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$62.5 million Commonwealth Brewery IPO details revealed

With $8.33 a Bahamian can participate in the $62.5 million initial public offering (IPO) of Commonwealth Brewery Limited (CBL), and benefit from the company’s policy, rarely observed by equity issuers, of paying 100 percent of net income out as dividends.
The offering term sheet for the much anticipated IPO - the largest equity offering ever to Bahamians - was made public in a press
conference held at the brewery yesterday, allowing a glimpse into recent profitably levels, key ratios and offer terms of the deal. The local manufacturer of Heineken, Kalik and Guinness made the practice of paying out full net income as dividends a policy, effective January 1, 2011.
“This should result in Commonwealth Brewery providing a compelling dividend yield in the years to come and, if the new dividend policy was applied retroactively to 2010, the effective dividend yield for 2010 would have approximated 7.7 percent, significantly higher than any other dividend yield on BISX today,” said Michael Anderson, president of Royal Fidelity Merchant Bank and Trust Limited. Royal Fidelity is the financial advisor and placement agent for the IPO.
The 100 percent net earning payout would be subject to future capital and liquidity requirements, according to the company’s offering term sheet. LeRoy Archer, president and managing director of the CBL?group, said that paying out net earnings as dividends has been a practice observed for two decades.
“For the last 20 years, here at Commonwealth Brewery in The Bahamas our policy has always been 100 percent of net profit plus depreciation less any capital, and that’s what we pay, based on available cash flow. In order to be transparent to all our new shareholders we set the policy at 100 percent of net profits,” Archer said.
Another special feature of the IPO?is that the government or its agents have undertaken to purchase any shares not taken up in the public offer. Guardian Business was not able to secure separate confirmation from the government that it still planned to effectively underwrite the issue, but Anderson confirmed that this was still the case.
Selected historical audited financial information revealed that although the company’s revenue was on a downward slide between 2008 and 2010, slipping by around 2 percent each year, net income grew 69 percent from 2008 to 2010. Archer credits his management team with taking the necessary cost-cutting measures, renegotiating contracts and controlling inventory levels to allow profitability in a market encumbered by a depressed economy during those years.
Future growth for the company will likely come from the local market, according to Archer, who anticipates that growth prospects in the economy will result in a return to higher revenue numbers. Kalik is currently exported to the United States, but profitability would determine how to develop export opportunities.
“What we want to see is the growth here actually coming from our local market initially,” Archer said. “I always say export is not a one time thing but it’s actually a continual flow. So if it’s profitable we will pursue it. If it’s not we won’t, but we keep an open mind.”
According to the term sheet, revenue was $113.8 million, $111.8 million and $109.4 million, while net income was $11.4 million, $13.8 million and $19.2 million for 2008, 2009 and 2010, respectively. At the end of 2010 the company had total assets of $77 million with total debt of $11 million and total capital of $66 million. Total assets and debt had decreased from 2008 closings of $83.2 million and $22.3 million respectively. The 2010 net income margin was 18 percent, and the return on equity and return on assets ratios were 29 percent and 25 percent respectively.
The actual amount of the offering is for up to 7.5 million ordinary shares for $62,475,000, with shares offered at $8.33 each. The minimum subscription is 100 shares and the offer period is March 21 to April 15, 2011. Offering documents will be distributed through Royal Fidelity, Fidelity Bank, RBC and FINCO. They are also available online at royalfidelity.com. According to Archer, brochures will also be available in all of the group’s retail liquor store, and special events will be hosted to attract broad Bahamian participation from all strata of society.
The IPO represents a 25 percent ownership stake in Commonwealth Brewery, which owns 100 percent of retail beverage distributor Burns House Limited and the TodHunter Mitchell brand. In addition to brands already mentioned, it also produces VitaMalt and Eclipse for the local market. Heineken International BV currently owns 100 percent of CBL, and will retain a 75 percent interest after the IPO.
Heineken has public listings with partners in Poland, Nigeria, St. Lucia and recently in Rwanda, according to George Toulantas, senior investor relations manager at Heineken in Amsterdam, The Netherlands. He said that local ownership is encouraged by the company as an opportunity to give back to communities and to encourage stronger ties between consumers and the various brands Heineken takes part ownership of.

11 Mar. 2011

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