Jul 2007 Financial News

NEL Releases Year End Results

Jul 04, 2007

Results for the Year Ended March 31, 2007

Earnings Per Share
The Year Ended March 31, 2007 was indeed a difficult year for National Enterprises Limited (NEL). The Company reported Earnings Per Share (EPS) of 46 cents, down on the last financial year by a significant 43.21 per cent or 35 cents. The poor performance was due to the fact that two of NEL’s investee companies, namely Telecommunications Services of Trinidad and Tobago Limited (TSTT) and National Flour Mills Limited (NFM), reported losses. The Chairman has stated that these losses were brought about by exceptional, and to a large extent, non-recurring costs.

Financials
Turnover for the year amounted to $366.84 million compared to $587.21 million in FY06- a significant fall of 37.53 per cent. Cost of Sales also fell by a similar margin of 37.08 per cent from $525.03 million in FY06 to $330.35 million in FY07. Thus, Gross Profit ended the year at $36.48 million, down 41.32 per cent from $62.17 million in the corresponding period in the last financial year.

Total Expenses for the year ended March 31, 2007 totaled $114.72 million of which Voluntary Separation Costs (NFM) represented $57.16 million ($0.61 million in FY06) and was the largest Expense for the period. Administrative Expenses was the second largest expense and amounted to $34.56 million, up a marginal 2.64 per cent on the comparable period in the last financial year. Selling and Distribution Expenses stood at $21.50 million, down 15.38 per cent on FY06; while Finance Charges increased by a substantial amount from $0.44 million in FY06 to $4.41 million in the period under review. Additionally, the Company reported Net Pension Income of $2.91 million in FY07 compared to a Net Pension Expense of $5.31 million in FY06. Thus, NEL reported an Operating Loss of $78.24 million for FY07 while FY06 saw a loss of $3.26 million.

On a more positive note, Interest Income saw an outstanding increase of 60.60 per cent, moving from $19.06 million to $30.60 million. Other Income also saw an increase, up an outstanding 201.93 per cent from $1.29 million (FY06) to $3.91 million. Share of Profit before Tax of Equity Accounted Investments ended the period at $349.94 million, down 41.70 per cent or $250.35 million on the corresponding figure for FY06. While Profit Before Taxation stood at $306.21 million compared to $617.37 million in the last fiscal year.

The Effective Tax Rate for the period under review was 17.69 per cent compared to a Tax Rate of 20.93 per cent for FY06. Thus, Profit After Taxation was $252.04 million, a decline of 48.37 per cent on FY06 profit of $488.17 million.

Share of Profits from Associates
NEL’s share of profits from NGC NGL Company Limited and NGC Trinidad and Tobago LNG Limited increased by $23.5 million and $63.9 million, respectively. The increase in profits in the former was due to higher volumes of natural gas liquids being processed by Phoenix Park Gas Processors Limited (PPGPL) as a result of the coming on stream of the Atlantic LNG Train 4. While the latter saw an increase in part due to continuing high LNG prices but also due to surplus cash being distributed and no loan repayments being made for the current year by PPGPL due to refinancing of its loan.

Share of Profits from Joint Ventures
TSTT reported its first loss in the company’s history due to several factors related to the liberalization of the telecommunications sector and the advent of competition. Thus, NEL recorded $122 million share of loss from TSTT for FY07 compared to a share of profit of $133.13 million in FY06. NEL also saw a decline in share of profits from Trinidad Nitrogen Company Limited (TRINGEN), as this company’s contribution to the Group for FY07 was $183.08 million, down $16 million on the comparable period in FY06.

Share of Profits from Subsidiary
NEL’s share of NFM’s results also decreased, down $32.7 million. This was mainly due to the $57.1 million provision for voluntary separation costs previously mentioned.

Dividends
In accordance with NEL’s dividend policy of paying out at least 90 per cent of dividends received net of expenses, the Directors of NEL have declared a final dividend of 40 cents per share. This brings the total dividends paid for the year ended March 31, 2007 to 59 cents (79 cents in FY06).

Chairman’s Outlook
The Chairman has stated that the Company expects that TSTT will return to profitability in the 2007-2008 financial year. He also said that given the continuing buoyant condition in the energy sector, namely natural gas, natural gas liquids and ammonia; in addition to defensive strategies being pursued by both TSTT and NFM in their competitive environments- he is confident that NEL’s investments will continue to provide good shareholder value and adequate dividends in the coming years.

Recommendation
NEL last closed at a price of $6.30 on the local exchange. In light of these results and the forward looking statements of the Chairman, we are forecasting an EPS of 55 cents for fiscal 2008. At this forecasted EPS and the current price, these shares are trading at a price to earnings multiple of 11.45, which is high for this company. Thus, at this time we continue to recommend a SELL on this share.


Gia Singh
WISE Equity Research Team