Carib Cement locks in $170M in FX gains

Carib Cement could earn $5.30 in 2019.

Caribbean Cement secured a Jamaican dollar denominated loan from National Commercial Bank amounting to J$3.076 billion and available in United States Dollars. The report from the company advised that Board of Directors approved the facility on November 30 the same day the facility was received.
The company advised that the proceeds from the revolving Loan Facility were received on November 30 and will be used to pay related party debt denominated in United States Dollars, diversifying the sources of funds for the company. Throughout its term, the Loan Facility will also be used for general corporate purposes, reports Caribbean Cement.
The facility is an unsecured revolving loan facility for five years at a fixed interest rate of 7.45 percent per annum.
Cement owed the parent company $11.09 billion plus $1 billion due short term as of September, the September interim results show. The amounts were contracted in US dollars and resulted in devaluation losses of $464 million. Since September, the exchange rate swung in favour of the Jamaican dollar by over J$7. Carib Cement will enjoy a big foreign exchange gain and a reduction in the amount due on the loan to around US$65 million as a result of the revaluation of the local dollar, once NCB facility fund is used to pay down the loan from the ultimate parent company. As of today, the exchange rate is JS$127.4623 to the US dollar and on September 30, the average rate was $134.6486, a gain of more than J$7. The amount received for the loan amounts to just over US$24 million and has cut J$174 million from the devaluation losses incurred in the September quarter. The revaluation of the Jamaican dollar to date have reversed another $470 million in losses incurred on the amount of the loan that will not be paid off, with the combined savings being $640 million.
The facility, will allow the company to pay down the overseas loan from cash flow from its operations in the order of J$4-5 billion per annum. By the end of 2019, the foreign loan exposure should be reduced sharply.

Seprod stock allocation fowl up to cost JSE

Seprod’s shareholders did not get full allocation of shares.

There is a big fowl up in the allocation of shares to Seprod’s shareholders who applied for shares in the recent offer of the share by the Musson Group.
On Monday November 12, NCB Capital Market announced that all applicants for reserved shares were fully allocated but that has so far turned out to be incorrect. Information gleaned by this publication is that applicants in the general pool apparently got more shares than they should, apparently at the expense of shares reserved for shareholder’s of Seprod as of the end of August, the cut off date for the purposes of allocating the shares.
IC gathers that several of the applications for the Seprod reserved shares did not get their full allocation as they were placed in the general pool. IC can confirm that around ten applications that should have been placed in the shareholders poll did not get the full allocation.
The problem, IC gathers stems from a glitch in the system at the Jamaica Central Depository, a subsidiary of the Jamaica Stock Exchange. The staff of the JCSD have been working to determine the extent of the error but our sources indicates that up Thursday the matter was still be worked on a suggestion that the extent of the error is wide spread.

The Jamaica Stock Exchange subsidiary

Shareholders who should have received their full allocation will in fact get them subject to funds being provided by the to complete the purchase. From all indications, the stock exchange seems poised to absorb the loss that is likely to be incurred to obtain the shares required to satisfy those shareholders who affected.
A total of 92 million shares were publicly offered for sale with 55 million reserved. A total of 15 million units were reserved for existing shareholders of Seprod. Since the close of the issue that offered the shares at $24 each, the stock now trades at $32 a difference of $8, with the price seeming set to rise.

Public gets small amount of Seprod shares

Some of Seprod,s product

Just under 92 million shares of Seprod were offered for sales by Facey Group in October and was oversubscribed. All applications for Reserve Shares in the offer were fully allocated, according to a release from NCB Capital Markets.
55 million shares were reserved for employees and directors and existing Seprod shareholders and the Lead Broker.
Subscribers from the general public will receive up to the first 5,000 units for which they applied, with the balance greater than 5,000 units allocated approximately 16.56 percent. The shares were priced at $23.99 each but trades on the Jamaica Stock Exchange at $39.

Nothing for Carib Cement stockholders

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Carib Cement silos.

Jamaica’s Caribbean Cement Company slashed the cost formerly associated with leasing of Kiln 5 and Mill 5, from Trinidad Cement after acquiring direct ownership of the assets by $2 million per annum but shareholders are getting none of it the September quarterly results show.
Shareholders are unlikely to see any major benefit form the savings until 2019 when the plant upgrading costing US$45 million comes on stream and aided by a near 5 percent price increase effected in October to help offset cost increase.
For a number of years, some of the company’s shareholders have complained that the lease arrangement of the two items with the Trinidad parent was not in favour of the minority owners as it was costing too much and was not properly accounted for in past financial reports, thus suppressing the profit. With the termination of the lease and acquisition of assets it was expected that there would be a immediate noted impact on the results, that was not to be. The interim results to September, with the first period showing the full impact, indicate that shareholders are not benefitting from the $500 million cost reduction per quarter.
Data disclosed by Jamaica’s sole cement producer in their nine months interim report, show that excluding foreign exchange loss, there is a $500 million savings in the overall cost associated the acquisition of the two items formerly leased.
The equipment lease ended in April 2018 when both parties agreed to end the arrangement, leading the Jamaican company to purchase the assets. The interim figures show finance cost excluding foreign exchange loss rose of $227 million up sharply from just $11 million in 2017, in the quarter, resulting from funds borrowed to help finance the purchase of the equipment and $299 million versus $4 million year to date. Depreciation and amortisation cost rose to $342 million from $132 million in 2017 and for the nine months to $808 million from $400 million in 2017, with the increase mostly relating to the former leased equipment. The net effect is that the company enjoyed a savings of $500 million for the quarter or $2 billion per annum. None of these gains are so far flowing to the bottom-line for the benefit of shareholders.
Revenues grew 6.7 percent in the September quarter or $282 million but certain direct operating cost rose by $546 million with no indication that any attempt was made to recover the increased cost except for price increase in October. The effect is that profit before foreign exchange losses and taxation was only $148 million greater than in the prior year, when $846 million was reported.

Peter Donersloot – Managing Director

“The true story should be that the company’s performance illustrates the resilience of the its operations with the reporting of a profit even when taking a big foreign exchange loss, the company’s managing director, Peter Donkersloot, suggested in an interview with IC Going forward he said that, the upgrading of the plant will push the capacity to 1.2 million tonnes of cement allowing them to meet local demand and resume exports. “The upgrade should be completed and be in production around December but no later than January,” Donersloot stated. The immediate impact will be the elimination of imports that added to cost of sales and reduced profit margin, up to September”
Subsequent to the end of the quarter the price of cement was adjusted up by 4-4.5 percent Donkersloot confirmed. Information gleaned is that the increase took place for sales as of October 22 and is the first increase in 16 months.
The often talked about energy plant to be constructed to cut the huge energy bill was not an area the managing director was prepared to talk about, in light of negotiations currently in place.
As it stands, what appears to be a decision to defend their market share resulted in the company reporting much lower profit in the quarter as a result of a $464 million foreign exchange loss hitting the results for the September quarter, pulling the strong 44 percent increase in operating profit to $1.2 billion from $836 million, into lower net profit of only $305 million, versus $748 million generated for the prior year’s period.
Since the results, the stock that has been trading between $47 and $50 dropped to a recent low of $41.20.

New movie house for Portmore in 2019

Palace Multiplex in Montego Bay.

Palace Amusement is expanding with the re-entry into the rapidly growing Portmore community in 2019. The newest cinema house when complete, will bringing the number of movie houses to four.
The company in its 2018 annual report stated, “we are excited about the offerings of the four screens location to come” in Portmore. In 2004 fiscal year, the Portmore cinema brought in just over $15 million in revenue, with segment profit of $1.2 million. In 2004 the population was around 160,000 persons and with some estimates indicating it could be over the 300,000 region now, as a result, the new cinema could generate revenues of more than $100 million per year, with attendant profit to be added to the existing business. With Portmore so close to Kingston it could result in a switch in some of the existing business to the new one.
The company also stated, “It is our hope, in short order, to introduce laser technology in our cinema projection–which will offer a superior light quality for films. Additionally, we will introduce disposable 3D glasses in some of our locations–in response to customer preference and requests.”
Palace reported it best year ever with the fiscal year to June 2018 annual report states profit after tax of $152 million up from just $33 million for the full year in 2017 and earnings per share of $96.58. Revenues climbed  by 17 percent to $1.67 billion that flowed from a 25 percent rise in patronage income at Carib, 27 percent increase at Cineplex and just 11.5 percent in Montego Bay, Multiplex.
Palace share last traded at $1,500 but is on offer at $1,200 without any takers.

Republic Bank lands closer to Jamaica

Republic Bank traded at a 52 weeks’ high.

There has been rumors that Trinidad and Tobago’s Republic Financial is eyeing Jamaica to set up some form of operation. The name was initially mooted earlier this year, when the financial market was abuzz with an ownership change.
Boxed in by the tight economy in its own base of Trinidad and Tobago, Republic is on the prowl and Jamaica with the brightest economic prospects since the 1960s, cannot be off their radar. Keep a watch on this space.
In 2015, they bought the majority shares in HFC Bank in Ghana, they announced last week that as of the end of business on Friday, 12 October 2018, they received acceptances for a total of 22,934,246 ordinary shares of Cayman National, representing 54.15 percent of the ordinary shares, making them a subsidiary of the republic group.
In September, Republic made an offer to acquire a minimum of 51 percent and up to 74.99 percent of the ordinary shares of Cayman National to their shareholders at US$6.25 per share. The consummation of the acquisition remains subject to certain other conditions including, without limitation, receipt of necessary government and regulatory approvals. Republic stated that it is committed to purchase up to 74.99 percent of the ordinary shares of Cayman National. The Offer was scheduled to expire on Monday October 22 but is extended to Monday November 12, 2018, pursuant to the rules of the Cayman Islands Stock Exchange, and to accommodate an Extraordinary General Meeting of the shareholders of Cayman National to be held on Wednesday, 7 November 2018 to amend the articles of the bank.
The Republic Financial has off shore operations in Cayman Islands since 1992. Republic Bank (Cayman) is a private bank offering a comprehensive wealth management service to its clients.
Republic reported profit of $343 million for the June Quarter up from $328 million in 2017 and for the nine months to June $993 million versus $959 million in 2017. Shareholders’ equity stood at $9 billion and total assets of $70 billion with loans advanced to customers of $36 billion. As of June this year, Cayman National Bank had CI$1.56 billion with shareholders equity of $114 million. Profit was $16.4 million up strongly from $11.7 million in 2017. Republic purchased the shares at a PE around 10 times 2017 earnings and that should translate to a higher stock price for republic that sells around a PE of 13 currently. Republic will be able to cut operating cost at the new subsidiary as they can share in certain services that are common to both entities.

Big boost for Access from new Acquisition

In its quest for continued growth by acquisition Junior Market listed Access Financial Services announces yet another prospective acquisition.
The micro lender has indicated that it has reached an agreement to acquire a Florida based consumer finance company. The release by the company states that the successful completion of the acquisition expected to be completed in 90 days, is subject to satisfaction of all conditions of the purchase agreement and applicable legal and regulatory approvals.
Usually reliable source indicates that this acquisition when concluded will swell Access assets by US$8 or J$1 billion and will increase Access size by 25 percent. Estimated revenues should be approximately US$4 million per annum at the present level of business. The business is based on lending, for up three months with loans usually under US$1,000. The loans are collateralized by motor vehicles titles. The entire loan process is done on line thus requiring limited staffing. According to a report online, “today in Florida, we have car title loan clients achieving 90 percent to 140 percent per annum on their loan portfolios.”

Access Financial

This acquisition when completed will bring to 5, the number of entities Access acquired since 2015. In 2017, the loan portfolio, fixed assets and trade name of Micro Credit Limited. In 2016, Access purchased the business of Damark Limited comprising mainly the loan portfolio, fixed assets, trademark for $180 million. In 2015, Access acquired the loan portfolios of Asset Management Company, formerly operated by Scotia Investments.
Access recorded net profit after tax of $217 million from revenues of $457 million for the quarter ended June this year up 16 percent over net profit of $188 million for the corresponding period in 2017. Total assets at June, amounted to $3.86 billion.
The company’s stock is listed on the Junior Market of the Jamaica Stock Exchange and last traded at $45.50.

Early Xmas gift for Seprod stakeholders

Seprod shares being sold at $24 each.

Shareholders of Seprod and management and directors are in for an early Christmas present as Facey Group on Behalf of the International Finance Corporation offers 91,914,894 shares for sale at a price well below the level the stock has been trading at in recent times.
The offer is being made to the public but 55 million shares are reserved for staff, managers, executives, directors and former directors and shareholders of Seprod including Facey Consumer staff.

The offer is at a discounted price of $23.99. Last week the stock traded as high as $62 as limited selling of the stock in the market led investors to bid the price up to acquire some that were on sale, but pulled back to $49.50 on Friday and traded at $39 on Tuesday as investors reacted to the offer.
Up to 30 million shares are reserved for staff, managers, executives, directors and former directors of the Company and its subsidiaries. 15 million shares are reserved Shares for shareholders of the company (with JCSD accounts) as at August 31 and 10 million shares are reserved for the Lead Broker.
According to a spoke person for the Facey Group, the shares are a part of the shares that were acquired when the Company has reached an agreement with Seprod to acquire the consumer business consisting of distribution of consumer and pharmaceutical products in Jamaica earlier in the year. As part of that arrangement, Facey Group holding in Seprod was restricted to less than 50 percent and the shares being offered for sale was held as nominee on

Some of Seprod,s product

behalf of International Finance Corporation who had invested in the group as a part of an agreement for them to continue to recover their investment when an IPO was effected. The shares were priced at the time they were initially issued when they were trading at $28, IC was advised.
For the six months ended June 2018, Seprod generated revenues of $10.44 billion, an increase of $2.07 billion or 25 percent over the corresponding period in 2017. Net profit increased 29 percent for the period to $598 million in the 2017 period. The 2018 results are bolstered by the transfer of the former Jamaican dairy operations of Nestle within the Group effective January, this year.
The directors’ report stated that, “had these operations been included in the Group’s results in 2017, the increase in revenues for the six months ended 30 June 2018 would have been $1.20 billion or 13 percent and the increase in net profit would have been $77 million or 15 percent.”
For the June quarter, revenues rose 33 percent to $5.48 billion with gross profit rising sharply to 36 percent from 24 percent in 2017, with gross profit hitting $1.96 billion and profit after tax coming in at $325 million attributable to Seprod’s shareholders, 37 percent ahead of the 2017 out turn.
Based on the expansion of Seprod foot print and new ventures recently entered into, the future of the group seems solid and this could be bettered if they can put the ongoing losses of sugar behind them.

Gwest’s share issue response inadequate

The response by GWest the issue of preference shares is inadequate and they still have a number of questions to answer about the issue and the lack of disclosure in the prospectus and the audited financial statements.
The openness of directors with their investors is critical in cementing trust between them. A prospectus is a contractual invitation to the public to purchase shares in the offering company. It requires that full disclosure of all material information is made, so that prospective investors can make rational decisions pertaining to the shares being offered for sale. Any rational person reading GWest prospectus would come to the conclusion that the only matter agreed on at the extra-ordinary meeting of November 27 was that which was disclosed in section Page 45 of the prospectus which list details of the “Recent Capital Restructuring of the company to be as follows”:
“At an extraordinary general meeting the shareholders of the Company approved the following actions in respect of the capital structure of the Company: The re-registration of the Company as a public company in accordance with the Companies Act, adopting new Articles of Incorporation for that purpose:”
a)”The increase of the authorized share capital. (b)The subdivision of each Share”
“The disapplication of any pre-emption rights, howsoever arising, for the purposes of the issue of new Shares for subscription. The conversion of all fully paid Shares to stock on issue.”
There is no mention of the issue of any other type of share. Any decision to issue other shares should have been disclosed in this section if a meeting took place before the date of the prospectus.

Dr. Konrad Kirlew, chairman of GWest.

The fact that it was not, is the clearest sign that there was inadequate disclosure of important and material information and that the issue of preference shares after, should not stand before approved by a meeting of the new owners.
The vast majority of Junior Market companies have limited administrative staff, as such all the skill set to properly run them are not in their employ. The end results is that mistakes are made and will continue to be made. Recognizing, that most of them don’t have the knowhow of running a public company, the JSE created the creature called a Mentor, but not even that seems to be adequate to fill the breach.
According to the company in a release to the JSE, “Sections 18 and 19 in the November 2017 GWEST Prospectus specifically disclosed that shareholders loans were to be converted to preference shares, thereby reducing the servicing cost to the Company: Shares in the capital of the Company are under the control of the Directors, as expressly provided for in the Articles of Incorporation.”
That is nonsense. The prospectus only has 16 sections, with the last (section 16) being signed by the directors.
Section 11 contains projections along with supporting notes that were reviewed by Ernst and Young who signed their report on November 28.
The extraordinary meeting at which the change in share capital was approved was said to be held on the November 27. According to the resolution, the directors were given authority to issue, to allot such Cumulative Non-redeemable Preference Shares at such subscription price per Preference Share as the Directors of the Company or such Committee may deem fit, the same to be allotted to shareholders of the Company who have invested in the capital of Company (in cash or in kind) with the understanding/pursuant to agreement(s) that such investment(s) will be recognized as shareholder loans or by the issue of preference shares, in each case on terms and conditions determined by the Directors of the Company, subject always to the Articles of Incorporation of the Company”.
Having given the directors the authority to determine the terms and conditions of the preference shares, GWest in releasing information of the above resolution has not presented the minutes of the meeting of the directors that agreed on the terms. The fact that the extraordinary meeting did not set out the terms of the issue of the shares is even more reason why it should have been fully disclosed in the prospectus.
The company refers to 18 and 19 but it appears they mean notes 18 and 19 of section 11 that deals with the projections. What does the section say about the preference shares?
Note 18. “Borrowings| This relates to the NCB Term Loan and shareholders’ loans converted to preference shares.”
NCB Term Loan| The terms of this loan for $350 million, include a repayment period of eight years payable in equal quarterly installments and an interest rate of 11.5% per annum.”
“Preference Shares| 50% of shareholders’ loan will be converted to non-redeemable preference shares with interest at 10% per annum. The remaining 50% will remain as shareholder’s loan with no fixed repayment with interest at 10% per annum for the J$ amounts and 4% per annum for the US$ amounts.”
Note 19. “Shareholders’ Loan| This amount relates to funds advanced by the shareholders. It is assumed that outstanding balances will continue to attract interest at the prevailing rates of 15% and 4%, respectively for J$ and US$ funds. However, once the IPO is completed and the Company becomes publicly-listed, it is assumed that the interest rates will be reduced to 6% and 2% for J$ and US$ denominated loans, respectively on the remaining balance not converted to preference shares. With respect to the J$ denominated balance, the interest rate is assumed to increase annually by 1%, with a cap at 10% by 2022. The Directors are of the view that these rates are more in line with arm’s length rates prevailing within the market.”
Nowhere in the prospectus is there any reference to a meeting called to approve the issue of any shares other than ordinary shares and the terms of those shares. Under no stretch of the imagination could assumptions included in a financial projections be regarded as disclosure of an agreement to issue shares or that a resolution was already passed to do so. Earlier in the prospectus it is made clear that futuristic statements are just that, as they may not be achieved. That the company withheld pertinent and material information from the new investors even when they had a number of occasions to do so, is glaring and concerning. That the Jamaica Stock Exchange sees nothing wrong with what has transpired is plain shocking, even more shocking is that they did not ensure that proper and full disclosure of the information was included in the relevant part of the prospectus.
The directors cannot over ride, the company’s act that requires that all changes in share capital of a company be approved by shareholders at a general meeting. From all indications this was not agreed to before the prospectus was published, in which case it appears that the new shareholders would have to approve it at a general meeting.
To compound the problem, the preference shares were issued to connected parties to the company. That alone should have alerted all concerned that all decisions should be properly executed.
Of note,  the Audited accounts to March 2018, made no mention of the issue of additional shares that were issued or to be issued. It is the norm in auditing, that minutes of meetings are made available to the auditors and the directors have a responsibility to ensure that the financial statements are accurate. The directors need to state if the audited accounts correctly disclose all relevant information pertaining to the share capital. They need to state why they all signed the Prospectus with no mention being made of the resolution to modify the share capital indicating full details of the resolution.
What date did the directors meet to determine the terms of the preference shares and why were those terms not disclosed in the prospectus for all to see?
The Jamaica Stock Exchange requires that they should be advised in advance of any meeting of directors called to alter the share capital of a company and after the meeting the outcome of the meeting is to be communicated to them as well. There are no indications that the directors complied with this section of the Stock Exchange rules.
The handling of this matter is not the way to properly operate in the capital market.

Gwest statement on Preference Share issue

The Board of Directors and Management of Gwest Corporation Ltd are deeply concerned about the articles published on the IC website dated September 6, 2018 and September 21, 2018, authored by John Jackson.
The first article dated September 6, 2018 speaks to Gwest Corporation’s first quarter report showing the issue of 250 million preference shares, and with quite remarkable language the writer concludes that the preferences shares in the capital of the Company have been allotted without authority.
We wish to confirm that at the Extraordinary General Meeting of the Company held on November 27, 2017, the following resolution was duly passed:
“As a special resolution that the Company be authorized to issue and/or allot Cumulative Non¬ redeemable Preference Shares with rights/restrictions as to Voting, Dividends and Winding up and/or otherwise as may be determined by the Directors of the Company or a Committee of the Directors appointed for such purpose, subject always to the Articles of Incorporation of the Company, and that the Directors of the Company or such Committee be and are hereby authorised to determine all such rights and restrictions and the Directors be and are hereby authorized to allot such Cumulative Non-redeemable Preference Shares at such subscription price per Preference Share as the Directors of the Company or such Committee may deem fit, the same to be allotted to shareholders of the Company who have invested in the capital of Company (in cash or in kind) with the understanding/pursuant to agreement(s) that such investment(s) will be recognized as shareholder loans or by the issue of preference shares, in each case on terms and conditions determined by the Directors of the Company, subject always to the Articles of Incorporation of the Company”.
The above resolution was passed specifically to facilitate non-redeemable preference shares being allotted to persons who had invested in the Company by way of shareholders loan made available to the Company.
Sections 18 and 19 in the November 2017 GWEST Prospectus specifically disclosed that shareholders loans were to be converted to preference shares, thereby reducing the servicing cost to the Company:
Shares in the capital of the Company are under the control of the Directors, as expressly provided for in the Articles of Incorporation.
In all the circumstances the allegations by the writer of the articles under review are unfounded and without merit.
It is unfortunate that the writer of the articles did not undertake greater due diligence towards determining correct factual positions, before publishing false and misleading material that could be injurious to the Company, this at a time when the Company has embarked on programs to stabilize its operations and to achieve its objectives in the short term.