Fe­lix Pereira

To­day, we con­tin­ue to high­light the re­sults of com­pa­nies with a De­cem­ber year end.

West In­di­an To­bac­co Com­pa­ny Ltd

Wit­co's rev­enues, net of ex­cise tax­es, im­proved by 13.7 per cent to reach $868 mil­lion from 2011's $763 mil­lion. The com­pa­ny's gross prof­it mar­gin al­so ad­vanced; this mea­sure was 71.6 per cent in 2012 from 70.9 per cent record­ed for 2011.

De­spite a 29 per cent in­crease in dis­tri­b­u­tion costs to $20 mil­lion from $15.5 mil­lion in 2011, op­er­at­ing prof­it ad­vanced by 18.5 per cent to $476.2 mil­lion from the pre­vi­ous pe­ri­od's $401.9 mil­lion. Al­though the com­pa­ny's cash re­sources at year-end im­proved from $100.8 mil­lion at the end of 2011 to $134.8 mil­lion as at De­cem­ber 2012, its in­ter­est in­come fell to $16 thou­sand from $21 thou­sand in 2011. This de­cline re­flects the trend that in­ter­est rates on most de­posit in­stru­ments have ex­hib­it­ed in the re­cent past.

The com­pa­ny's ef­fec­tive tax rate de­clined by 1.3 points to 26.5 per cent; the ef­fec­tive rate in 2011 was 27.8 per cent. This helped it to re­port an im­proved af­ter-tax prof­it of $350 mil­lion; this re­sult was 20.6 per cent greater than the $290.2 mil­lion earned for 2011.

These fig­ures trans­lat­ed in­to earn­ings per share for 2012 of $4.16 ver­sus $3.45 de­liv­ered in 2011. Div­i­dends for the year were $3.82 per share and the in­crease was in line with the net prof­it change. At a re­cent price of $97.00, this share gives in­vestors a div­i­dend yield of al­most four per cent.

Af­ter its re­cent an­nu­al gen­er­al meet­ing, the com­pa­ny de­nied that it was in a mo­nop­oly po­si­tion. Of greater con­cern to both the man­u­fac­tur­ing and dis­tri­b­u­tion busi­ness­es is the vex­ing ques­tion of coun­ter­feit prod­ucts, which re­duce sales, dam­age in­tel­lec­tu­al prop­er­ty rights and erode tax rev­enues.

Unilever Caribbean Ltd

In­creas­es in sell­ing and dis­tri­b­u­tion costs in the fourth quar­ter stymied Unilever's re­sults for that pe­ri­od caus­ing its earn­ings per share to slip to $0.80 from $0.81 for the com­par­a­tive pe­ri­od in 2011.

Nev­er­the­less, Unilever's full year's re­sults showed sales im­prov­ing to $567 mil­lion from the 2011 base of $527.4 mil­lion; this re­flect­ed an im­prove­ment of 7.5 per cent. Mean­while, its gross prof­it mar­gin im­proved to 38.9 per cent from 2011's 37.2 per cent. This change saw the gross prof­it fig­ure move from $196.1 mil­lion in 2011 to $220.7 mil­lion last year. This re­flect­ed a bet­ter con­trol of the com­pa­ny's cost of sales.

On the oth­er hand, the changes in both ad­min­is­tra­tive and sell­ing and dis­tri­b­u­tion cost in­creased dis­pro­por­tion­ate­ly to the rise in sales. Sell­ing and dis­tri­b­u­tion costs rose by 18.3 per cent to $110.4 mil­lion from 2011's $93.3 mil­lion. In­clud­ed in this fig­ure was an ad­di­tion­al $11 mil­lion spent on ad­ver­tis­ing and pro­mo­tions; this high­er lev­el of ex­pen­di­ture is ex­pect­ed to in­crease brand aware­ness and build cus­tomer loy­al­ty. High­er sales in sub­se­quent re­port­ing pe­ri­ods are ex­pect­ed to re­sult from this spend­ing fo­cus.

In a sim­i­lar vein, ad­min­is­tra­tive ex­pens­es rose by 22.2 per cent from $25 mil­lion in 2011 to $30.5 mil­lion last year. Much of this in­crease re­lat­ed to in­vest­ments in sys­tems and tech­nol­o­gy, the ben­e­fits of which would be seen in the medi­um and long term.

Pre-tax prof­it for 2012 came in at $79.8 mil­lion, which was 2.8 per cent greater than the $77.6 mil­lion re­port­ed for 2011. Af­ter al­low­ing for $20.3 mil­lion in tax­es for 2012 the net prof­it earned was $59.5 mil­lion; this re­sult was mar­gin­al­ly high­er than the $59.2 mil­lion achieved for 2011. Earn­ings per share for 2012 came in at $2.27, or just one cent more than 2011's $2.26.

In re­spect of the 2011 fis­cal pe­ri­od, UCL paid to­tal div­i­dends of $1.54. For 2012, it first paid an in­ter­im div­i­dend of $0.32 then, in De­cem­ber 2012, it paid a spe­cial div­i­dend of $1.25. In April, the com­pa­ny de­clared a fi­nal div­i­dend for 2012 of $1.23; this brought the to­tal div­i­dend in re­spect of 2012 up to $2.80. At a re­cent price of $51.50, this gives share­hold­ers a yield of slight­ly over 5.4 per cent. With a sur­plus of cash in its trea­sury rel­a­tive to its im­me­di­ate needs, UCL seems to have re­sumed re­turn­ing some of this ex­cess to share­hold­ers.

Fla­vorite Foods Ltd

Fla­vorite Foods' ac­qui­si­tion of Romike Ltd in ear­ly 2012 con­tributed to a rise in its rev­enues by al­most 57 per cent to reach $150.4 mil­lion from 2011's base of $96 mil­lion.

How­ev­er, pre-tax prof­its fell to $0.81 mil­lion from the $4.05 mil­lion record­ed for 2011. Al­most all cost items saw in­creas­es dur­ing the year. In ad­di­tion, there were sev­er­al one-off items re­lat­ing to the ac­qui­si­tion and in­te­gra­tion of the new sub­sidiary in­to the larg­er en­ti­ty.

For­tu­nate­ly, some of this de­cline was mit­i­gat­ed by a tax cred­it of $1.75 mil­lion; in 2011, there was a tax pay­ment of $1.75 mil­lion. Thus, the af­ter-tax prof­it for 2012 was $2.55 mil­lion com­pared with the $2.29 mil­lion re­port­ed for 2011. This fig­ure, be­fore the spe­cial items men­tioned lat­er, re­flects earn­ings per share of $0.33 for 2012 and $0.29 for 2011. A div­i­dend of $0.16 was paid in re­spect of both 2011 and 2012 re­sults.

In 2011, there was a pos­i­tive reval­u­a­tion fig­ure of $6.48 mil­lion, which helped boost com­pre­hen­sive in­come to $8.78 mil­lion. In 2012, there was a huge write-off of good­will on the com­pa­ny's books amount­ing to $17.34 mil­lion. This one-time charge caused the com­pa­ny to record a com­pre­hen­sive loss of $14.79 mil­lion.

The chair­man ex­plains the com­pa­ny's de­ci­sion in the fol­low­ing way: "In the cur­rent au­dit cli­mate, un­for­tu­nate­ly, even rea­son­able bases for such im­pair­ment tests are be­ing re­ject­ed.

As such, the com­pa­ny has de­cid­ed to take a one-time write-off all the good­will on its books."

(Al­though their rea­sons were dif­fer­ent, we re­call that, in 2010, One Caribbean Me­dia wrote off good­will of $244.4 mil­lion. Might oth­er com­pa­nies have cause to fol­low suit?)

Thus, Fla­vorite is con­tin­u­ing its new and en­larged phase of op­er­a­tions with­out hav­ing to wor­ry about any good­will bag­gage.

Na­tion­al Flour Mills Ltd

NFM is a sub­sidiary of Na­tion­al En­ter­pris­es Ltd. The com­pa­ny achieved a mod­est im­prove­ment in turnover to reach $446.3 mil­lion in 2012 from $441 mil­lion in 2011; this rep­re­sents an im­prove­ment of a mere 1.2 per cent.

Even so, the for­tu­itous de­cline in world grain prices for the first eight months of 2012 helped this com­pa­ny pro­duce a wel­come prof­it. The cost of sales de­clined from $375.3 mil­lion in 2011 to $356.9 mil­lion last year. This helped NFM de­liv­er an im­proved gross prof­it re­sult of $89.4 mil­lion. This out­come was $23.8 mil­lion or 36.3 per cent high­er than the 2011 fig­ure of $65.6 mil­lion.

Ad­min­is­tra­tive ex­pens­es, at $24 mil­lion, were mar­gin­al­ly low­er than the $24.3 mil­lion in­curred for 2011. Al­so, oth­er op­er­at­ing in­come fell by $2 mil­lion to $8.6 mil­lion from the pre­vi­ous pe­ri­od's $10.6 mil­lion. The ma­jor in­crease oc­curred in sell­ing and dis­tri­b­u­tion ex­pens­es, which climbed by 18.5 per cent to $41.4 mil­lion from the pre­vi­ous lev­el of $35 mil­lion. All these changes re­sult­ed in the 2012 op­er­at­ing prof­it com­ing in at $32.6 mil­lion; this was 92 per cent high­er than the $17 mil­lion fig­ure re­port­ed for 2011.

Fi­nan­cial ex­pens­es rose to $13.4 mil­lion in 2012; this was 4 per cent more than the $12.9 mil­lion in­curred for 2011. Thus, pre-tax in­come closed at $19.1 mil­lion; this was an im­prove­ment of 373 per cent over the $4 mil­lion record­ed for 2011. For 2011, NFM had an ef­fec­tive tax rate of 84.2 per cent; how­ev­er, in 2012, this fell to 30.3 per cent.

These changes al­lowed the com­pa­ny to re­port an af­ter-tax fig­ure of $13.35 mil­lion; this was an as­tro­nom­i­cal im­prove­ment (1,988 per cent) over the $0.64 mil­lion record­ed for 2011. The to­tal­i­ty of these changes al­lowed NFM to de­liv­er earn­ings per share of $0.11. On that ba­sis, the di­rec­tors agreed to pay a div­i­dend of 8 cents per share. At NFM's re­cent share price of $0.71, this gives in­vestors a div­i­dend yield of 11.3 per cent!

Grain prices in­creased in the last four months of 2012, thus dam­ag­ing prof­it mar­gins; how­ev­er, NFM opt­ed not to im­me­di­ate­ly pass on these in­creas­es to its cus­tomers. In­stead, the chair states that: "NFM, there­fore, re­mains com­mit­ted to im­prov­ing op­er­a­tional ef­fi­cien­cies in or­der to re­duce costs in an at­tempt to off­set these im­pend­ing in­creas­es."

This de­ci­sion seems to have borne some pos­i­tive re­sults as NFM re­port­ed a mod­est prof­it of $188k in its first quar­ter end­ing March 2013. This re­sult com­pares with the loss of $2.27 mil­lion in­curred for the com­par­a­tive pe­ri­od in 2012. This prof­it was achieved de­spite a two per cent in­crease in the av­er­age price of grain in the first quar­ter.

De­spite wel­come im­prove­ments in op­er­a­tional ef­fi­cien­cies, it re­mains to be seen if grain prices would re­main be­nign as the year pro­gress­es.