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.

On the line – Demerara Tobacco Company Limited and Guyana Bank for Trade and Industry 2007


Over the course of the next two days corporate Guyana will come alive with annual general meetings scheduled to be held by two of the country’s public companies. Demerara Tobacco Company Limited (Demtoco), a subsidiary of the British American Tobacco, plc. will have its meeting on March 31 and one day later on April 1, the Guyana Bank of Trade and Industry (GBTI), a 61% subsidiary of Edward B. Beharry and Company Limited, will have its annual general meeting. The Companies Act 1991 allows companies six months to hold their AGMs and the companies are to be commended for their early meetings.

GBTI reports a 57% increase in after tax income for 2007 coming after a 51% increase in 2006 while Demtoco has had more modest increases, 34% in 2007 and 14% in 2006. By any measure these are extremely impressive results which are reflected in the performance of the companies’ share prices over the past three years and provide returns that ironically make bank deposits seem correspondingly unattractive. The average deposit account at the GBTI yielded a return of 3.5% while an investor in the shares of the bank earned 33% (26% of which represents capital appreciation) on his shares.

With inflation close to 15% in 2007, the depositor would have seen the real value of his/her deposit decline by about 12% while the investor’s return, which includes cash income by way of dividends and the increase in the market price for the share, amounts to a healthy 16%.

The lesson is that it is far more attractive to own shares in a reasonably profitable company than to put money in a bank account. The Guyana Stock Exchange (GSE) has not had the desired effect of increasing the number of public companies and with most of Guyana’s public companies being held by controlling shareholders the options for investment in Guyanese companies are limited. But with the removal of exchange controls, the operation of the CARICOM Double Taxation Treaty and the introduction of the CARICOM Single Market and Economy (CSME), there is no reason for limiting the options to Guyana.

It is true that the GSE has outperformed the regional exchanges since its inception in 2003 but much of that is due to what are called market corrections which are unlikely to continue unless all the companies on the Guyana Exchange can match the 2007 performance of Demtoco and GBTI.

Graph of share price movements

Source: The Guyana Association of Securities Companies and Intermediaries Inc., weekly trading reports


Turnover has barely managed to keep abreast with inflation increasing by 16% but the increase in the profit after tax is due to a 30% increase in gross profit – sales less cost of sales – as a result of two price increases in the year which unlike the increases in the price of rice and flour hardly earned a comment in the national press. There is little analysis offered by the Chairman in his one page report or by the Managing Director, neither of whom commented on any impact VAT may have had on the company’s product and performance. The company paid three interim dividends in 2007 amounting to $21.38 per share and is proposing to the shareholders a final dividend of $15.85 making a total of $37.23 giving shareholders a return of 17% on the average market price of the share during the year.

The group gets more however, having charged the company more than $600 million dollars for management services, royalties and technical and advisory services to what it is now no more than a marketing company. The company continues to justify a royalty for a product that can be bought almost anywhere outside of Guyana and seems able to justify exorbitant management services when all the company does is bring in a product sold mainly through at most a handful of distributors.

The balance sheet of the company shows a healthy situation with the company being able to make available to its fellow group companies more than $400 million dollars at the end of the year of which only 60% earns interest at the rate of 4% per annum.

Once again the company does not disclose the number of employees nor does it include anything on corporate governance. Readers will recall one past Country Manager publicly proclaiming defiance to any suggestion that it should comply with Corporate Governance Guidelines until these become legally binding prompting a rejoinder that corporate governance is not a matter of law but best practice (Stabroek News 22/5/04).

Financial Highlights

2007 2006


G$M G$M G$M %
Gross turnover 4,574 3,933 641 16
Cost of sales (1,906) (1,880) (26) 1
Gross profit 2,668 2,053 615 30
Other operating income 20 18 2 12
Operating expenses (920) (772) (148) 19
Profit before taxation 1,768 1,299 469 36
Taxation (895) (648) (247) 38
Profit after taxation 873 651 222 34
Ordinary shares in issue (‘000) 23,400 23,400
Earnings per share (in dollars) 37.29 27.82
Dividends declared per share 37.23 27.75


The report by GBTI is far more comprehensive than Demtoco’s, running to 86 pages of material and lots of pictures including two Ministers of Government. Unlike Demtoco the Bank produces a full page Statement on Corporate Governance and eye-catching Financial Highlights although the reader has to go through nineteen pages before s/he finds these.

All the indicators are positive in favour of the shareholders if not the depositors in the bank. Shareholders receive a return of 33% in dividends and capital appreciation, while depositors of interest bearing accounts earned 3.5% (3.4% in 2006) and the average of all depositors 2.6% (2.5% in 2006). Share prices during the year increased by 26% on an increase in earnings per share of 57% and if the bank’s outlook for itself and the economy is shared by investors, then it is quite possible that there will be a further movement in share prices over the next few months.

The company reports accumulated provision for loan losses amounting to 96% of its non-performing portfolio, having written off $831 million in 2006 but only $20 million in 2007. From a profit and loss account perspective the provision for loan losses declined by $70 million which has augmented the profits for the year.

Another contributor to the substantial after tax profits of the Bank is the reduced effective rate of tax it pays for the year – at 18% it is half the effective rate paid in 2006 and results from more than $300 million in interest earned being “not taxable”. The normal rate of corporation tax is 45% and if the effective rate had remained at 36%, after tax profits would be $170 million less.


A bank’s contribution to national development can be measured by its lending to key sectors of the economy. The sectoral analysis of the bank’s loan portfolio shows agriculture accounting for a mere 7.64%, a further reduction from the 9% in 2006. By contrast the share of the portfolio to the services sector has increased from 38% to 43%. Nationally agriculture accounts for approximately 25% of GDP. While the Bank was once considered the rice farmers’ bank (other than GNCB), some operators in the sector lament that the Bank has been taking a very harsh line on borrowers in the rice sector. Indeed this makes it somewhat paradoxical that the Bank won a bid to manage the EU G$1.6 billion facility to increase the efficiency and sustainability of the rice sector.

The loans to deposit ratio has declined slightly from 28% to 26% despite having won the bid and having received $825 million interest free under the Scheme. The Scheme comes to an end in June of this year but the annual report is unclear whether interest will then become payable on the amounts drawn down.


2007 2006


G$M G$M G$M %
Net Income before taxes 976 788 188 23.86
Net Income after taxes 796 506 290 57.25
Total assets 42,981 35,742 7,238 20.25
Total deposits 37,408 31,326 6,082 19.41
Loans and advances 9,745 8,745 1,000 11.43
Return on Average Assets % 2 1
Return on Average Equity % 66 42
Earnings per share $ 19.89 12.65

In their outlook for 2008 and beyond, the Chairman and the CEO were both upbeat about the prospects for the country, reflected in the extension of their branch network and new Head Office to be constructed during the year. Neither mentioned the events in Lusignan (January 26) or Bartica (February 17) and the consequential threats to the economy. It would be interesting to see which one of our two companies would be impacted more directly if the country does not solve events of that nature.

Finally, the results for both entities show how the tax system can be worked in favour of corporate taxpayers with the range of “tax shelters” that are available. Individuals, bound by a single personal allowance and a tax rate of 33⅓ %, can only read with envy.