line: Sterling Products Limited
directors of Sterling Products Ltd, a subsidiary of Secure International
Finance Company Inc, part of the Beharry Group of companies, will present
their Annual Report for the year 2003 at the company's 49th Annual General
Meeting (AGM) on
2004, one day before the statutory deadline. This, however, is an
improvement on last year when the AGM was not held until July 26, a concern
of this column with several companies over the years. While shareholders
have a right to expect prompt reporting by public companies, this column
commends the improvement by close to one month.
now a reduced board which after the resignation of the former Chairman, Mr
John Carpenter, and Messrs Clarence Hughes, P E Fredericks and Charles
Quintin as Directors, is made up of two members of the Beharry family, an
employee of that group and Dr Leslie Chin as non-executive Chairman. No
doubt the group hopes that Dr Chin's experience at GPC and Neocol would
contribute to the revival of the fortunes of the company which has seen its
profits decline by 38% since 2000.
Chin's Chairman's report starts with the euphemistic "challenging" year
which usually sets the stage for the announcement of bad news. In fact, it
was certainly not as bad as 2002 when profits before tax plunged from $186M
to $109M, a decline of 42 per cent. While turnover in 2002 was flat compared
with the preceding year, turnover in 2003 increased significantly over the
preceding year although this did not translate into improvement in the
bottom line. Unfortunately the Chairman does not offer shareholders in his
rather brief report, any indication of the prospects for the company in the
near or medium term.
was no share activity by those shareholders with a substantial interest in
the company as a result of which the Beharry Group retains 58.1% and
Demerara Mutual Life owns 8.3 per cent. According to the Stock Exchange
Market Journal there has only been one trade since the commencement of the
exchange, suggesting a lack of interest in the company by the investing
public. The company lost another two managers in 2003 following the loss of
four senior managers, including the Chief Executive Officer, in 2002.
column said last year, the brain drain is having a debilitating effect on
the country and the loss of managerial and entrepreneurial talent is
impeding growth in the private sector, which obviously affects the rest of
the economy and more importantly the people. This must now be the leading
challenge facing the private sector since the education and training system
cannot replace the losses from migration.
turn to the financial results reported by the company and reported on by
Deloitte & Touche as conforming to the Companies Act, 1991 and International
Financial Reporting Standards, even though there is no compliance with IAS
19 dealing with Pension Scheme accounting and disclosure (including
assumptions and details of the pension assets and liabilities) and certain
common non-compliance issues with the Companies Act 1991 as the current DDL
Profit and loss account
net sales have increased by 17 per cent, the gross profit percentage
continues to decline and dropped from 33.2% in 2001, 29.1% in 2002 and 25.3%
in 2003. This suggests either that manufacturing cost is increasing - which
is unexpected if not unlikely given the substantial capital expenditure in
plant upgrade or that the company is reducing price to retain market share.
We noted last year that capital expenditure in plant and equipment ought to
lead to greater efficiencies and profitability and the occurrence of just
the opposite taking place must reinforce the concern of shareholders about
the long-term implications for the company.
in Other Income was the result of reduced interest income while other
expenses also fell by $6M or less than 2% over the previous year.
Interestingly, while there has been a significant increase in the number of
employees from 147 to 169, employment cost fell with the result that the
average cost per employee has fallen by 16% to $629,000 per annum per
employee. Profit before tax (PBT) remained flat at $109M or 8.55% of sales,
down from 9.96% in 2002 and 17.2% in 2001. Gross profit margins and net
profit margins fell, as did return on equity and operating return on assets,
while earnings per share increased from $3.21 to $3.94.
year, the company reported that it was "working assiduously" to increase
regional sales, and they now report some success as exports' sales moved
from $3M to $22M, or approximately US$110,000, - a measure of the challenge
facing the company.
charge of $50M, represents 45% of net profit (compared with 55% in the
previous year) and leaves $60M available for distribution. Of this the
directors are recommending the payment of a final dividend of $3.00 per
share utilising $45M or 76.2% of after-tax profits for the year, a ratio
that is very good by Guyana standards and that should pose no difficulties
to the company's cash flows as it has over $300M in cash resources. Readers
will recall from the 2002 review in this column our comment about the
absence of any publicly pronounced dividend policy which is certainly useful
information for current and potential investors.
balance sheet remains as sound as it was last year, even though cash
balances declined by about $70M and working capital by $33M, both of which
are insignificant in terms of the overall financial condition of the
company. Inventory has increased by some $50M, and therefore represents
several months of sales. Despite the 5% reduction in working capital, the
company's total current liabilities are covered 3.4 times by its cash
resources, while it is in the enviable position that it has no non-current
liabilities such as loans.
company has invested a further $147M in fixed assets mainly the ice cream
plant which is due for commissioning in this quarter. In the 2002 review we
itemized the several major capital projects undertaken by the company since
2001, financed by a rights issue and noted that the returns from these
investments should be reflected by year 2003 to justify their significant
cost to the company. This has so far not happened.
Improving the financial statements
year we commented on the reporting by the company on its various business
segments and note that the 2000 financial statements disclosed four segments
while in this year only two are disclosed. Even though the rules of
accounting may justify the fewer segments, shareholders and indeed managers
might find it useful if the disclosure was more extensive, since the risks
and rates of return on the various key product lines.
actuarial valuation of the pension scheme was done in 1997 and shareholders
were told in the 2000 Annual Report that the "next actuarial valuation
scheduled to be carried out as at
is in progress." Each year the same thing is being said except that the
scheduled date is being shifted! Both the directors and the auditors should
have realized by now that something is wrong with this note and that a key
human resource and accounting matter - a pension scheme actuarial valuation
- is not being treated as seriously as it should.
did last year, the financial statements disclose purchases from Beharry
Automotive Limited and Edward B. Beharry Confectionery, IT Service and
Security Service which are listed as related companies without any
indication as to the nature of the relationship. Why the company would list
Beharry Automotive Limited as a related party but not GBTI or NAFICO is not
Disappointingly, several of the accounting issues questioned last year
recur, including disclosure of the date the financial statements were
authorised and by whom (IAS 10), accounting for dividends and provisions for
stock obsolescence could certainly have been better, particularly in light
of the several months of inventory on hand. The company accounted for
proposed dividends as a liability in contravention of IAS 10 which requires
the disclosure by way of a note to the financial statements or on the face
of the balance sheet as a separate component of equity.
Chairman notes that the entire board is non-executive, but not that only one
member is independent. As stated above, there has been practically no
trading in the company's shares on the Stock Exchange and it is therefore
difficult to assess how the market perceives it. Substantial restructuring
at the level of the board may be partly counterbalanced by loss of key
management staff and the slow pace of export business. Even to the
controlling group which receives more than just dividends from the company,
a return of $3.00 per share on an investment of between $75-$100 per share
is less than desirable. It is hoped the company will have real grounds for
celebration in its golden anniversary year.
(Back to top)