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SuperPharm, Smith Robertson help Agostini’s report improved earnings

Sunday, January 24, 2016

Agostini’s Ltd had an eventful year in fiscal 2015. The year started with the completion of its debt refinancing exercise in early October 2014. After forming Caribbean Distribution Partners Ltd (CDP), that entity then bought 40 per cent of a Guyanese company, Desinco Ltd in January 2015. In February 2015, CDP bought Barbados-based Facey Trading Ltd.

On July 1, 2015, CDP Ltd acquired Hanschell Inniss Ltd (Barbados), Independent Agencies Ltd (Grenada), Coreas Distribution Ltd (St Vincent) and Peter and Company Ltd (St Lucia). In addition, Agostini’s Ltd transferred 100 per cent of Hand Arnold Trinidad Ltd to CDP. Then, Goddard Enterprises Ltd received a 50 per cent stake in CDP and US$11.6 million (from AGL).

Facey Trading was absorbed into Hanschell Inniss. Under accounting rules, Hand Arnold is deemed to be controlled by Agostini’s Ltd and thus the CDP operations are included in AGL’s results. The rationale for the formation of CDP was predicated on the need to improve operational efficiencies and to provide a focussed platform for future growth and expansion throughout the region.

Let us now look in some greater detail as to its performance for the year ended September 2015.

Changes in financial position

Helped by acquisitions, total assets rose to $1.51 billion from $955.4 million as at September 2014. With few exceptions, all major line items exhibited increases. Long-term assets grew from $423.4 million to $615.9 million. Here, property, plant and equipment increased to $379 million from $248 million. The major change was recorded under land, buildings and improvements, which advanced to $325.9 million from $209.3 million.

Intangible assets climbed to $125.1 million from $78 million. The major increase was generated by the transfer into Caribbean Distribution Partners Ltd of Hanschell Inniss Ltd, Independent Agencies Ltd, Coreas Distribution Ltd and Peter and Company Ltd; all these companies were formerly part of Goddard Enterprises Ltd.

Current assets rose from $531.9 million to $897.7 million. Inventories expanded to $414.4 million from $279.1 million. Due to the nature of most of its businesses, the bulk of this ($361.6 million) represented finished goods.

In a similar vein, trade and other receivables expanded to $341.4 million from $218.1 million. Cash at hand and in bank rose strongly to $137.3 million from $31.5 million as at September 2014. However, after allowing for overdrafts ($43.4 million) and bankers’ acceptances ($38.4 million), the net cash position closed at $55.5 million; this was a huge improvement over the negative $1.4 million as at year-end 2014.

Total liabilities rose to $766.3 million from $400 million. Total borrowings climbed by more than 100 per cent to $365.4 million from $180.3 million. The long-term portion advanced to $221.5 million from $129.1 million while the current portion rose to $143.9 million from $51.2 million.

In the case of the long-term borrowings, the portion that matures over 5 years stood at $107.4 million up from $60.3 million as at September 2014; this is a sign of confidence in the company. The company obtained new financing of $275 million at more favourable rates and flexible terms of which $184 million was used to settle existing loans and the remainder used to finance its expansion activities.

In line with its larger operating base, the other major increase saw trade and other payables increase to $372.5 million from $200.1 million. The higher figure includes $101.9 million (or B$31.9 million) due to Goddard Enterprises Ltd.

Equity improvements

Total equity rose to $747.4 million from 2014’s $555.3 million. The major change was recorded under non-controlling interests, which climbed to $160.3 million from $1.2 million. This was a direct result of the formation of CDP.

Stockholders’ equity advanced to $587 million from $554 million. The most notable change was recorded under retained earnings.

This component improved to $368.6 million from $335.6 million. The current year’s profit of $80.6 million was reduced by dividends of $32.3 million, comprehensive loss of $5.6 million and changes in the composition of the group totalling $9.7 million. With 58,704,219 shares outstanding, each share had a book value of $10.00 (September 2014: $9.44).

Income and profits

Total revenues advanced by 25.5 per cent to reach $1.7 billion from the comparative 2014 outturn of $1.36 billion. 

The cost of sales climbed disproportionally by 26.9 per cent, moving from $1.04 billion to $1.31 billion. This restrained the gross profit growth to 21.2 per cent, as it registered at $392.6 million from 2014’s $323.8 million.

Other operating income increased to $31.9 million from $28.1 million, thus boosting total net income to $424.5 million. This was 20.6 per cent greater than the $351.9 million recorded for 2014.

The largest component, handling fees, relates to the recovery of expenses incurred by foreign pharmaceutical representatives. Rental income rose to $6.2 million from the previous level of $5 million. (Unfortunately, these items are not adequately grouped in the financial report.)

Total expenses rose to $300.2 million from $228.2 million, or by 31.5 per cent. The increases were concentrated under the other segment, which climbed by $43.9 million or 33.1 per cent to reach $176.4 million from the previous year’s $132.5 million.

Administration expenses reached $89.4 million from 2014’s $61.7 million; this represented a climb of 47.3 per cent. However, marketing and distribution costs declined to $34.4 million from $35.1 million. Helping this reduction was lower advertising costs, which fell to $9.8 million from $16.7 million.

These changes resulted in an operating profit of $124.3 million; this was marginally higher than the $123.7 million recorded for the previous year. Notably, in line with expectations, finance costs fell by $4 million to $12.58 million from $16.58 million. In addition, the share of profit from its new associate, Desinco, contributed $2.14 million; that is a good return on the purchase price of $11.66 million.

These changes boosted pre-tax profit to $113.8 million from last year’s $107.1 million.

A higher effective tax rate of 27.8 per cent (2014: 24.8 per cent) pulled down profits to $82.18 million from 2014’s $80.55 million.

Of this sum, $1.6 million related to non-controlling interests, leaving shareholders with $80.58 million (2014: $79.9 million).

These net results translated into 2015 diluted EPS of $1.37 compared with $1.36 for 2014.

Segment performance

2015’s relatively disappointing results were constrained by a number of one-off events and transactions, most of which will not be repeated in the current period.

Penalties paid on the debt restructuring exercise, legal and other expenses related to the new regional investment, legal and arbitration costs concerning the outstanding matter with the Housing Development Corporation ($9.3 million). In addition, higher taxes regionally and now locally will continue to be a feature of business life.

The strongest performer was pharmaceutical and personal care, which includes Smith Robertson distributors and SuperPharm retail outlets. Both these business units are expected to continue to do well. Both revenues and after-tax profit exhibited growth.

Resulting from the formation of CDP, sales in the fast moving consumer goods category expanded robustly. Operating profit growth was not as strong, especially at Hand Arnold, but was helped by the contribution from its associate, Desinco, while taxes were less severe. The other five CDP operating subsidiaries experienced start-up and one-off challenges, all of which are being systematically addressed.

The industrial, construction and holdings segment experienced strong sales, which were driven by Agostini Marketing’s interior contracts and the higher sales of building materials. At the other extreme, Rosco Petroavance’s performance directly suffered from lower energy prices. The start of distribution of a range of lubricants from ExxonMobil should help improve the latter’s performance in 2016.

Dividends and share price

For its 2015 fiscal year, AGL paid dividends totalling $0.56 compared with $0.55 for 2014.

In 2015, the share price reached as high as $18.20 on September 21, 2015. Following the release of these mixed results, the price declined and was recently traded at $16.95.

At that price, the dividend yield is 3.30 per cent.

Future prospects

The new joint venture, CDP, only started life in July 2015, which comprised three months of last year’s results. The synergies and benefits of this initiative should become more apparent as changes are implemented incrementally over the course of the current year.

Property rationalisation will continue to feature as it moves to increase tenancy at its Nelson Street property; this property is still up for sale. At Chootoo Road, it purchased the Kimberly Clark property. During 2016, SuperPharm’s office and warehouse will move to that location, while surplus space will be rented.

These changes would bring in additional funds, which can be used to further expand its core businesses. Even in the face of slower economic growth and higher costs on a variety of fronts, AGL’s prospects for this year seem reasonably good. Its first quarter results, which are due in February, should give us our first indication about its 2016 trajectory.

Next week, we will look at the other CDP partner, Barbados-based, Goddard Enterprises Ltd.


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