On the line: BANKS DIH Limited
Business Page
BUSINESS PAGE is dedicated to providing objective information an opinion on issued of interests to the business community and the public at large. The articles in Business page are prepared and contributed by CHRISTOPHER RAM. Christopher Ram is the Managing Partner of Ram & McRae, Chartered Accountants, Professional Services Firm. Introduction Business Page today reviews the Annual Report with particular reference to the financial statements of the company. The consolidated (group) financial statements include Citizens Bank Guyana Inc. which became a 51 per cent subsidiary during the year and Caribanks Shipping Co. Ltd. The group accounts therefore include a predominantly manufacturing entity and a financial services institution which falls under the Financial Institutions Act. It must have been a close call whether consolidation is meaningful having regard to the dominance of the manufacturing entity within the group. This brief analysis deals only with the accounts of the parent company Banks DIH Limited. Profit and loss account
When the results of the parent company are disaggregated from the Group the growth in revenue is 5.8 per cent, much lower than the 11.8 per cent stated in the Directors Report. With inflation in 1999 close to 10 per cent, there was a decline in the real value of sales, particularly if this is compared with 1997 which recorded a 9.8 per cent growth in sales when inflation was running at a "mere" 4.1 per cent. Neither the law nor accounting standards require gross profit to be disclosed and accordingly only net profit is disclosed. Using these to measure profitability we find the following:
Chairman Reis attributed the lower net profit to "reduced demand resulting from the pressure placed on consumers' disposable income, and the political unrest during the early part of the financial year". He cited "increased cost of packaging, raw materials and other related expenses" as causing reduced net profit. The Net Profit Margin is the relationship between net income to sales and the decline must be a serious cause for concern as is the fall in return on equity. Since 1997 the company has significantly expanded its share capital partly by a rights issue and partly by a bonus issue. With falling After Tax Profits the Company has to utilise a higher proportion of its After Tax Profits to service dividends. Indeed, because of the higher equity base, shareholders in 1999 received 35 per cent dividends on the par value of their shares compared with 45 per cent in 1997. Shareholders must be looking closely at this development since it can impact negatively on share prices. Dividend cover (the number of times that dividends are covered by After Tax Profits) has declined from 7.39 times compared with 3.57 times in 1999. Balance sheet
By all conventional measures, the balance sheet is sound. Current assets are a healthy 1.7 times the current liability whilst the quick ratio (current assets less inventory over current liabilities) is just under 0.5 which is good by most standards. Trade debtors increased dramatically by 136 per cent whilst sales increased by only 5 per cent. This suggests that sales are being realised only on generous credit terms which could in fact lead to bad debts in the future. After falling fairly significantly in 1998 the loans liability increased by $50M or 21%. Interest payment increased by $8M or 19 per cent. The changes in the cash position of an entity is another key angle from which the state of the company can be assessed. The company reported substantial cash inflows from operations ($629M) but after payment of interest, taxes and dividends only $18M was available to fund net expenditure of $756M in fixed assets additions and purchase of investments in Citizens Bank Guyana Inc. Loan repayments amounted to $139M against new loans of $188M. The overall decrease in cash and cash equivalents was $688M mainly in short term investments and bank balances. The report exuded confidence about its preparedness for the opportunities and obstacles facing companies in the more liberalised trade regime era. With some $2.9B invested over the past six years, the company's plant must be in pretty good shape. It boasts of "technologically advanced machinery in all core areas" and a "Performance Incentive Scheme (PI 2000)" designed to foster a culture of continuous self motivation". Yet its assertion about "lower unit cost, better quality and a diversified product range" are not quite translating into improved profitability which the company attributes to the political problems in the country. Product service and quality requires dedication and commitment on a continuous basis - zero defects, walking the floors, talking to and exceeding the expectations of customers, suppliers and other stakeholders. I find it frustrating and regrettable that after several years, the Company appears unable to solve the cap problem with its bottled distilled water. Conclusion There is no reference to committees of the board and whether for example there is an Audit Committee which is now regarded as mandatory in most if not all the developed economies. The financial statements themselves can be made more user friendly and more intelligible to the reader who must be totally confused by the statement "Corporate liabilities include goodwill, investments and dividends payable and taxation balances." Goodwill and investments are of course assets not liabilities. The opening section of the Annual Report ends with the question "What better guarantee could there be of success in the new millennium?" Michael Hammer, the originator of the concept of re-engineering and business process centering provides the answer: " If you think you're good you're dead! The formulas for yesterday's success are almost guaranteed to be formulas for failure tomorrow." The Chairman was correct to lament the impact of the political culture prevailing in Guyana. He should not reduce the strength of that concern by painting too rosy a picture of the Company's performance and condition. 
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