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VSH Group intensifies its export thrust

Thursday, October 19, 2017

Battered by weaker commodity prices, the Surinamese economy has had to undergo severe economic adjustments in recent times, which precipitated high inflation and other short-term setbacks. Recent gold and oil investments will help its economy to recover in the short and medium term.

The United Suriname Holding Ltd group of companies operates in shipping, detergents, food, steel and other sectors of the Surinamese economy.

We will refer to the company by its Dutch initials, VSH, and will now review its results to December 31, 2016.

Changes in financial position

Total assets climbed by 24.4 per cent, moving from Sr$250.75 million to Sr$333.97 million.

Property, plant and equipment slipped to Sr$64.6 million from Sr$64.9 million. Furniture and fixtures recorded the largest increase, moving from Sr$4.1 million to Sr$4.8 million.

In contrast, intangible assets grew to Sr$1.42 million from Sr$1.1 million; the largest contributor to this increase was Sr$0.7 million under investment. Both its fixed and intangible assets are insured against fire for a total of Sr$310.5 million or US$41.4 million.

Interest in subsidiaries edged up to Sr$2.09 million from Sr$2.02 million. The increase was entirely reflected under its 60.15 per cent interest in Consolidated Industries Corporation (CIC), which improved to Sr$1.9 million from Sr$1.8 million.

Financial assets rose to Sr$18.2 million from Sr$18 million. The largest component was shares in the hotel group, Torarica Holdings NV, which was valued at Sr$13.04 million for both periods. It also owns shares in the brewery, Surinaamsche Brouwerij NV, valued at Sr$3.5 million.

Notably, the largest increase was shown under its shares in De Surinaamsche Bank NV, which climbed to Sr$0.32 million from Sr$0.23 million.

Its associated company, the insurer Assuria NV, in which it holds a 24.63 per cent stake, increased in value to Sr$74.1 million from Sr$73.4 million.

Inventories climbed to Sr$50 million from Sr$29 million. Given the high inflation environment, all components registered large increases.

Raw materials and packaging advanced to Sr$24.5 million from Sr$14.5 million while goods for sale closed at Sr$10.2 million from Sr$6.3 million. Goods in transit registered at Sr$9 million from Sr$4.3 million.

Trade and other receivables advanced to Sr$60.8 million from Sr$37.9 million. Net trade receivables climbed to Sr$50.5 million from Sr$30.7 million while other receivables closed at Sr$7.4 million from Sr$5.4 million.

Cash and cash equivalents expanded to Sr$40.8 million from Sr$24.2 million. The largest component of Sr$32.8 million (2015: Sr$15.9 million) was denominated in US dollars while Sr$3.7 million was denominated in Euros and Sr$4.3 million held in Suriname currency.

The overall improvement in cash holdings mostly reflected the net effect of Sr$4.8 million increase in cash generated from operating activities while cash allocated to investing activities fell by almost Sr$6 million.

Total liabilities climbed to Sr$109.0 million from Sr$71.6 million.

Total borrowings rose to Sr$26.2 million from Sr$16.4 million. The long-term portion advanced to Sr$17.2 million from Sr$12.6 million while the current portion closed at Sr$8.9 million from Sr$4.7 million. Almost its entire debt is denominated in US dollars, consequently, these increases largely reflect the effect of the devaluation of the Suriname dollar against the US dollar.

The long-term debt mainly comprises loans by VSH Transport (Sr$14.7 million) and Sr$2.6 million due by CIC. The current debt comprises working capital facilities for VSH Foods and CIC and the current portion of long-term debt.

Trade and other payables increased to Sr$55.8 million from Sr$38 million. The trade payables portion closed at Sr$43.5 million from Sr$26.3 million while the other payables component registered at Sr$4.6 million from Sr$1.6 million. Notably, net trade receivables are 16 per cent greater than trade payables.

Total provisions rose to Sr$5.8 million from Sr$4.6 million. The long-term portion was Sr$3.8 million while the current element was Sr$2.0 million. The entire long-term amount reflected long-term medical obligations for CIC pensioners.

The current portion comprises product warranty (Sr$0.9 million), deferred maintenance (Sr$0.2 million) and redundancy (Sr$0.9 million).

Deferred taxes increased to Sr$16.2 million from Sr$12.6 million; this mainly reflected inventory adjustments and the revaluation of the subsidiary’s interest.

Current income tax payable expanded from zero to Sr$5.0 million, reflecting the higher current year’s profitability.

Equity movements

Total equity expanded to Sr$203 million from Sr$179 million. Excluding minority interests of Sr$17 million and after the appropriation of profit of Sr$4.4 million, shareholders’ equity closed at Sr$181.5 million from Sr$161.1 million.

Retained earnings increased to Sr$137 million from Sr$105.6 million. The after-tax profit of Sr$36.8 million along with a realised revaluation of Sr$0.14 million enhanced the brought forward balance.

Interim dividends of Sr$1.2 million along with the proposed final dividend of Sr$4.4 million reduced the closing figure.

Revaluation reserves declined to Sr$44.2 million from Sr$55.2 million. This diminution reflected lower values for both physical and financial assets.

Both issued capital and capital in excess of par value were stable at Sr$19,863. and Sr$240,425, respectively. The weighted average number of shares outstanding was unchanged at 1,986,338; consequently, the book value of each share improved to Sr$91.35 from December 2015’s Sr$81.12.

Revenues and profit

Total revenue climbed by almost 70 per cent to Sr$132.5 million from Sr$78.1 million. Included in this figure was other revenue of Sr$8.7 million (2015: Sr$1.4 million).

Here, the largest components were gains on exchange of Sr$3.8 million and gains on revaluation of inventories of Sr$2 million.

Total costs rose by 53.3 per cent to Sr$98.1 million from Sr$64 million. Personnel costs rose to Sr$40.4 million from Sr$31.4 million while administrative expenses registered at Sr$41 million from Sr$24.7 million.

In addition, provisions soared to Sr$7.4 million from Sr$160,000. The largest contributor to this increase was Sr$5.4 million allocated to uncollectable receivables and Sr$0.7 million which represented reduced inventory marketability.

These changes saw profit from continuing operations swell to Sr$34.5 million from Sr$14.1 million.

The share of profit from its associate, Assuria NV, improved to Sr$16.9 million from Sr$10.8 million. On the other hand, investment income declined to Sr$650.8 million from Sr$996.6 million.

These variations resulted in pre-tax profit improving to Sr$51.96 million from 2015’s Sr$25.92 million.

The effective tax rate increased from 22.1 per cent to 25.1 per cent, which is still lower than the standard rate of 36 per cent. In line with the higher rate and larger profits, the actual income tax paid rose to Sr$13 million from Sr$5.7 million. Consequently, the net profit registered at Sr$38.9 million from Sr$20.2 million.

After removing Sr$2.1 million applicable to non-controlling interests, the net profit attributable to shareholders closed at Sr$36.8 million from the previous year’s Sr$18.6 million. That result translated to
EPS of Sr$18.53 compared with Sr$9.34 for the 2015 period.

Executive compensation

A benchmark of 15 per cent return on capital employed was used as a base for measuring the performance of the senior executives of VSH United Group. In 2016, VSH achieved a return on capital employed of 25.5 per cent.

Accordingly, its CEO, Patrick Healy, received a short-term bonus of Sr$277,110.00.

In addition, its chief legal officer (CLO) and HR director, Malini Ramsundersingh, was awarded a short-term bonus of Sr$138,555.00. The managing directors of the VSH Shipping group, VSH Steel and CIC, all of which exceeded their targets, will each receive appropriate, but smaller, bonuses.

(Which local listed company might be inclined to disclose similar statistics?)

Divisional results

The shipping group registered an 82 per cent increase in revenues accompanied by a 125 per cent growth in profit. The improvement in income was directly related to the increase in off-shore related activities.

Container handling showed a rise to 41,056 teus from 39,388 teus.

Overall, port statistics showed declines of 7 per cent for container handling, 25 per cent fall in break bulk/project cargo and a 58 per cent fall in RORO cargo. These figures reflect the absence of large-scale projects and the strong economic downturn.

Exports increased by 7.6 per cent and now comprise 40 per cent of its total volume. Its main export markets are Curaçao, Guyana and Jamaica.

The food segment reflects the results of VSH Foods, which makes margarine, butter and shortening. The lower profit mainly reflected the compressed margins for local sales. However, increased emphasis on exports saw those volumes increase by 200 per cent; that segment now represents 21 per cent of total production volume.

The steel operations recovered from a loss to record a healthy profit. This result was largely helped by stronger exports. In 2016, the company exported 53 per cent of its 790 MT production volumes.

In Guyana, VSH Steel was responsible for the fabrication of two steel arches; the 50th Anniversary Independence Arch and the Centennial Arch to mark the 100th Anniversary of bauxite mining in Linden.

Dividends and share price

The dividend for 2016 improved from 2015’s Sr$1.70 to Sr$2.80. During the year, four interim dividends of Sr$0.15 were paid and the final dividend of Sr$2.20 was paid in 2017. VSH’s share price closed at Sr$72 on both December 31, 2016 and December 2015 and was quoted at that same price at the end of September 2017.

At that price, the yield is 3.9 per cent. That price also reflects a P/E multiple of 3.9 and a discount of 21 per cent to its book value of Sr$91.35.

In next week’s article, we will review the 2016 results of Banks DIH Ltd (Guyana).


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