Omar Henry, Contributor
Left: HENRY. Right: Byron Thompson, (right) Seprod group managing director in discussion with chairman A. D. Blades at the Seprod annual general meeting at the Knutsford Court Hotel on August 8, 2005. The acquisition of Serge Island is proving a boon for Seprod. - JUNIOR DOWIE/STAFF PHOTOGRAPHER
THE RECENT acquisition of Serge Island Dairies uniquely complements Seprod's operating model, as Serge Island is a key producer of the products distributed by Facey Commodity. Thus, Serge Island Dairies not only widens Seprod's product range to include milk-based and juice-based products, but it strengthens its supply chain and enhances its ability to reap distribution savings.
This acquisition helps to bring total revenues for the year ended December 2006 to $3.97 billion, growing 19 per cent or three percentage points above the five-year annual average growth rate.
Consolidated gross profit shifted from $699.4 million to $980.6 million, consequently pushing gross profit margin ahead by four percentage points to 25 per cent. Operating profits improved 58 per cent to $358.7 million despite an increase in operating expenses. This caused the operating margin to increase nine per cent, up two percentage points over the prior year.
Finance income totalled $181.6 million, rising 13 per cent from $158.1 million recorded for 2004. This was largely due to the cash inflows from a U.S. security, as well as gains from foreign exchange activity during the year. Throughout the year a gain on disposal of investment in an associate company of $19.78 million was recorded. Seprod also acquired the entire shareholdings of Serge Island Dairies Limited and the Serge farms in April 2005, at a discount of the fair value of the identifiable assets, and as a result booked negative goodwill of $138.5 million for the period.
Share of results of associated companies declined 27.6 per cent to $271.4 million. This was attributed to the negative effects from the start-up costs incurred from the establishment of the newly formed international operations. After non-recurring items and taxation were considered, net profit climbed 23 per cent to $675.5 million.
However, without the non-recurring items (gain on disposal of investment in an associate company and negative goodwill on acquisition of subsidiaries) on the books, net profits increased by only nine per cent. Hence, the adjusted net profit margin inched down one percentage point to 15 per cent, and the adjusted earnings per share moved to $1.15 for the period against $1.06 in matching period of the prior year.
The company was less profitable for the year 2005, as the adjusted returns on equity and assets both declined. Adjusted return on equity registered at 16 per cent was one percentage point below that of last year while adjusted return on assets lost two percentage points to 12 per cent. Meanwhile, the strong rise in long-term debt caused long-term debt to equity ratio to jump to six per cent up from two per cent in the prior year. The company remains liquid although the current ratio registered a decline from 3.13 in 2004 to 2.21 in 2005.
RECOMMENDATIONS
We hold favourable outlook for NCBJ, GraceKennedy, PJAM, DB&G, and BNSJ. Lascelles, JBG, and Seprod could also perform well over the short-term. For further information on these and other stocks, contact us at 1-888-CALL DBG or visit www.mydbg.com and click our stockbrokerage division for detailed analyses.
Disclaimer: All information contained in this article has been obtained from sources that DB&G believes to be accurate and reliable. All opinions and estimates constitute the Author's judgement as of the date of the article. No warranty as to the accuracy, timeliness or completeness of this article and as to the opinions based thereon is given or made by DB&G. DB&G and/or its employees or directors and/or any associated person may have an interest in, or interest in the acquisition or disposal of, the securities or class of securities mentioned herein. Call 1-888- CALL DBG if in doubt about the content of this article. Decisions based on information contained in this article are your sole responsibility.
Special reserve requirement removed from deposit taking institutions by BoJ.
With the removal of the special reserve requirement by the Bank of Jamaica, brokers anticipate some of this liquidity to filter to the equities market, especially since valuations are so low.
However, investor attention was temporarily diverted to an active foreign exchange market during the week driven by high broker demand, as BoJ was forced to intervene three times in the market.
However, analysts expect this to be short lived as they point to the US$2.078 billion in NIR as at the end of March 2006 and expectations of a strong tourist season.
