With pre-tax profits more than doubling in 2004, Guyana Stockfeeds Inc.
has had what its Chairman and Chief Executive Robert Badal described as
excellent results, but falling short of what he had predicted in September
2004 would be a 'record year'. Even as he basked in the company's
performance, the Chairman noted that 2004 was a good year for the poultry
industry with poultry production increasing from 48m pounds in 2003 to 54m
pounds in 2004 as many new small farmers entered the industry lured by
higher prices while enjoying a reasonably stable market. These results would
be presented to the shareholders at the company's 44th Annual General
Meeting to be held on 25th June, 2005, five days before the statutory
Pre-tax profits for the preceding three years were moving in a southerly
direction having fallen from $264M in 2001 to $123M in 2002 and $78M in 2003
and the turnaround must have been welcome. Once again, the quality of half
year unaudited financial statements issued by public companies under the
Securities Industry Act have come into sharp focus and following the debacle
at Sterling Products Limited is likely to further discredit such statements.
The company's full year after tax profits are less than the half year
results issued in September when the Chairman was predicting a record year.
It all seemed to have gone awry with interest charges which in the second
half of the year were six times that of the first half of the year. Similar
miscalculations appear to have been made in the half-year provision for
taxes which in the first half was calculated at 21% but for the full year
this jumped to 40% made up significantly of deferred taxes which arise
because of the different rates of depreciation allowed for tax and
The activities of the company include the manufacture and sale of poultry
and livestock feeds, hatching of baby chicks and processing of crude coconut
oil. It is part of the business interests of the controlling shareholder
that involve National Edible Oil and Fats Inc., El Dorado Rice Mills Inc.,
El Dorado Restaurants, holder of the Popeyes franchise in Guyana and Guyana
Stock feeds Limited (Trinidad and Tobago) which was set up when the company
had threatened to take its investment to that country.
Despite a set back in its exports to Suriname following the death of the
principal of the company's leading distributor and a decline in export sales
of 66%, total sales increased by 28%. With exports now accounting for just
over 1%, it is hard to understand the company's optimism about its access to
lucrative export markets. What our manufacturing companies need to recognise
is that the Caribbean Single Market and Economy (CSME) offers both a threat
and opportunities. The company recognises and laments the cost of
electricity, rapid migration, a stagnant economy and small market. It would
be no easy challenge for its exports which would have to include freight
costs to compete with manufacturers in countries which are less affected by
these factors. One option which companies in this situation may pursue is
price differentiation but this is hardly likely to be successful in a
On a year by year basis, the performance justified the Chairman's
description of the results as excellent and gross profit percentage over the
year was a constant and healthy 16.2% of sales. The questions really arise
when the results into two six months period are dis-aggregated. Sales in the
second half of the year were 28% over the first half but the net profit
percentage fell from 10.7% to 3.3% which is strange given that a few months
earlier the Chairman was predicting a record year.
Despite the increased sales inventory, which constitutes a significant
part of current assets, has declined by more than 21% which can place the
company under pressure to meet market demands. A bank balance of more than
$35m at 2003 was fully utilized in 2004 and at December 31, 2004 the company
was again in an overdraft position. Last year the company was in default of
its tax payment obligations and while this has now been addressed for 2003,
it appears that its 2004 installments have not been paid. The company it
seems continues to rely on trade and other creditors to provide it with its
short term financing needs.
Part of the pressure on the company's cash flows is due to capital
expenditure of more than $1.2B over the past four years. However with the
parboiled rice plant now expected to begin operations in 2005, the company
is counting on a major increase in sales and profits for the future and as
the Chairman notes, the Board considered the plant 'too important' for
future growth and profitability. It is a major bet.
Business Page was particularly harsh in its comments about the company's
2003 performance, critical of the governance, late holding of annual general
meetings, the treatment of the State as a shareholder and the quality of its
reporting. There have been some improvements but many of those concerns
including the non-disclosure of the legal issues between the company and the
Government remain unidentified and the company has failed to meet some
disclosure requirements. The structure of the group and the otiose manner of
some of its inter-company transactions must lead to questions. Why for
example does the company need to have its Trinidad's related party make its
overseas payments when there are no exchange controls in Guyana?
The Chairman and dominant shareholder is nothing if not optimistic. He is
placing great store on the potential for the parboiled rice plant which he
seems to assume would be the silver bullet for the company, producing $2.4B
in revenues and $240m in profits.
The market has shown no interest in the shares of the company and it
would require more than one year's good results to convince the public that
the company is finally and irreversibly on a higher trajectory.
Not too long ago the Chairman, even exceeding Jack Welch's boast about
sales, had predicted the doubling of dividends each year. He has resiled
from that position and after no dividends in 2003, the directors have
announced a dividend of $48m, without stating the dividend per share! That
is most unusual if not unlawful and it is surely unfair to expect the
minority shareholders to calculate the dividend per share which incidentally
is $0.68 per share.