C-tax affects sales, profits of Banks beverages
Stabroek News
February 27, 2004
Physical sales for Banks DIH's beer and related products were down 2.4% in 2003 as a result of the application of the 50% consumption tax on these products. Overall profit also fell by 13.7% to $571 million.
According to Banks DIH Chairman Clifford Reis the ten per cent remission of consumption tax on Banks Beer and related products was removed last year and this caused the selling price of these products to rise.
"Consequently, the increased prices have lowered the demand for Banks Beer and encouraged lucrative smuggling of other beers. This lower demand has resulted in the plant being operative for only two to three days per week, which can be deemed as over capitalisation or under utilisation," Reis says in his report circulated to shareholders in advance of the annual general meeting to be held on March 6.
As a result of the application of the full 50% consumption tax on beer, Banks' consumption tax payments increased by $50 million and total c-tax and excise taxes paid was $1.89 billion, up from $1.76 billion in 2003.
Commissioner General of the Guyana Revenue Agency Khurshid Sattaur says the remission had been applied under Section 18 of the Customs Act repealed and re-enacted in the Fiscal Enactment and Amendment Act.
The decision to allow the remission was under the discretionary powers of the Minister of Finance and at its expiration in April 2003, the facility was not renewed.
Sattaur concedes that Banks DIH may not be able to compete with the smuggled beer at the higher prices but notes that increased revenue to the Guyana Revenue Authority will boost the agency's efforts to stamp out smuggling.
Banks enjoyed a turnover of $10.7 billion in 2003, 2.2% over the previous year. But increases in staff costs of $100 million, in depreciation costs, higher other operating expenses as well as higher consumption and excise taxes saw the profit before tax dropping from $1.17 billion in 2002 to $1.03 billion in 2003. After tax profit fell from $662.8 million to $571.5 million. Earnings per stock were $0.81 in 2003 as against $0.94 in 2002.
Sales of Banks' other bottled products such as soft drinks, rums, wines, Guinness and Tropical Mist water showed acceptable growth but the food division did not perform to expectations.
"Apart from competition which is all around, the results were undoubtedly affected by the economic decline, which prevailed throughout 2003.
Instability and loss of consumers' confidence among others, created a fragile and very challenging environment for corporate business. In addition, our country has not escaped the consequences of the adverse world situation," says Reis.
Citizens Bank, one of Banks' subsidiaries, saw its profits increasing by 27% to reach $193 million. And if this is subtracted, the overall profit figure will drop to $373 million.
Reis says Banks has budgeted to spend $780 million on capital works to expand its productive facilities and to update its technology.
A major chunk of this will go to buy a one megawatt medium-speed generator and to upgrade the firm's electrical power capabilities to ensure "meaningful cost savings" to improve shareholder value. The sum of $738 million was spent on capital works in 2003.
There is no mention in either the report of the directors, or Reis', of the fraud at the company which saw several senior officials being sent home and an investigation launched into the promotional aspect of the company. However, there is a corporate governance statement acknowledging the need for a corporate code of conduct for the directors to operate by.
"This code is not merely a mission statement setting out the organisation's lofty ideals, but rather a clear and unambiguous assertion of its fiduciary responsibilities, its ethical and moral standards, when dealing with shareholders, customers, employees and regulators, its financial benchmarks, its integrity in advertising and its commitment to quality in the delivery of products and services," the statement said.
The statement adds that practising at such a level of transparency indicates the company's commitment to corporate governance.
The code of conduct and ethics of the firm says: "Directors and officers of the company are required to avoid any conflict between their own interest and the interest of the company in dealing with suppliers, customers and other third parties, and in the conduct of their personal affairs, including transactions in securities of the company, any affiliate or any non-affiliated organisation."
The names of the persons comprising the Audit and Finance Committee (RE Cheong, Kathleen d'Aguiar, Chris Fernandes, Clifford Reis and Azam Khan); the Corporate Governance and Human Resources Committee (Joe Vieira, Cheong, Reis and Paul Carto); the Engineering & Projects Committees (Lloyd Piggott; Vieira, Fernandes, Reis and Michael Pereira) and the Restaurants Committee (Fernandes, d'Aguiar, George McDonald and Carto) were all detailed in the directors' report.