Goddard Enterprises Ltd - Barbados giant stumbles, then recovers

Similar to its Trinidad-based counterparts, Neal & Massy and ANSA McAL, the Barbados-based conglomerate Goddard Enterprises Ltd (GEL), was forced in 2011 to write off significant sums relating to its investment in two Almond Resorts hotel properties in St Lucia and Barbados. In this case, the amount was Bds$14.3 million. (All subsequent figures are Bds $) Two additional factors negatively impacted GEL’s profit for the year ended September 2011. These were:

(1) $4.9 million after non-controlling interests relating to a short-term investment held by a subsidiary in its catering and ground handling division. 

 

 

(2) Goodwill provision of $14 million for its investment in two St Lucian subsidiaries, operating within its distribution and marketing division; their performance fell short of the projections made at the time of their 2008 acquisition. 

 

 

Another factor that impacted negatively on the group’s results was the one-time charge of $2.1 million resulting from the introduction of the new Barbados Occupational Pension Benefits Act. (Trinidad investors should be aware that some local companies may have a similar charge to their accounts whenever a local version of more modern pension legislation is introduced, possibly within one or two years.)

 

 

The group’s performance was also negatively affected by the lower results reported by Sagicor General Insurance, which is 45 per cent owned by the group. Hurricane Tomas, which struck in October 2010, was the principal cause of a reduction in profit by almost 55 per cent from that associate. All of the one-off adjustments and events described above consumed earnings of 58.6 cents per share. Consequently, GEL reported a loss of 17.6 cents per share, which was a significant reduction from the 46.1 cents per share it earned in 2010.

Overall, the group recorded an 8.1 per cent increase in revenues to reach $949.3 million. Even in an environment of continually rising inputs, the group achieved an 8.5 per cent improvement in its gross profit, which came in at $317.9 million (that is, before deducting selling, marketing and administrative expenses of $280 million and adding $3.1 million in underwriting income). Shareholders were paid a dividend of 12 cents; in the context of the negative adjustments described above, this was reasonable, although lower than the 18 cents paid for the previous year.   

 

 

Higher energy costs

The manufacturing and services group comprises ten companies, including Goddard’s Shipping and Tours, Purity Bakeries, National Rums of Jamaica, West Indies Rum Distillery, McBride (Caribbean) Ltd, HIPAC Ltd and Caribbean Label Crafts Ltd. External sales for this division were $119.6 million and a minimal operating profit of $6,000; the comparatives for 2010 were $106 million and $1.3 million, respectively. For different reasons, contributions from both National Rums of Jamaica and West Indies Rum Distillery fell below the previous year’s results. In the case of the latter, energy costs increased by 53 per cent and it was not possible to increase prices to international customers by such a huge margin. In the case of National Rums, after starting the year and achieving a 22 per cent increase in operational efficiencies, unseasonably heavy rainfall severely disrupted its operations in the second half of the year. 

 

 

Overall, the import, distribution and marketing division improved its sales by five per cent over the previous year. This is the largest division with $651.2 million in third party sales and operational profit of $15.4 million. For 2010, these figures were sales of $622.7 million and $19.7 million in operational profit. This division consists of 13 companies, including popular names like Fidelity Motors in Jamaica, Minvielle and Chastanet Ltd and Minvielle and Chastanet Insurance Brokers in St Lucia, Hanschell Inniss Ltd in Barbados and Coreas Hazells in St Vincent and the Grenadines, OD Brisbane in St Kitts, among others. The catering and ground handling division was negatively impacted by the imposition in the United Kingdom of an air passenger duty travel tax. Despite this and other challenges, the division was able to report better operational results, which improved from $16.7 million in 2010 to $20.2 million last year. External sales were $181.6 million compared with $152.2 million registered for 2010. This may be considered GEL’s star division as it accounted for only 19 per cent of external sales and contributed almost 50 per cent to the group’s total operational profit of $40.8 million.

 

 

Value of an indigenous partner

In May 2011, Jamaica Dispatch Services was acquired; this company provides ground handling services to both Jamaican airports. Under the umbrella of Goddard Catering Group (GCG), subsidiaries are spread out over a wide geographical area, including south and central markets, such as Paraguay, Colombia, and Honduras, Ecuador and most of the islands, including Bermuda. Interestingly, many of these foreign subsidiaries are majority-owned (usually 51 per cent) with a local partner; this makes good business sense as it is often important to have an indigenous partner to help navigate the local business environment. The hotels and financial services sector comprises just four associated companies, which collectively contributed $3.2 million to income before tax. The results of the major associated company, Sagicor General Insurance, were commented upon earlier. Globe Finance Inc improved its average interest rate spread and was able to report improved profits. 

 

 

Another associated company, Bridgetown Cruise Terminals, in which GEL holds a 20 per cent interest, maintained a similar level of profitability to that reported in the previous year. Despite having higher cruise ship traffic, visitors’ spending was stingier due to the overhang from the ongoing global mood of frugality and uncertainty. United States-based BroadSpan Capital LLC has been retained to identify potential buyers for the impaired hotels, Almond Casuarina in Barbados and Almond Morgan Bay in St Lucia. GEL’s results for the first half of the current year to March 2012 showed significant improvement across all business divisions. Sales advanced by 8.3 per cent to $519 million, while profit from operations jumped by almost 24 per cent to $31 million. Net income rose by almost 40 per cent to $22 million, while diluted earnings per share improved by a similar margin to 25.2 cents per share.

 

 

Acquisition boosted results

Helping this sterling half-year result was a reduction in the provision for goodwill in the import distribution and marketing division from $7 million last year to only $1.2 million this year. In October 2011, GEL also acquired the assets of the agency and stevedoring business and operations of Sea Freight Agencies (Barbados) Ltd; this acquisition also helped boost half-year results. As at December 2011, the directors collectively owned 2,715,729 shares or 4.5 per cent of the outstanding shares. Of this amount, the chairman, Joseph N Goddard held 2,067,126 shares. Other major shareholders are Neptune Investments Ltd with 3,238,284 shares or 5.4 per cent and Sagicor Group, both beneficially and non-beneficially, owning 6,503,220 shares or 10.9 per cent.

The total number of shareholders is 1,967. A shareholder profile shows that 469 employees own 1,710,479 shares or three per cent of the total while 1,342 resident and non-resident individuals own 43 per cent of the outstanding shares or 26,049,469. 

 

 

The remaining 54 per cent of the company’s shares are held by 156 local companies and institutions and account for 32,117,695 stock units. As at March 2012, the group had net assets of $565 million and shareholders’ equity of $451 million. With 59,877,643 outstanding shares, its book value is $7.43. At the recent share price of $5.50, this reflects more than a 25 per cent discount on the share’s net asset value. Assuming that it would also pay a 12 cent dividend for the current year, the price would give investors a yield of 2.2 per cent. Due to the small number of shareholders and the concentration of shareholdings by Barbados-based companies, a Trinidadian investor may find it somewhat difficult to buy significant quantities of these shares. 

An additional consideration is the low trading frequency in the Barbados market.