Fe­lix Pereira

A Bar­ba­dos icon copes with rough times while keep­ing its share­hold­ers hap­py. Cave Shep­herd and Com­pa­ny (CSC), based in Bar­ba­dos, re­flects a con­ser­v­a­tive ap­proach to busi­ness com­bined with tight fis­cal man­age­ment of its re­sources. In 2009, CSC record­ed a loss of 23 cents per share. This was fol­lowed by a small­er loss of 14 cents per share in 2010 and, in 2011, the com­pa­ny re­turned to prof­itabil­i­ty, when it earned 6 cents per share. In all three pe­ri­ods the com­pa­ny, us­ing its re­tained earn­ings and strong cash flow po­si­tion, paid a div­i­dend of $0.20. It is in­ter­est­ing to note that in each of the last three years CSC's work­ing cap­i­tal po­si­tion im­proved. This mea­sure of fis­cal rec­ti­tude moved from less than B$50 mil­lion at the end of 2008 to B$52 mil­lion in 2009, B$56.5 mil­lion in 2010 and B$60.20 mil­lion as at De­cem­ber 2011.

As at De­cem­ber 2011, the com­pa­ny re­port­ed hav­ing net as­sets of B$144 mil­lion. This was fi­nanced by B$113.5 mil­lion in eq­ui­ty and B$30.5 mil­lion in long-term bor­row­ings. Due to the high cash com­po­nent of its as­sets, the com­pa­ny is es­sen­tial­ly debt free. For 2011, its cur­rent ra­tio was 4.40. For each of the pri­or four years, its cur­rent ra­tio was con­sis­tent­ly above 6.00.

In 2011, to­tal op­er­a­tional rev­enue and oth­er gains fell to B$16.15 mil­lion; this re­flect­ed a 15.4 per cent de­cline from the B$19.1 mil­lion record­ed in 2010. How­ev­er, the con­trac­tion in ex­pens­es was much more favourable as these de­clined by B$7.8 mil­lion to B$13.1 mil­lion; this re­flects a re­duc­tion of 40.8 per cent be­low the B$19.1 mil­lion record­ed for 2010. The most sig­nif­i­cant rev­enue line item was man­age­ment fees, which in­creased to B$7.12 mil­lion from B$6.63 mil­lion in 2010. Sales from re­tail op­er­a­tions came in at B$4.6 mil­lion, down from B$4.9 mil­lion a year ear­li­er. Fi­nance in­come im­proved from B$3.47 mil­lion in 2010 to B$3.56 mil­lion last year.

Al­so form­ing part of rev­enue was B$0.84 mil­lion re­flect­ing a gain on the sale of fi­nan­cial as­sets; in 2010, this line item re­flect­ed a loss of B$1.03 mil­lion. For 2011, there was an un­re­alised loss of B$2.54 mil­lion on fi­nan­cial as­sets; in 2010, this line item re­flect­ed a prof­it of B$2.05 mil­lion. Most of the var­i­ous ex­pense line items showed sta­ble or slight changes from the pre­vi­ous year. The two main re­duc­tions in ex­pens­es re­lat­ed to non-cash items. In 2010, there was an im­pair­ment of good­will charge amount­ing to B$5.4 mil­lion; of this to­tal, B$4.2 re­lat­ed to Columbian Emer­alds In­ter­na­tion­al Ltd in Tor­to­la while B$1.20 mil­lion was for Fran­chise Ser­vices Cor­po­ra­tion, which is no longer in op­er­a­tion. In 2011, there was no good­will im­pair­ment.

Al­so con­tribut­ing to the huge re­duc­tion in ex­pens­es was a write­back of B$1.12 mil­lion; in 2010, there was a re­ceiv­able of this size due by an as­so­ciate com­pa­ny (GCS Ltd t/a Ganzee) that be­came im­paired; in 2011, the cir­cum­stances that give rise to this sit­u­a­tion were re­versed al­low­ing the charge to be can­celled in 2011. The net ef­fect of these changes al­lowed the com­pa­ny to re­port an af­ter-tax prof­it of B$1.9 mil­lion. Of this to­tal, B$1.1 mil­lion re­lat­ed to eq­ui­ty-hold­ers with the re­main­ing B$0.8 mil­lion be­ing at­trib­ut­able to non-con­trol­ling in­ter­ests. This trans­lat­ed in­to earn­ings per share of B$0.06. Al­though the com­pa­ny struc­tures its re­port­ing along two ma­jor lines, re­tail and ser­vices, fi­nance in­come and in­vest­ment in­come al­so make sig­nif­i­cant con­tri­bu­tions. In ad­di­tion, as­so­ci­at­ed com­pa­nies pro­vide a large por­tion to its earn­ings.

Sig­nif­i­cant re­duc­tion in loss­es

The ma­jor sub­sidiary com­pa­nies form­ing the re­tail group are Cave Shep­herd USA, Bar­ba­dos and Grand Cay­man and Columbian Emer­alds In­ter­na­tion­al out­let in Tor­to­la. Sales were down slight­ly from 2010 while 2011 saw a sig­nif­i­cant re­duc­tion in the loss from the pre­vi­ous year. Most of the ma­jor re­tail brands op­er­ate un­der the um­brel­la of its as­so­ci­at­ed com­pa­ny, Du­ty Free Caribbean (Hold­ings) Group. Oth­er ma­jor brands un­der this group­ing in­clude Har­risons and Pages Book­store. The ser­vices di­vi­sion main­ly com­prise Fortress Fund Man­agers Ltd. Rev­enues ad­vanced by al­most 11 per cent to B$9.2 mil­lion from 2010's B$8.3 mil­lion. More sig­nif­i­cant­ly, prof­it for 2011 came in at B$2.18 mil­lion af­ter record­ing a loss of B$0.8 mil­lion in 2010. A ma­jor as­so­ciate, The Sig­nia Fi­nan­cial Group, pro­vides loans and op­er­ates a stock bro­ker­age busi­ness. A Cana­di­an reg­is­tered as­so­ciate, DGM Bank and Trust, through var­i­ous Bar­ba­dos sub­sidiaries, op­er­ate a lo­cal bank and trust com­pa­ny, in­sur­ance and bro­ker­age ser­vices provider.

The com­pa­ny re­ports ma­jor fi­nan­cial da­ta re­flect­ing as­sets, li­a­bil­i­ties, rev­enue and af­ter-tax prof­it (loss) fig­ures for its nine ma­jor as­so­ci­at­ed com­pa­nies based on its per­cent­age of own­er­ship, which ranges from 16 per cent to 40 per cent. In 2010, the com­pa­ny's share of as­so­ciates prof­it came in at B$2.17 mil­lion; how­ev­er, in 2011, this de­clined to B$1.05 mil­lion.

In 2010, the two star per­form­ers were Fran­chise Ser­vice Corp/The Per­fect Time Ltd, which con­tributed B$1.53 mil­lion in af­ter-tax prof­its, while CS­GK Fi­nance Hold­ings Ltd (a joint ven­ture with GraceKennedy of Ja­maica) added an­oth­er B$1.3 mil­lion to the as­so­ci­at­ed re­sults. In 2011, the two ma­jor con­trib­u­tors were CS&C Joint Ven­ture with B$0.79 mil­lion and CS­GK Fi­nance Hold­ings with a con­tri­bu­tion of B$0.67 mil­lion. In both pe­ri­ods, its flag­ship op­er­a­tion, Du­ty Free Caribbean Hold­ings Ltd, in which its holds a 40 per cent in­ter­est, re­port­ed loss­es; for 2010, this fig­ure was B$1.98 mil­lion. For­tu­nate­ly, there was a strong im­prove­ment in 2011, when the loss con­tract­ed to B$0.58 mil­lion.

Al­mond Re­sorts Inc

In both pe­ri­ods, its 20 per cent as­so­ciate, Bridgetown Cruise Ter­mi­nals Inc, was prof­itable; it earned B$0.24 mil­lion in 2010 and im­proved on this per­for­mance in 2011, when it record­ed a prof­it of B$ 0.33 mil­lion. In con­trast, DGM Hold­ings (Cana­da) Inc, which is a 40 per cent as­so­ciate, saw its prof­its halved from B$0.61 mil­lion in 2010 to B$0.30 mil­lion in 2011. For the six months to June 2012, CSC record­ed re­duced rev­enue, which, when com­bined with in­creased ex­pens­es and high­er tax­es ul­ti­mate­ly trans­lat­ed in­to a loss per share of 4 cents. De­spite this re­sult, the com­pa­ny, based on its good liq­uid­i­ty and healthy re­serves, main­tained its in­ter­im div­i­dend at B$0.10 per share. A ma­jor con­trib­u­tor to this re­sult was the in­crease in the un­re­alised loss on in­vest­ments held for trad­ing, which rose from B$0.3 mil­lion to B$0.9 mil­lion. In­clud­ed in this fig­ure is the write­down of the com­pa­ny's in­vest­ment in Al­mond Re­sorts Inc. In ad­di­tion, the clo­sure of its re­tail op­er­a­tions in Tor­to­la re­sult­ed in a loss of B$0.6 mil­lion.

Over­all in­come for the pe­ri­od de­clined from B$8.2 mil­lion last year to B$7.6 mil­lion in the cur­rent pe­ri­od. Al­so con­tribut­ing to the low­er re­sult was the group's share of prof­it from its as­so­ciates; this item fell to B$0.87 mil­lion from B$1.1 mil­lion in the June 2011 re­port­ing pe­ri­od. A sig­nif­i­cant con­trib­u­tor to this was the re­duced in­come from its flag­ship re­tail­er, Du­ty Free Caribbean Hold­ings. Re­duced vis­i­tor ar­rivals both in Bar­ba­dos and at oth­er Caribbean des­ti­na­tions saw rev­enues fall. As part of its re­struc­tur­ing ex­er­cise, DFCH ini­ti­at­ed a vol­un­tary re­dun­dan­cy pro­gramme; most of this cost was ex­pensed in the re­port­ing pe­ri­od. The fi­nan­cial ser­vices com­pa­nies re­port­ed ac­cept­able re­sults for the first half of the cur­rent year. In sum­ma­ry, the com­pa­ny re­port­ed an af­ter-tax loss of B$0.52 mil­lion. Of this to­tal, non-con­trol­ling in­ter­ests earned a prof­it of B$0.25 mil­lion leav­ing the par­ent com­pa­ny's share­hold­ers with a loss of B$0.77 mil­lion.

In both 2010 and 2011, the com­pa­ny re­pur­chased a to­tal of 424,630 of its shares; thus, as at the end of 2011, the num­ber of shares out­stand­ing stood at 18,358,398. Each of its eight di­rec­tors, in their per­son­al ca­pac­i­ty, owns at least 50,000 shares each. Three oth­er share­hold­ers own a to­tal of 10,180,700 shares, cor­re­spond­ing to 55.5 per cent of the to­tal; these share­hold­ers are its chair­man, R Ge­of­frey Cave with 5,838,534 shares (31.8 per cent), Land­view Ltd with 2,193,517 and Aerie Ltd with 2,148,649. As at June 30, 2012, each of the com­pa­ny's shares had a book val­ue of B$5.96. On the Bar­ba­dos Stock Ex­change, the share re­cent­ly closed at B$4.68. With an an­nu­al div­i­dend pay­out of B$0.20, the yield is 4.27 per cent. In ad­di­tion, the dis­count to its book val­ue is a com­fort­able 21.5 per cent.