Home' Trinidad and Tobago Guardian : October 25th 2015 Contents OCTOBER 25 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG11
Hot on the heels of AmBev
making a bid to buy Barba-
dos-based Banks Holdings
Ltd, which will also have some
implications for Banks DIH
Ltd in Guyana, we now have
Heineken preparing to complete a take-over of
Jamaican-based Desnoes & Geddes Ltd.
As take-over activity in the Caribbean beer
market heats up, how will traditional regional
brands like Red Stripe, Banks and even local-
ly-based Carib (in which Heineken holds a 20
per cent stake) fare under the new ownership
Perhaps, that question might best be answered
by a beverage marketing expert?
Let us first start by reviewing the results for
Desnoes and Geddes for its fiscal year ended
Changes in financial position
Total assets less current liabilities rose to
J$10.99 billion from J$9.63 billion as at June
Long-term assets advanced from J$7.61 billion
to J$8.86 billion as at June 2015. The lone declin-
ing component, investment in joint venture,
contracted to J$86.7 million from last year s
J$181 million. This reduction reflects the pro-
portionate loss of J$94.3 million from its 50
percent joint venture, Celebration Brands Ltd
Investment properties moved from J$889.6
million to J$943.3 million; this mostly reflected
fair value gains of J$53.7 million.
Property, plant, and equipment advanced to
J$6.63 billion from J$5.5 billion. The major addi-
tion for the current period was in returnable
packaging, which consumed J$1.06 billion.
Employee benefits asset for its defined benefit
pension plant rose to J$1.2 billion from J$1.05
billion. This improvement reflects the higher
fair value of the plan s assets (J$6.85 billion
compared with 2014 s J$6.13 billion); this growth
was helped as the return on the plan s assets
improved to 15 per cent from nine per cent.
Total current assets increased by 2 per cent
to J$4.73 billion from last period s J$4.64 bil-
The only declining component, cash and cash
equivalents, fell to J$1.37 billion from J$1.79
billion in June 2014. Much of this reduction
related to higher purchases of property, plant
and equipment (2015: J$2.05 billion; 2014: J$1.72
billion) combined with the absence of any pro-
ceeds from the disposals of investments (2014:
Accounts receivable advanced to J$1.74 billion
from J$1.37 billion. This increase was mainly
reflected in the trade receivable component,
which climbed to J$1.7 billion from J$1.2 bil-
Despite almost 14 per cent higher sales, inven-
tories increased marginally to J$1.15 billion from
J$1.08 billion (or by about 1.07 per cent).
Total current liabilities fell to J$2.6 billion
from J$2.62 billion. Both taxation payable and
sums due to fellow subsidiaries declined.
The major component, accounts payable,
increased by J$98.3 million pushing the closing
balance to J$2.11 billion; this was 4.9 per cent
greater than 2014 s J$2.01 billion. Notably, trade
payables fell to J$822.6 million from J$959 mil-
lion. In contrast, other payables climbed to
J$426.3 million from the previous level of J$162.6
Total long-term liabilities moved to J$665
million from J$618 million. This represented
employee benefits obligations of J$138 million
(2014: J$142 million) and deferred tax liabilities
of J$527 million (2014: J$476.1 million).
Total shareholders equity advanced to J$10.33
billion from last year s J$9.01 billion.
Other reserves moved to J$796.6 million from
J$678 million. This represents net employee
benefits assets of J$1.06 billion less deferred
taxes of J$265.5 million.
The major increase was concentrated in the
retained earnings component, which climbed
to J$6.98 billion from the previous year-end s
J$5.78 billion. Here, the main movements were
the current year s profit of J$2.33 billion reduced
by dividends to shareholders of J$1.12 billion.
With 2,809,170,386 shares outstanding, each
share had a book value of J$3.68 (2014: J$3.21).
Revenues and profit
Excluding consumption tax, net 2015 sales
registered at J$13.09 billion; this was 13.8 per
cent greater than the J$11.5 billion recorded for
The cost of sales climbed by only 12.5 per
cent to reach J$7.63 billion from the previous
level of J$6.78 billion.
These favourable changes saw gross profit
improve by 15.7 per cent to reach J$5.46 billion
from J$4.72 billion for the 2014 period.
However, marketing costs climbed by 36.5
per cent to reach J$1.37 billion from last year s
J$1 billion. This change restrained profits to
J$4.09 billion from the J$3.72 billion earned in
General, selling and administration expenses
increased to J$1.26 billion; this was marginally
greater than 2014 s J$1.22 billion. Meanwhile,
other net income fell to J$155.5 million from
J$232 million last year.
In line with lower cash balances, interest
income fell to J$19.4 million from J$24 million.
D&G also incurred losses on its CBL joint
venture of J$94.3 million, a loss on disposal of
property of J$70.4 million and had net pension
and medical benefits expenses of J$8.1 million.
These movements helped D&G produce a
pre-tax profit of J$2.83 billion. This compares
unfavourably with a pre-tax 2014 profit of J$3.83
In 2014, two special factors contributed to
the higher result; first, there was J$155.1 million
relating to a gain on settlement of intra-group
balances upon liquidation of subsidiaries and
then there was a gain on disposal of investments
of J$973.7 million.
During 2014, D&G Ltd sold its 5 per cent
stake in Brasserie Nationale d Haiti, valued at
J$487.9 million and its 10 per cent shareholding
in Windward and Leeward Brewery Ltd, valued
at J$472.7 million. The disposal of these two
investments on December 19, 2013 to Heineken
generated a one-time profit of J$973.7 million
for the company.
After taxes, the 2015 net profit registered at
J$2.33 billion compared with J$3.31 billion. These
results translate into EPS of J$0.83 for 2015
versus J$1.12 for 2014.
Although domestic sales increased by 13.5
per cent segment profit advanced by only 6.2
per cent. Local sales were helped by brand exten-
sions, such as Red Stripe Sorrel and Lemon
In contrast, export sales rose by 15.3 per cent
and delivered a profit improvement of 24.3 per
cent. Exports were driven by improved sales of
its flagship brand, Red Stripe.
The company is pledged to increase its use
of local raw materials to 40 per cent by 2020.
One example is by using local Cassava to replace
imported high maltose corn syrup.
Although exports are growing, more than 84
per cent of its sales (both in 2014 and 2015) are
still made in its home market, Jamaica.
Dividends and share price
In line with its lower profits, D&G reduced
its annual dividend to J$0.40 from J$0.50 paid
for the 2014 fiscal period.
D&G s price closed at J$7.55 on June 30, 2015.
Relating the current year s dividend to that price
gave investors a yield of 5.3 per cent.
After a quiet few months, the share price
surged to J$13.07 on October 9, 2015 when
29,094,681 shares changed hands.
This upward movement continued with the
price closing on October 12, 2015 at J$15.03 and
then jumped to J$25.03 on October 14, and then
further climbed to J$29.63 on October 16, 2015.
Much of the reasons for these positive price
changes are explained in the following section.
Recent ownership changes
Desnoes & Geddes Ltd released the following
announcement on October 8, 2015:
"Desnoes & Geddes Ltd was advised yesterday
October 7, 2015, that Heineken acquired a con-
trolling stake in Desnoes & Geddes Ltd by acquir-
ing the entire issued capital of Udiam Holdings
AB, a subsidiary of Diageo plc for the sum of
US$420,990,826.00. Udiam owns 1,625,549,827
shares in D&G which constitutes 57.8 per cent
of the share capital of D&G. Prior to the acqui-
sition, another subsidiary of Heineken already
owned 434,033,141 D&G shares which constitutes
approximately 15.45 per cent of the share capital
of D&G Following the acquisition, Heineken
indirectly owns 73.32 per cent of the share capital
The price paid by Heineken International to
Diageo for Udiam equates to US$0.259 per share;
this was approximately equivalent to J$30.90.
This explains why the share price has appreciated
so much in recent weeks. That price equates to
more than 8 times the theoretical "book value"
of the company!
As a result of these changes in ownership,
D&G s AGM has been rescheduled to Friday
November 13, 2015 from the original date of
November 3, 2015. This shift would allow for
new Heineken directors to be appointed and
Subsequently, it is expected that Udiam, on
behalf of Heineken, will make a formal offer to
the other shareholders for the remainder of the
It is entirely possible that the final price for
the remaining shares in D&G could be higher
than that paid by Heineken or even the most
recent trade on the Jamaican Stock Exchange.
Having sold Lascelles de Mercado, first to CL
Financial/Angostura and then on to Campari
and now, very likely, D&G to Udiam/Heineken,
what is the state of ownership of the spirits
market in Jamaica?
Closer to home, we are also in the process
of seeing the possible sale of Banks Holdings
Barbados to AmBev. However, last Tuesday,
ANSA McAL Ltd, 80 per cent owners of Carib
Brewery, decided to enter the bidding for BHL
by making an offer of B$5.20 per share for "all"
of the company.
That development might have complications
for Massy Holdings, which, in September, sold
its large stake in BHL for "only" B$4 per share.
Could it be argued that it was too hasty to sell
those shares in order to boost its bottom line
for its September 2015 year-end? Let us see
what transpires in the coming weeks.
Is this the start of the realignment of own-
ership interests in the spirits businesses across
the region? Perhaps, there is a bigger story here?
Desnoes & Geddes
gets ready for
as Heineken prepares its take-over bid
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