Dear Editor,
The Management of Demerara Distillers Limited (DDL) is once again compelled to respond to Mr Christopher Ram, the writer of the Business Page of Sunday June 14, 2009, to correct a number of errors and misleading statements that were made therein. This appears to have been the norm over the years; however, these inaccuracies are potentially detrimental to the interests of the DDL Group and constitute, at the very least, overt misrepresentations to the public.
The opening paragraph of the article appeared to have been dedicated to the performance of the subsidiaries. Unfortunately, the basis on which the writer determined the performance of the subsidiaries and associates was, as consistently highlighted in the past, seriously flawed. We have had cause on at least three previous occasions, to correct the mistake the columnist made and seemingly continues to make. It is apparent that the columnist is simply subtracting the company results from the Group results and assuming, without more, that the difference represents the performance of the subsidiaries and associates when it is trite that in preparing Group accounts, adjustments for inter-company transactions and the elimination of un-realized profits on consolidation, are necessary.
In the past, the writer trivialized the diversification strategy of the Group and questioned the investments in DSL, DSCL as well as those in Europe, the United States and St Kitts. Surprisingly, in this year’s article, the wisdom of these investments is seemingly acknowledged and indeed, termed “bright spots,” but the writer now questions the investments in India and in TOPCO. The writer fails to recognize that the subsidiaries are related to and provide support for each other as well as the business of the parent company. He seems not to appreciate that these investments are made with a long-term view.
The writer appears, once again, to employ the use of something other than DDL’s 2008 Annual Report to compute inventory turnover. His computations as regards the inventory turnover are inaccurate. In the past, the writer questioned the inventory balances of the Group. He now appears to be acknowledging that in the industry in which the company operates, stocks, as a matter of course, must be set aside for aging. He states, “Intuitively one would expect the company to have had a high level of inventory because of the aging of alcohol…” He now, however, questions the level of stock in the subsidiaries.
With respect to the writer’s accusation that the local subsidiaries of DDL “do not comply with the law requiring them to file annual returns and financial statements,” the company wishes to categorically state that DDL as well as its subsidiaries had annual returns filed in their respective corporate names from the time of their incorporation up to the last annual general meeting in accordance with section 153 of the Companies Act 1991.
The company views such attempts to mislead the public, falsely incriminate and accuse the company of breaching its statutory obligations as altogether inexcusable.
Management views it as unnecessary to express any views on matters which are entirely extraneous to the company’s appointment of Director Chandradat Chintamani, whose credentials as a Chartered Accountant, President of the Georgetown Chamber of Commerce and Chief Executive Officer of Demerara Tobacco Company Limited operate as an ample and sufficient basis to justify such appointment.
The writer compares the performance in 2008 to that in 1999. The methodology employed in some of his calculations is unstated and unclear. Below is an accurate representation of the reality of the performance.
Notwithstanding the reduction in the 2008 performance, in the last 10 years operating profits increased by an approximate 80% to $2.0 billion. At the same time, turnover grew at almost the same rate from $6.8 billion to $12.1 billion. It would be expected that given that the expansion programme was partially financed through debt that the interest expense would increase. In fact, the interest payment in 2008 amounted to 29% of the operating profit, which is comfortably within the general acceptable range for well-managed companies.
Assets, Liabilities and Return on Shareholders’ Funds – Year 1999 to Year 2008
Gross Assets
$M
Year 2008 21,518
Year 1999 6,615
Increase 14,903
Funded by %
Shareholders’ Funds 5,837 40
Long Term Loans 5,732 38
Short Term Funding 3,334 22
14,903 100
As the table shows, during the ten year period from 1999 to 2008, the gross assets have indeed tripled. This remarkable growth has been prudently funded through a combination of self-generated funds (equity) and debt. During this same period, the Group spent $8.4 billion on fixed assets and paid in excess of $2.4 billion in dividends.
The profits attributable to shareholders in the ten year period, amounted to $8.2 billion, as stated in the table above. Of this amount, $5.8 billion was retained in the business to fund the expansion programme while $2.4 billion or 30% on average has been paid out as dividends. In 2008, the proposed dividend payout is 31%. This is consistent with the ten-year average and, by any standard, signifies a noteworthy performance.
Long-term debt, including the amount due in one year, totals $3.9 billion as compared to total equity of $10.5 billion. $2.4 billion, related to debt financing for the new capital programme, are included in the sum of $3.9 billion in debt. This amount of $2.4 billion significantly influenced the debt equity ratio. This capital programme, as outlined in the Chairman’s report, which consisted of three main projects, involved the replacement and upgrade of assets deemed necessary for the sustained competitiveness of the company. These capital projects were still in progress at the end of the year. The benefits to be derived from these investments will start to be realized when they are completed during 2009/2010.
In spite of the bridging loans drawn down in 2008, the equity still exceeds the total long-term debt by more than 2.5 times. This ratio is well within the norm for capital intensive companies such as ours.
The Group generated from operations in the last ten years in excess of $14.5 billion, of which, $2.4 billion had been paid in dividends, $4.2 billion in corporation and property taxes and $3.5 billion in interest payments. The balance remaining was invested for expanding the business.
The cash generating potential allowed the Group to expand throughout the last decade without having the need to raise new equity, while at the same time maintaining a healthy dividend payout, even, in the most difficult times.
The financing, raised through long-term facilities, was completed under some of the best terms for any company in Guyana with the Group’s bankers being among the most prominent in the industry.
Each year, the management of DDL continues to point out the numerous mistakes and errors made in these articles. We urge this newspaper, in the interest of accurate dissemination of information to the public, to ensure that such corporate ‘reviews’ reflect the core principles of reliable and responsible journalism.
Upon receipt of a faxed copy of a hand-written note by the writer dated June 11, 2009, the company, by letter of even date, indicated its willingness to examine the article by the writer so as to ensure that any error(s) inherent therein could be corrected before publication. The company received no response to its offer.
We have always expressed our openness to constructive and fair criticisms as well as welcomed tenable suggestions in our drive to continually improve our performance in all areas. However, the array of inaccuracies evident in the writer’s article for yet another consecutive year, could not be viewed as fitting the criteria of being reliable, fair or balanced.
We are confident with the capital investments made in 2008, the Group is well positioned to take advantage of the opportunities that exist both locally and on the international market. We look forward to continuing our contribution to the society as a whole and the building of a strong and robust economy.
Yours faithfully,
Allison Thorne
Company Secretary/Legal Officer
Demerara Distillers Limited
