Banks DIH registers $4.3b profit for 2016

-includes proceeds from sale of shares in Banks Holdings

For the year ended September 2016, Banks DIH notched up profit after tax of $4.3b compared to $2.5b in the preceding year.

The company’s annual report said that included in the increased after-tax profit of $1.78b was a gain of $1.4b arising from the sale of its ordinary shares in Banks Holdings Limited of Barbados and Desnoes & Geddes (Jamaica) Ltd. The profit also includes proceeds from the dissolution of BCL (Barbados) Ltd which saw a surplus of $29.2m over the cost of the investment.

Clifford Reis

Profit after tax from the company’s operations was $2.94b in 2016 compared to $2.56b in 2015, a rise of $379m or 14.7%. The annual report said that the improved results were due to increases in revenues and physical unit sales among other things.

The group’s turnover net of taxes in 2016 was $25.5b compared to $24.8b in the preceding year, an increase of $641m or 2.6%.

Net Asset Value per share for the group rose from $28.6 to $31.7 or 10.8%. The company has increased its dividend proposal to shareholders to $0.88 per share unit resulting in an overall cost of $880m in addition to the special dividend of $0.60 per share unit which was paid in February 2016. Dividends proposed for the current year total $1.48b.

During the year, the report said that a new Krones state-of-the-art Filler along with associated conveyors, a bottle inspection facility and CIP Systems were installed in the beer plant. An on-line  Blow Moulding Machine was inaugurated in the Water Bottling Plant and the upgrade of the Electrical Power Distribu-tion System is ongoing. Upgrading of the Demico Restaurant and Bar and fleet replacement also continued.

Citizens Bank

Profit for Citizens Bank, which is a 51% owned subsidiary of the group was sharply down, the report revealed. Revenue totalled $3.26b in 2016 compared to $3.7 in 2015, a slump of $442m. Profit after tax was $479m in 2016 compared to $907m in the preceding year. Loan assets dropped from $30.7b to $29.2b while customers’ deposits rose from $34.9b to $42.1b Net interest income fell from $2.65b in 2015 to $2.11b in 2016.

In his report, Chairman Clifford Reis said that during 2016, the decline in export earnings for sugar, bauxite, rice and timber negatively affected the domestic environment. He added that in combination with reduced public spending, this caused consumer uncertainty which led to decreased demand.

“We rose above these challenges and achieved growth through investment in our quality brands and strategically placing our resources against the biggest growth opportunities”, Reis said in his Chairman’s report.

On the future outlook, Reis said “The continuing international economic uncertainty, and changing global weather patterns are projected to have negative macroeconomic consequences on the Nation. This will affect the way in which we manage our Company in the future. We have to continue to re-examine our core operational competencies, the exercise of prudent fiscal management and preparation of succession planning, to respond to the future challenges of managing our company”, he said.

On December 1st,2015 Banks DIH repurchased 150,138,464 of its ordinary shares – 15% of its issued share capital from Banks Holding Limited (BHL) of Barbados. BHL retains five percent of the Banks DIH shares. The cost of the repurchase of the shares was $5.5b financed through cash resources of $4.52b and borrowings of $1b. The annual report said that the “expected impact will be a reduction in capital and reserves attributable to shareholders by an amount equivalent to the consideration given”.

On December 23, 2016 Banks DIH defended the $5.5b repurchase of its shares saying that the amount paid was based on a 2015 valuation conducted by  PricewaterhouseCoopers (PwC).

In an advertisement in Stabroek News, Banks DIH was responding to a December 11, 2016 letter in Stabroek News by business analyst Christopher Ram.

Referring to the repurchase of the shares from Banks Holdings Limited  (BHL) of Barbados, Ram asked “Why pay $36.79 per share to BHL for shares in Banks DIH whose publicly quoted price is $22.5 per share, a premium of 64% and worth in dollar terms $2,145,478,650?” He further asked how did Banks DIH  justify handing a gain of $3.6 billion to BHL when the gain a year ago in the sale of shares in BHL was $1,147 million?

Noting that such a sale of shares would require a valuation by independent valuators for transparency between the seller and the buyer, BDIH said the price paid was based on a valuation by PwC in December, 2015 which valued the 20% shareholding of BHL in the capital of BDIH at a fair market valuation between $37 and $40 per share.

Contending that there was no “hand out of a gain” to BHL as stated by Ram, BDIH said that it is also disingenuous to compare the sum received by BDIH for its shares in BHL to monies paid by BDIH to BHL as there is a “massive difference” in the value of the Barbadian and Guyanese currency. Furthermore, BDIH noted that it was selling 6.7% of the shares in BHL to Ambev while BHL was selling 15% of the shares in the issued capital of Banks DIH.

“There must be a difference due to the fact that BDIH repurchased 150,138,464 BDIH shares at G$36.79 per share and sold only 4,358,815 BHL shares at BDS$7.10 per share”, BDIH said in its advertisement.   Ram also queried if BDIH was aware that the $5.5b paid for the shares is more than two years of the company’s 2015 after-tax profit, more than 2.3 times the value of its share capital and about 90% of its revaluation reserves?

BDIH in its response said that Ram used the revaluation reserves in his calculation and not the total reserves of the company at September 30th, 2015 which were $23.2b and at 30th September, 2016, $26.1b. BDIH said that the payment of $5.5b is equivalent to 21% of its total reserves and not 90% as stated by Ram.

Ram also questioned whether BDIH paid in Guyana, Barbadian or US dollars. BDIH’s answer was that the “consideration for the transaction was stated to be in Guyana dollars”.

There had been interest in this transaction as  the local market had experienced tightness in relation to the US currency. BDIH’s transaction would have been worth around US$26.3m.

Ram further asked if BDIH would be prepared to buy back shares held by other shareholders at the same price they paid to BHL. BDIH’s response was that Ram should be aware that no Board of Directors will commit itself to give any undertaking as how it will conduct its business in the future when there is no actual proposal.

The company’s Annual General Meeting is scheduled for January 28 at 5 pm at its Thirst Park headquarters.

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