 2008

The table shows in the left half the performance of the company for the year ended September 30, 2008 with comparison for 2007. On the right hand side of the table are the group results ended on the same date, with H1 representing the first half of the year and H2 the second half. The first half numbers come from the unaudited half year report published under the Securities Industry Act while the second half numbers are derived from the audited financial statements.

The company’s sales for the year increased by 5.1% over 2007 to reach $13.565 billion. Profit from operations, ie before finance cost and other income including dividends received from Citizens Bank, increased by 6.4%, considerably less than the 27.12% for the group. As a percentage of sales, profit from operations increased marginally from 9.74% to 9.9% but it is not possible to determine how much of this is attributable to the company’s branded products, those it produces under licence and bought in products. After charging taxation of $570 million including a mix of property, withholding and capital gains taxes of $79 million, the company realised a net profit of $850 million (2007 – $793 million) of which dividends paid or to be paid amount to $420 million.

Profit from operations for the group increased by 27% over the preceding year to $1.922 billion with other income net of financing cost resulting in profit before tax of $1.968 billion. After taxation of $710.9 million of which property, withholding and capital gains taxes amount to $107 million, the profit for the group was $1,257 million, an increase of 22% over 2007. H1 accounted for 49% of sales but 55% of profit after tax, while in the second half of the year 51% of the sales produced only 45% of profit after tax. No explanation is given for this apparently anomalous situation but the unaudited first half would have included estimates while the second half of the year coincided with increased costs of raw material and fuel which the company may not have been able to pass on in higher prices.

Profits after tax of Citizens Bank amounted to $437.7 million, an increase of 66% over 2007. Of the amount of $437.7 million only 51% belongs to the group, the rest attributable to the shareholders who own the remaining 49% of the shares in Citizens.

The very important measure of Earnings Per Share for the group jumped by 16% from $0.90 to $1.04 but for the company the increase, which is not stated in the annual report, is a more modest 7.6% after accounting for dividends from its banking subsidiary. Perhaps this explains why the price of the company’s share was almost static throughout the year. Once again we note that there is no information or discussion on this vital factor.

The company continues to honour a commitment it made to shareholders to pay three dividends, which of course carries an administrative cost but also allows for better cash flow management. Total dividends paid and proposed for the year are $0.45 per share compared with $0.42 per share in 2007 – an increase of 7.14%. The payout ratio which measures the share of after-tax profit paid to the shareholders was 49.41% compared with 50.44% in 2007.

The company’s balance sheet remains strong with cash resources of $1.3 billion, an increase of $1.2 billion in 2007 while net trade receivables, a function of sales and credit management increased by 24% on sales which increased by 5%. Total assets of the company grew by 5.53% while those of the group increased by 6.63%.

Mr Reis is one of the private sector voices that can still command attention, and he was known to advocate fearlessly on behalf of his company and the private sector. At this time, his reasoned and constructive views on issues on direct and indirect taxation including VAT would have been particularly useful above the din of often uninformed rhetoric and opinion that seems dominant. The company should be leading in the advocacy for the zero-rating of bottled water (at least locally produced) – one of life’s greatest necessities and what some may even consider a public good. Water from GWI which few would want to drink without boiling is zero-rated, but that of the private producers is taxed at 16%. That policy certainly needs revisiting and offers an opportunity to the company to join with consumers to have the tax removed. This I should add is only one of several areas that need reform sooner rather than later.

Like the other commercial banks, Citizens has had a very good year and its results have embellished the group’s performance. But even banking can be cyclical and the core business of the company – particularly its beverage arm – needs to become more dynamic and be positioned to take up any downturn.

Chairman Reis in his report titled ‘Building on Traditions of Strength’ did not address the future prospects of the company. He referred briefly to the impact of the global financial crisis on remittances and the economy and expressed a commitment to be “optimistic, proactive, and to pursue a vigorous approach towards maintaining and improving the performance of the business.”

The group may need more than just commitment as the world enters the most challenging year of the company’s illustrious history.