Jul 2014 Financial News

NEL chair promises better future earnings

Jul 31, 2014

Despite a 62 per cent decrease in the earnings per share in its consolidated financial statements for the period ending March 31 2014, National Enterprises Limited (NEL) is poised for growth, said chairman Kenny Lue Chee Lip.

Asked to elaborate on how much growth is anticipated, he said: “There are three or four investment opportunities we are looking at of varying magnitude. From $700 million to over $1 billion in possible investment. But it depends on which ones actually pan out. We have no fixed percentage growth. We may just be buying equities in the stock exchange.”

He is not ruling out investment outside of T&T, but he could not confirm.

Lue Chee Lip said the decrease in the investment holding company’s earnings per share for the financial year ending March 31, 2014 was due to Telecommunication Services of T&T (TSTT) provision for VSEP and lower dividend receipts from Tringen and NGC LNG.

In its publication of summary results last week, the company reported EPS collapsed from $0.85 to $0.32.

“The majority reason for that (the declined performance) is the ‘hit’ we took from TSTT’s financials, a 500 plus-million-dollar hit from their loss. Their loss stemmed primarily from the cost of Voluntary Separation (Of Employment) Package in the last financial year. Their loss was over $500 million, so we had to take that into account in our financials. that is a major part of the reason why we dropped so significantly.”

Lue Chee Lip said it was a prudent decision to take all the losses in one year rather than spread the losses over more than one year. He added: “What TSTT was approaching was their operating cost was exceeding 50 per cent of their income, so they had to do something drastic to get their operating cost in line. One of the major things driving operating costs were salaries. When TSTT benchmarked its operation against other providers, the number of employess they had was significantly higher than other players in the market.”

Being unionised worked against TSTT.

“Because of the unionised environment that they operate in, they couldn’t have the most efficient organisation. They do have a pretty militatnt trade union. The trade union was opposing the organisational changes.”

Asked whether the declined EPS was the worst ever in NEL’s history, he declined to comment, saying that he has been chairman for four years and could not speak to prior his appointment.

For the future, TSTT should be back in the “black” and resume paying dividends to NEL in the future. In the year ended March 31, 2014, NEL spent $250 million purchasing shares in First Citizens, Clico Investment Fund and PowerGen.

Explaining why NEL purchased shares in Clico Investment Fund, Lue Chee Lip said the company did not pay attention to the stigma that Clico Investment Fund has in the market, rather it paid attention to the strategic direction which experts guided them to.

Commenting on the announcement by acting chief executive George Hill, that TSTT was taking out $1.5 billion loan to transform itself into a more streamlined, technologically advanced mobile and Internet services provider, Lue Chee Lip said: “TSTT had presented its five-year strategic plan to the board of NEL and explained their strategy. One of the plans is to generate money because their internal cash flow can only generate so much. When you look at it, they did not come back to the shareholders for an equity injection. They didn’t come back for any guarantees for this loan they are asking for. It was granted based on the strength of its balance sheet.”

He added that the fact that TSTT produced a plan that was “bankable” speaks “well” of the management of the company.

New General Manager

On April 21, 2014 Krishnadath Ramlogan, brother of Attorney General Anand Ramlogan was appointed to the post of general manager. Commenting on the need for a general manager, Lue Chee Lip said in order for NEL to be on a growth path, there was need to appoint an experienced individual to steer the company in the right direction. He added that Ramlogan’s appointment had nothing to do with his relation to the Attorney General.

“We looked for the person with the requisite skills in management, accounting, investment banking. We think we found the person with the requistie skills and experience.”

There are differing dynamics within the companies that NEL oversees, which also provided a reason for the appointment of a general manager. Ramlogan is a graduate of the ACCA program and the UWI Institute of Business, executive management

Excerpts from the Chairman’s report

Investee companies performance

“TSTT recorded a net loss of $505.9 million for the year ended March 31, 2014. NEL’s share of TSTT’s loss for the year amounted to $226.1 million. These results included a provision for reorganisation cost of $694.6 million which is expected to be a non-recurring provision. TSTT has embarked on an aggressive five-year strategic plan of which 2014 was the first year and included a significant Voluntary Separation of Employee plan.”

Regarding Tringen: “the second significant factor affecting our performance was lower dividend receipts from Tringen, NEL’s dividend receipts from Tringen for the financial year ending March 31, 2014 was $115.1 million compared to 213.4 million in 2013.”

“National Flour Mills performed better than 2013 but their overall contribution to NEL dividend receipts continues to be very small.”

“NGC LNG performed marginally better with a dividend of $54.3 millioncompared to $52 million in 2013.”

“Our dividends from NGC NGL was $123 million compared to $201.5 million in 2013. In 2013, NEL benefitted from a higher than usual dividendpayout from NGC NGL due to a payment from retained earnings.”

Govt owes NEL for NFM’s Christmas discount

The Government still owes National Flour Mills $3.6 million for the Government-mandated discount that the majority state-owned company offered to customers in December 2013.

The $3.6 million receivable is reported in NEL’s audited consolidated financial results for the year ended march 31, 2014. Those results are dated July 18, 2014. The information on the receivable can be found on page 35 of the accounts which are on the T&T Stock Exchange Website. The note for the receivable states: “Included in accounts receivable and prepayments is $3.6 million due from the Government of the Republic of T&T. This amount is as a result of the company offering discounts to customers to pass on to the public on specific products in December 2013 at the request of the Government of the Republic of T&T.”

On July 24 at the post-Cabinet news conference, Prime Minister Kamla Persad-Bissessar announced a 20 per cent discount on certain brands of flour, oil and rice sold by NFM from July 26 to August 1. This was a repeat of a 20 per cent discount offered on December 23 and 24, 2013 of the same items.

Even though the 2013 losses have not been accounted for, the Prime Minister last week promised to repay the current losses that NFM will incur as a result of the Government-mandated discount.

On July 24, she said: “National Flour Mills Ltd would facilitate this initiative on behalf of the Government. Our government wishes to emphasise that this initiative will in no way prejudice the financial performance of NFM. This government would reimburse the company in respect of all expenses directly incurred in the process of effecting this initiative. This initiative forms part of the temporary stop cap measure to allow for the ease of living while government actively pursues measures to ensure our food security.”

NEL owns 51 per cent of NFM, which is a subsidiary of NEL because NEL in theory controls the milling company. Although it owns 51 per cent of TSTT and Tringen, the ammonia company, NEL does not control those companies because of pre-existing shareholders’ agreement with Cable & Wireless and Yara (formerly Norsk Hydro) respectively.

The Corporation Sole owns 66 per cent of NEL’s 600,000,641 Issued Share Capital.

 

Source:
Nadaleen Singh
nadaleen.singh@guardian.co.tt
Trinidad Guardian
BG6 | NEWS BUSINESS GUARDIAN www.guardian.co.tt JULY 2014 • WEEK FIVE