Jamaican-based Seprod Ltd is a medium-sized enterprise operating along two major business lines, manufacturing and distribution. The company has three major shareholders.
As at December 2011, these were Musson (Jamaica) Ltd with 233,747,988 shares, representing about 45.3 per cent of its issued capital. Next in line was the Coconut Industry Board with 163,420,345 shares or about 31.6 per cent of the total. The third largest shareholder was the GraceKennedy Ltd Pension Scheme, which held 21,955,904 shares amounting to about 4.25 per cent of the total issued capital of 516,398,000 shares.
Balance sheet changes
As at December 2012, Seprod's net assets grew by almost five per cent to J$9.31 billion from the 2011 figure of J$8.9 billion. This growth was largely due to the 21 per cent expansion in its long-term assets. This item grew from a 2011 base of J$5.52 billion to J$6.68 billion.
The company continues to invest in its own plant, property and equipment, which increased to J$3.81 billion from 2011's J$3.49 billion. The major change, however, occurred in its holdings of available-for-sale investments. This item expanded by a factor of 123 per cent, or from J$1.055 billion as at December 2011 to J$2.357 billion as at the end of 2012.
The major reason for this was that the company purchased shares in an unlisted company, Facey Commodity Company Ltd, which is a subsidiary of Musson Jamaica. The purchase comprised of 42,214 ordinary shares (12.5 per cent of the total) and 20,486 preference shares (34 per cent of the total). This is a medium-term investment and it is expected that Seprod would eventually sell these shares at a profit at a later date. The total acquisition cost was almost J$1.28 billion.
The company maintains a healthy excess of current assets over current liabilities; at the end of 2012, current assets of J$5.51 billion were 91 per cent greater than current liabilities of J$2.9 billion.
In relation to the company's net assets of J$9.31 billion, more than 91 per cent or J$8.5 billion comprised equity whilst the remaining J$0.8 billion represented long-term liabilities. This sum includes retirement benefit obligations (J$103 million), deferred tax liabilities (J$262 million) and J$473 million of debt.
Income and profitability
Sales for the 2012 period rose by 6 per cent to J$12.73 billion from 2011's J$12 billion. Despite this modest expansion, gross profit improved by 8.9 per cent to reach J$2.65 billion from last period's J$2.43 billion.
Finance and other operating income did provide a useful lift as this item increased from 2011's J$470 million to J$527.7 million in 2012. Although interest income fell to J$208 million from 2011's J$320 million, this was more than offset by the improvement in net foreign exchange gains, which rose to J$146 million from less than J$1 million in 2011.
The growth in pre-tax profit registered only a 3 per cent improvement, moving from J$1.19 billion in 2011 to J$1.23 billion last year. This more restrained performance was due to increases in administrative expenses and finance costs.
Administrative expenses rose by almost 14 per cent to J$1.39 billion from last period's J$1.22 billion. Helping to boost this were increases in staff costs, which rose by 15.7 per cent to J$1.66 billion from 2011's J$1.44 billion. (Note: only a portion of total staff costs are allocated to administrative expenses. A portion would also be allocated to selling expenses.)
Interest expense on long-term bonds moved up by almost 83 per cent or from 2011's J$53.7 million to J$95.2 million in 2012. This increase helped push up finance costs by almost 70 per cent, as it moved to J$105.7 million from 2011's J$62.4 million.
Taxation for 2012 declined to J$379.8 million from 2011's figure of J$426.7 million. The 2012 figure benefitted from a deferred tax credit of J$67 million, most of which related to accelerated tax depreciation of J$71.7 million. These changes resulted in an improved after-tax profit of J$850.8 million; this result was 10.9 per cent greater than the J$767.3 million earned for 2011.
After adding back J$45 million in losses relating to non-controlling interests, the profit attributable to shareholders came in at J$895 million; this equates to earnings per share of J$1.73 and represents a small improvement over the J$1.69 earned for 2011.
During 2012, dividends of J$0.83 were paid to shareholders; this was seven cents higher than the J$0.76 paid during 2011.
Segmental performances
The manufacturing segments includes entities that manufacture and sell oils and fats, corn products, cereals, milk products, juices, sugar and biscuits. Companies in this segment include Serge Island Dairies Ltd, International Biscuits Ltd, Jamaica Grain and Cereals Ltd and the 80 per cent owned Golden Grove Sugar Company Ltd.
With segment assets of J$7.5 billion and liabilities of only J$1.96 billion, it is the more profitable portion of the group.
In 2012, these units generated external sales of J$8.14 billion and delivered an operating profit of J$1.31 billion. During the 2011 period sales came in at J$7.53 billion and operating profit was J$1.06 billion. Thus, with an improvement in sales of only 8.1 per cent, these divisions delivered a 24 per cent increase in operating profit.
The distribution segment is primarily engaged in the merchandising of consumer products by Industrial Sales Limited. This segment had identifiable assets of J$0.92 billion and liabilities of J$0.27 billion.
Sales in 2012 were J$4.58 billion, which was only 2.4 per cent higher than the J$4.47 billion registered in 2011. Profitability, however, declined to J$163 million from the J$206.5 million earned in 2011.
For the first nine months of 2012 this division's profit was J$157.5 million. This amount was slightly greater than the J$155.6 million earned for the comparative period in 2011. On that basis, we can derive that the last quarter of 2012 produced profit of a mere J$5.5 million.
Effects of NDX
Under this arrangement, Seprod exchanged debt valued at J$354,387,000.00. The weighted average coupon rate on these notes fell from 8.075 per cent to 4.85 per cent. Conversely, the weighted average tenor to maturity increased to 3,993 days (10.94 years) from 2,368 days (6.49 years) previously.
These changes negatively impact both its current (2013) earnings and will increase the costs of funding of its defined benefit pension and other post-employment benefit plans.
Share price
The share price has climbed down from the March 30, 2012 price of J$19.01. At its recent share price of J$14.50, Seprod's price to earnings multiple is 8.4 times. If we assume that the company will pay the same dividend of J$0.83 as it did in 2012, then the dividend yield is currently at 5.72 per cent.
The MUSSON's connections
In some brief Caribbean business history, the major shareholder, Musson (Jamaica) Ltd is the parent of a large group of companies that operates across a diversified range of businesses. Their operation spans Miami and the Caribbean and includes subsidiaries in Central America, the Pacific and Europe. A subsidiary, Facey Telecom, is a distributor for Digicel in the Caribbean, Central America and the Pacific.
In the late 1990s, Musson bought the Jamaica operations of T Geddes Grant from Neal and Massy Holdings Ltd, which had recently acquired the T Geddes Grant Group, a Trinidad-based conglomerate, which was founded in 1901.
Musson Jamaica was started in 1963 as a spin-off from its precursor, SP Musson Son and Company Ltd, which traces its roots back to 1820. SP Musson was one of the six companies that eventually founded Barbados Shipping and Trading, which is now also owned by the Neal and Massy Group.
