Conglomerates rebound in 2012

Goddard Enterprises Ltd (GEL) registered a 5.3 per cent improvement in sales for its fiscal period ending September 2012. This figure came in just shy of B$1 billion. (The actual result was B$999.1 million). Also, registering a positive change was the company’s gross profit margin. For 2012, this figure came in at B$52.8 million and reflected a margin of 5.3 per of revenue. In 2011, the gross profit was B$40.8 million, but the gross margin was just 4.3 per cent of sales.

The group’s bottom line showed healthy changes as its earnings per share returned to positive territory and registered at 41.2 Barbados cents per share. In the 2011 period, this figure was a negative 17.6 Barbados cents. The 2011 result was caused by the negative effects from three non-recurring events.

Dividends to shareholders also improved to B$0.18 from last year’s B$0.12. Perhaps, very soon it would return to the level of B$0.23 or higher, that was paid for the 2008 financial year.

As at the end of September 2012, the company’s share price closed at B$5.50; this reflects a price earnings multiple of 13.3. This was somewhat lower than the P/E multiple of 15.0 that was obtained as at September 2009. In some measure, this probably reflects the less optimistic times in which we live.

GEL’s balance sheet also showed modest growth as net assets employed increased from B$547.4 million in 2011 to B$561.3 million in 2012, or by 2.5 per cent. Some of the notable changes include:

(1) An increase in the group’s cash balances from B$47.2 million in 2011 to B$55.6 million last year.

(2) An overall reduction in total debt by B$3.37 million. While short-term borrowings declined by B$12.8 million to B$105.1 million, long-term debt increased by B$9.4 million to B$95.1 million. 

(3) The group’s investment in property, plant and equipment increased to B$357.8 million, or by B$13.5 million, from 2011’s figure of B$344.4 million.

In both 2011 and 2012, the most profitable segment of the group was the catering and ground handling division. In 2011, this division contributed B$20.2 million in operating profit on external sales of B$181.6 million. This contribution improved in 2012 when this division’s sales rose to B$204.5 million and its operating profit advanced to B$25 million.

Although contributing more than two-thirds to the group’s total revenue, the import, distribution and marketing segment delivered comparatively less to the group’s operating profit. In 2011, on sales of B$651.2 million, this segment contributed B$15.4 million. In 2012, sales improved modestly to B$666.5 million while operating profit moved in the opposite direction to B$12.4 million.

The year 2011 was a very challenging year for the manufacturing and services segment as it delivered a meagre profit of just B$6k on sales of B$119.6 million. However, in 2012, there was something of a rebound as sales improved to B$132.2 million and this division delivered a profit of B$6.2 million.

Hotels, financial services

GEL’s investment in hotels and financial services are all represented by its minority holdings in various associated companies. In 2011, they delivered B$195.5 million in revenue and contributed a modest B$3.2 million to the group’s income. This performance improved in 2012 as revenue from these associates declined to B$146.8 million, but income rose to B$5.5 million.

The group’s geographical distribution of its external sales is well diversified. In 2012, only 23 per cent of total revenue or B$232 million was sourced from Barbados, while St Lucia accounted for 27 per cent or B$272.2 million. Grenada delivered B$92 million in revenue while other Caribbean markets accounted for B$194 million (19.4 per cent) in sales. The Latin American markets saw sales of B$116.8 million while all other markets had B$92 million in revenues.

In a similar vein, GEL’s largest profit centre was the Latin American markets, where it earned B$18 million in gross profit in 2012; this was a big improvement from the B$12.6 million earned in 2011. This was 34.2 per cent of its total 2012 operating profit of B$52.8 million. 

Other Caribbean markets delivered B$17.5 million to gross profit or 33 per cent of the year’s total. The 2012 figure was below the B$19.9 million recorded for 2011. Its home market (Barbados) contributed B$8 million (2011: B$3 million), while “unallocated” profit came in at B$9.3 million (2011: B$5.2 million).

Neal & Massy Holdings Ltd

Neal and Massy Holdings Ltd (NML) also exhibited signs of recovery as revenues for its financial year ended September 2012 grew by 7.6 per cent to $9.15 billion from 2011’s $8.5 billion. More importantly, the group’s earnings per share rose to $4.87 from the challenging low base of $1.02 reported for 2011.

NML’s operating profit advanced from slightly less than $600 million in 2011 to a more robust $748 million last year. This reflected a gross margin in 2012 of 8.2 per cent, which was a healthy improvement over the 7.1 per cent margin recorded for 2011.

The group’s share of results from associates and joint ventures also showed strong growth of more than 33 per cent, advancing to $54.2 million from the 2011 figure of $40.6 million. This improvement boosted the group’s pre-tax profit up to $801.8 million from last period’s $639.7 million. 

NML’s income tax expense continues to be high; in 2012, this was 32 per cent of pre-tax income, which was also higher than the 31 per cent paid for 2011. Bringing this figure closer to the statutory rate of 25 per cent could be a useful source of additional profit to shareholders.

Looking briefly at the balance sheet, we see that the group’s investment in property, plant and equipment continues to expand. This figure stood at $1.99 billion as at the end of 2012, reflecting growth of $127.7 million from the 2011 figure of $1.86 billion. 

The group’s debt grew by a modest $38 million or from $1.418 billion in 2011 to $1.456 billion last year. However, the composition of its debt changed slightly as short-term borrowing increased from $248 million in 2011 to $391 million in 2012. Conversely, long-term debt declined to $1.065 billion from $1.170 billion as at the end of 2011. Meanwhile, cash balances rose by more than $180 million to reach $1.3 billion as at September 2012 in contrast to the balance of $1.12 billion recorded as at the end of the 2011 period.

The chairman pinpoints growth in its Automotive Business Unit and Guyana as being the primary drivers for delivering 2012’s encouraging results. Let us see how the various divisions contributed to the overall results.

As is traditional, the integrated retail segment, which includes HiLo Food Stores and DacostaManning Retail, delivered the highest revenue. In 2012, this figure was $5.12 billion, representing an improvement of 5.8 per cent over the $4.8 billion recorded for 2011. In terms of operating profit, this division saw its contribution improve by just 3.2 per cent or from $296.6 million in 2011 to $306 million last year.

Automotive, industrial

The automotive and industrial segment saw its sales volume expand by more than 24 per cent to $1.9 billion from 2011’s base of $1.54 billion. However, the increase in sales was accompanied by a somewhat lower improvement in operating profit; this measure rose by just under 19 per cent to $194.3 million from the previous period’s $163.4 million. This suggests the growth in revenue was concentrated in the sales of lower-priced vehicles. In this segment, competition tends to be fiercer and margins are somewhat lower.

The insurance segment saw an almost $50 million reversal in its fortunes. Revenue contracted by almost ten per cent to $260.4 million from 2011’s $288.2 million. Despite this reduction, operating results swung dramatically from a loss of $23.6 million in 2011 to a profit of almost equal magnitude or $26.6 million. United Insurance’s performance benefited from the absence of any catastrophes accompanied by improvement at its Caribbean Direct Insurance business. 

Energy, industrial gases

Growth in the energy and industrial gases segment, though positive, was less robust than some of the other segments. Revenue grew by 4.1 per cent to reach $789.7 million from last period’s $758.5 million. Operating profit advanced to $175 million from the 2011 figure of $170.5 million, or by 2.6 per cent.

The last major segment is information, technology and communication (ICT), where results were also trended positively. Sales declined by 3.75 per cent from 2011’s figure of $572.4 million to reach $551 million last year. Despite this, operating profit advanced to $79.6 million from the 2011 figure of $75.3 million, representing an improvement of 5.8 per cent.

In terms of geographical distribution, T&T remains the dominant contributor. Local sales in 2012, at just over $5 billion, accounted for 55 per cent of the group’s total, while its pre-tax profit of $575.5 million amounted to almost 72 per cent of the group’s total. Barbados generated sales of $2.7 billion (29 per cent of the total) and delivered profit of $217.4 million (27 per cent of the total). 

The Guyana operations generated 8.4 per cent to group revenue ($766.2 million) and contributed $103.1 million to profit (almost 13 per cent). On the other hand, while delivering $673.7 million to gross revenues, Jamaica and other territories contributed just $54.5 million to group profit. Head office and other dragged down profits by $148.7 million.

It is expected that losses from discontinued operations would play a rapidly diminishing role in NML future results. If the group can grow sales, increase its margins and manage its taxes a little better, then the future could, indeed, be a lot brighter for its shareholders and other stakeholders.

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