Derrimon profit jumps 83%

Derrimon Trading profit climbs 83 percent in the March quarter to $20.5 million although sales declined by 4.8 percent in in to $1.296 billion. Despite the sale decline, gross profit increased 17 percent from $142 billion to $166 billion.Other income declined from $12.6 million down to $5.5 million and distribution expenses fell $2.5 million to $21.7 million but administrative expense were up nearly $5 million to $119 million, interest cost rose from $14.9 million to $18.88 million. The company’s shares of associated company – Caribbean Flavours and Fragrances results contributed $8.36 million to the net results. There was no ownership of the associate in the similar period in 2014.
Decline in sales is not what investors want to see from a company, even when profit rise, looking forward increasing sales is what is going to drive profits and stock prices.
During the quarter under review, the directors approved the acquisition of the assets of Northern Cash and Carry as part of the strategy to expand the Sampars footprint at strategic locations island wide.
The financial structure remains a bother and places the company at a high level of risk with debt of $657 million including preference shares of $250 million and equity of only $380 million. Of the total loans, $335 million are short term and due within a year. There is also cash funds of $81 million but with the new acquisition approved, some of the cash is likely to be used to fund the purchase. With the short term loan due within a year, the company will have to restructure the loans as it is not producing the type of cash flow that would facilitate repayment from internally generated funds. In short, the company needs more equity capital or it ought to have a hybrid of debt, with an option to convert to equity at some point in time in the future.
Earnings per shares ended at 8 cents for the quarter and should end at around 32 cents for the year. The stock traded last on the Jamaica stock market at $2.15 putting the PE at 6.7 times earnings, not leaving much room for growth in the current market environment and valuation of junior market companies at present.