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Written by: Ralston Hyman
Jamaica is likely to get bitter returns from the disposal of the Sugar Company of Jamaica’s (SCJ) five factories, plus an ethanol plant, following revelations that the purchaser, Infinity Bio-Energy Limited of Brazil, is a debt-ridden, illiquid and loss-making company.
Petrojam Ethanol Limited, which has a book value of just over US$14 million, has been sold, while the sugar lands have been leased. Investigations reveal that the Hamilton, Bermuda-registered company, Infinity Bio-Energy, which was founded in 2006, has market capitalisation of only US$367 million or J$26.42 billion, just over half of the US$600 million the government needs to borrow from the international capital markets to help fund this year’s budget.
Further investigations reveal that the stock is infrequently traded on the London’s AIM Stock Exchange, which is a second tier exchange, because of its poor financial health. Infinity Bio-Energy last traded on July 31, when a volume of 7,500 units valued at US$3.65 million crossed the floor. Further research reveals that it closed at US$3.65 per share on Friday, when no volume was traded, while its 52-week high was US$5.13, and the low was US$3.00. This was mainly due to the fact that Infinity Bio-Energy has not paid a dividend since its formation.
Infinity Bio-Energy recorded a whopping US$51.1 million or 5.1 cents per share loss on revenues of US$141 million as at the end March this year. This was a big deterioration when compared with the loss of US$1.6 million reported on revenues of $32.4 million during the same period of last year.
Commenting on the results, the online edition of the Business Week contended that year over year, Infinity has seen their bottom-line shrink from a loss of US$1.6 million to a loss of a whopping US$51.1 million, despite an increase in revenues from US$32.4 million to US$141.7 million. The Business Week further argued that this was due to a jump in the percentage of sales devoted to income tax expenses from 1.89 per cent to 5.09 per cent.
Not enough cash
Turning to the company’s balance sheet, the Business Week contended that although there was a big jump in debt to 38.13 per cent of the company’s total capital during the year ended March 31 2008, this was in line with the industry norm. The company, however, did not have enough cash and current assets to meet its current obligations. For example, its current ratio was 0.8 to one, which means that for every dollar of current debt it owed, it only had 80 cents to back that debt.
Meanwhile, its quick assets ratio or the amount of cash it had to meet current liabilities, was even worse. A detailed analysis of its financial sheets over the signatures of Sergio Thompson Flores, chief executive officer, and Rodrigo Aguiar, investor relations officer, indicated that only 30 cents in cash was available to meet a dollar of current liabilities as at the end of March 2008.
The company’s return on assets or net profits as a percentage of its total assets was minus 4.08 per cent; return capital equity or net profits as a percentage of capital was minus 5.10 per cent, while the return on equity was minus 14.6 per cent.
The company’s gross margin or revenues, minus the direct and indirect cost of goods sold, was 64 per cent, while the amount of cash available to be distributed to stockholders after the company paid its debts — levered free cash flow — was minus 95.54. This means that the company would need to find 95.5 cents in cash if it was to pay its debts and deliver a dollar of return to its shareholders on their investments.
The company’s earnings before interest taxes, depreciation and principal repayments, which measures the extent to which cash expenses are gobbling up its revenues, also stood at minus 10.54 per cent. This means that the company’s cash operating expenses amounted to 110.54 per cent of its revenues.
Infinity’s accounts receivable turnover was 13.4 as at the end of March 2008. This simply means that it took almost 27 days to collect from customers to whom it sold on credit, and this further aggravated its cash crunch.
Commenting on that ratio, Business Week Online argued that this was one of the worst in the industry, and it indicated that the company’s collections system was inefficient.
The company’s inventory processing period of 41.7 days was, however, said to be typical for the industry.
Meanwhile, Infinity’s total assets turnover, or net sales divided by its total assets, which measures how efficiently the assets are being used to generate revenues, was a low 0.2, another factor contributing to its cash flow problems.
Finally, the company’s receivables jumped by 413 per cent and the net cash generated from operations declined by 319.28 per cent, as at the end of March 2008. Its tangible book value or the amount of money that a shareholder would receive if the company went bankrupt and had to sell its assets, stood at minus 36.89 per cent as at the end of March 2008. This means that investors would lose $1.37 for every dollar pumped into the company.
Buying companies
On July 24, Infinity announced that it bought the Brazilian-based Destilaria Guaricanga S.A Limited for US$100 million in shares at US$5 per unit and no cash. This would immediately add some 1.2 million tons of sugar crushing capacity to the company’s current level of 9.5 million tons.
Infinity also recently gobbled up Jamaica’s five sugar factories, which crushed 1.4 million tons of cane last year, and the profitable Petrojam Ethanol Limited, while obtaining a 50-year lease on the local public-owned sugar lands, without pumping in a dollar in cash.
The company contended that it would set up a new company called NewCo, with a capital base of US$100 million, while contending that Jamaica should inject the US$25 million for which the sugar factories and PetroJam Enthanol was valued, as its contribution. Questions are, however, now being raised about Infinity’s ability to find the US$75 million, given its cash crunch.
The company recently gobbled up US$37 million from a private placement, which was used to liquidate an existing debt.
No proper explanation
Speaking in an interview with the Sunday Herald yesterday, Dr. Omar Davies, the former Finance Minister, said he was shocked to hear about the parlous state of Infinity’s financial and profitability ratios.
He said that he made the assumption that the government and the divestment team did proper due diligence on Infinity, given the importance of the sugar industry to the local economy and the historical failed attempts at divestment, which culminated with the government having to take back the industry and hug up the losses which accumulated to $18 billion last year.
Dr. Davies stated that the original divestment programme involved only the five sugar factories and not PetroJam Ethanol, while pointing out that the government had not given a proper explanation why the profitable company was thrown into the mix at the last minute. He said he was even more surprised about the move, given that the dispute between Coimex and the government in relation to PetroJam Ethanol had still not been resolved.
Opposition Spokesman on Agriculture, Roger Clarke, was equally shocked at the weak cash flow position of Infinity, and stressed that there were some eight applications to purchase the sugar company when he left office as Agriculture Minister.
He further contended that Davies and himself met with Thompson Flores, the chief executive officer of Infinity once, when a number of questions were raised about the company’s ability to inject the required capital into the Sugar Company of Jamaica. Clarke said the questions, which were raised, were never answered to any degree of satisfaction.
Clarke too, maintained that PetroJam Ethanol was never part of the original sugar company deal.
Meanwhile, former banker, Aubyn Hill, the man charged with the responsibility of finalising the divestment process, stressed that he was not aware of Infinity’s bad profitability and solvency ratios, stating that it was the responsibility of the Development Bank of Jamaica (DBJ) to conduct the due diligence on the company.
Hill, however, said he was not surprised at the numbers, because Infinity was a new company.
Hill stated that it was the only bidder and further that Jamaica needed to remember what it was selling — a loss making, inefficient and debt-ridden SCJ.
Hill stated that Thompson Flores was the best person to answer the questions about Infinity’s bad solvency ratios, and furnished an email address and telephone number to contact the company’s chief executive officer.
Infinity responds
A number of questions were forwarded to the CEO, who responded that the company was operating at only 62 per cent of its capacity last year, when only three mills were operational, while it was carrying the acquisition cost of eight mills on its balance sheet.
The Infinity CEO also said the price of sugar fell to nine US cents per pound last year, while that of ethanol dipped to US$1.50 per gallon, and that the up-tick in the prices of both commodities and higher capacity utilisation would help to improve Infinity’s profitability and solvency ratios.
Flores also pointed out that the falling prices made last year a bad year for most companies in the industry. Research confirmed that many of the companies in the industry recorded declines in their stock prices for the month to date, three months to date and year to date. The stock prices of the top three, such as Vera Sun Energy, Rentech Inc and Geoglobal Resource, however, jumped by 57.9 per cent, 54.6 per cent and 52.3 per cent respectively.
While agreeing that the company’s earnings before interest, taxes, depreciation and amortisation were bad, Flores stressed that it was better than many Brazilian companies, which were operating at full capacity last year.
Asked whether the company would be able to find the US$75 million needed to modernise and expand the Jamaica operations, he said very little cash would be needed because most of the equipment is already in Brazil.
He also stated it would take two years to turn around the industrial side of Jamaica’s sugar industry, and three to four years to turn round the agricultural side because new varieties of cane would have to be planted and new technologies applied.
Turning to the cashless acquisition of Guaricanga for $100 million in shares, Flores denied that the deal was being paid for in shares because of Infinity’s cash flow problems, although its current ratio was 0.8 to 1.0 and its quick ratio 0.3 to1.0 as at the end of March this year.
He said Guaricanga requested that it be paid in shares because as Infinity expanded its operations and generated profits, it would get a better return. This was although cash is king in Brazil, where benchmark rates are expected to reach 14.75 per cent per annum by the end of this year.
Flores said that the SCJ was Infinity’s ninth acquisition, while pointing out that its milling capacity and profitability were expected to jump significantly over the next 30 months.
He also said that against this background, he was confident that Infinity would have all the financial and other resources necessary to turn around the Jamaican sugar industry within the specified time frame.
Several efforts to contact Agriculture Minister, Dr. Christopher Tufton were unsuccessful, as there was no response to messages left for him between 10 a.m. and 5 p.m. yesterday.
http://www.sunheraldja.com/article/show/1385
Jamaica is likely to get bitter returns from the disposal of the Sugar Company of Jamaica’s (SCJ) five factories, plus an ethanol plant, following revelations that the purchaser, Infinity Bio-Energy Limited of Brazil, is a debt-ridden, illiquid and loss-making company.
Petrojam Ethanol Limited, which has a book value of just over US$14 million, has been sold, while the sugar lands have been leased. Investigations reveal that the Hamilton, Bermuda-registered company, Infinity Bio-Energy, which was founded in 2006, has market capitalisation of only US$367 million or J$26.42 billion, just over half of the US$600 million the government needs to borrow from the international capital markets to help fund this year’s budget.
Further investigations reveal that the stock is infrequently traded on the London’s AIM Stock Exchange, which is a second tier exchange, because of its poor financial health. Infinity Bio-Energy last traded on July 31, when a volume of 7,500 units valued at US$3.65 million crossed the floor. Further research reveals that it closed at US$3.65 per share on Friday, when no volume was traded, while its 52-week high was US$5.13, and the low was US$3.00. This was mainly due to the fact that Infinity Bio-Energy has not paid a dividend since its formation.
Infinity Bio-Energy recorded a whopping US$51.1 million or 5.1 cents per share loss on revenues of US$141 million as at the end March this year. This was a big deterioration when compared with the loss of US$1.6 million reported on revenues of $32.4 million during the same period of last year.
Commenting on the results, the online edition of the Business Week contended that year over year, Infinity has seen their bottom-line shrink from a loss of US$1.6 million to a loss of a whopping US$51.1 million, despite an increase in revenues from US$32.4 million to US$141.7 million. The Business Week further argued that this was due to a jump in the percentage of sales devoted to income tax expenses from 1.89 per cent to 5.09 per cent.
Not enough cash
Turning to the company’s balance sheet, the Business Week contended that although there was a big jump in debt to 38.13 per cent of the company’s total capital during the year ended March 31 2008, this was in line with the industry norm. The company, however, did not have enough cash and current assets to meet its current obligations. For example, its current ratio was 0.8 to one, which means that for every dollar of current debt it owed, it only had 80 cents to back that debt.
Meanwhile, its quick assets ratio or the amount of cash it had to meet current liabilities, was even worse. A detailed analysis of its financial sheets over the signatures of Sergio Thompson Flores, chief executive officer, and Rodrigo Aguiar, investor relations officer, indicated that only 30 cents in cash was available to meet a dollar of current liabilities as at the end of March 2008.
The company’s return on assets or net profits as a percentage of its total assets was minus 4.08 per cent; return capital equity or net profits as a percentage of capital was minus 5.10 per cent, while the return on equity was minus 14.6 per cent.
The company’s gross margin or revenues, minus the direct and indirect cost of goods sold, was 64 per cent, while the amount of cash available to be distributed to stockholders after the company paid its debts — levered free cash flow — was minus 95.54. This means that the company would need to find 95.5 cents in cash if it was to pay its debts and deliver a dollar of return to its shareholders on their investments.
The company’s earnings before interest taxes, depreciation and principal repayments, which measures the extent to which cash expenses are gobbling up its revenues, also stood at minus 10.54 per cent. This means that the company’s cash operating expenses amounted to 110.54 per cent of its revenues.
Infinity’s accounts receivable turnover was 13.4 as at the end of March 2008. This simply means that it took almost 27 days to collect from customers to whom it sold on credit, and this further aggravated its cash crunch.
Commenting on that ratio, Business Week Online argued that this was one of the worst in the industry, and it indicated that the company’s collections system was inefficient.
The company’s inventory processing period of 41.7 days was, however, said to be typical for the industry.
Meanwhile, Infinity’s total assets turnover, or net sales divided by its total assets, which measures how efficiently the assets are being used to generate revenues, was a low 0.2, another factor contributing to its cash flow problems.
Finally, the company’s receivables jumped by 413 per cent and the net cash generated from operations declined by 319.28 per cent, as at the end of March 2008. Its tangible book value or the amount of money that a shareholder would receive if the company went bankrupt and had to sell its assets, stood at minus 36.89 per cent as at the end of March 2008. This means that investors would lose $1.37 for every dollar pumped into the company.
Buying companies
On July 24, Infinity announced that it bought the Brazilian-based Destilaria Guaricanga S.A Limited for US$100 million in shares at US$5 per unit and no cash. This would immediately add some 1.2 million tons of sugar crushing capacity to the company’s current level of 9.5 million tons.
Infinity also recently gobbled up Jamaica’s five sugar factories, which crushed 1.4 million tons of cane last year, and the profitable Petrojam Ethanol Limited, while obtaining a 50-year lease on the local public-owned sugar lands, without pumping in a dollar in cash.
The company contended that it would set up a new company called NewCo, with a capital base of US$100 million, while contending that Jamaica should inject the US$25 million for which the sugar factories and PetroJam Enthanol was valued, as its contribution. Questions are, however, now being raised about Infinity’s ability to find the US$75 million, given its cash crunch.
The company recently gobbled up US$37 million from a private placement, which was used to liquidate an existing debt.
No proper explanation
Speaking in an interview with the Sunday Herald yesterday, Dr. Omar Davies, the former Finance Minister, said he was shocked to hear about the parlous state of Infinity’s financial and profitability ratios.
He said that he made the assumption that the government and the divestment team did proper due diligence on Infinity, given the importance of the sugar industry to the local economy and the historical failed attempts at divestment, which culminated with the government having to take back the industry and hug up the losses which accumulated to $18 billion last year.
Dr. Davies stated that the original divestment programme involved only the five sugar factories and not PetroJam Ethanol, while pointing out that the government had not given a proper explanation why the profitable company was thrown into the mix at the last minute. He said he was even more surprised about the move, given that the dispute between Coimex and the government in relation to PetroJam Ethanol had still not been resolved.
Opposition Spokesman on Agriculture, Roger Clarke, was equally shocked at the weak cash flow position of Infinity, and stressed that there were some eight applications to purchase the sugar company when he left office as Agriculture Minister.
He further contended that Davies and himself met with Thompson Flores, the chief executive officer of Infinity once, when a number of questions were raised about the company’s ability to inject the required capital into the Sugar Company of Jamaica. Clarke said the questions, which were raised, were never answered to any degree of satisfaction.
Clarke too, maintained that PetroJam Ethanol was never part of the original sugar company deal.
Meanwhile, former banker, Aubyn Hill, the man charged with the responsibility of finalising the divestment process, stressed that he was not aware of Infinity’s bad profitability and solvency ratios, stating that it was the responsibility of the Development Bank of Jamaica (DBJ) to conduct the due diligence on the company.
Hill, however, said he was not surprised at the numbers, because Infinity was a new company.
Hill stated that it was the only bidder and further that Jamaica needed to remember what it was selling — a loss making, inefficient and debt-ridden SCJ.
Hill stated that Thompson Flores was the best person to answer the questions about Infinity’s bad solvency ratios, and furnished an email address and telephone number to contact the company’s chief executive officer.
Infinity responds
A number of questions were forwarded to the CEO, who responded that the company was operating at only 62 per cent of its capacity last year, when only three mills were operational, while it was carrying the acquisition cost of eight mills on its balance sheet.
The Infinity CEO also said the price of sugar fell to nine US cents per pound last year, while that of ethanol dipped to US$1.50 per gallon, and that the up-tick in the prices of both commodities and higher capacity utilisation would help to improve Infinity’s profitability and solvency ratios.
Flores also pointed out that the falling prices made last year a bad year for most companies in the industry. Research confirmed that many of the companies in the industry recorded declines in their stock prices for the month to date, three months to date and year to date. The stock prices of the top three, such as Vera Sun Energy, Rentech Inc and Geoglobal Resource, however, jumped by 57.9 per cent, 54.6 per cent and 52.3 per cent respectively.
While agreeing that the company’s earnings before interest, taxes, depreciation and amortisation were bad, Flores stressed that it was better than many Brazilian companies, which were operating at full capacity last year.
Asked whether the company would be able to find the US$75 million needed to modernise and expand the Jamaica operations, he said very little cash would be needed because most of the equipment is already in Brazil.
He also stated it would take two years to turn around the industrial side of Jamaica’s sugar industry, and three to four years to turn round the agricultural side because new varieties of cane would have to be planted and new technologies applied.
Turning to the cashless acquisition of Guaricanga for $100 million in shares, Flores denied that the deal was being paid for in shares because of Infinity’s cash flow problems, although its current ratio was 0.8 to 1.0 and its quick ratio 0.3 to1.0 as at the end of March this year.
He said Guaricanga requested that it be paid in shares because as Infinity expanded its operations and generated profits, it would get a better return. This was although cash is king in Brazil, where benchmark rates are expected to reach 14.75 per cent per annum by the end of this year.
Flores said that the SCJ was Infinity’s ninth acquisition, while pointing out that its milling capacity and profitability were expected to jump significantly over the next 30 months.
He also said that against this background, he was confident that Infinity would have all the financial and other resources necessary to turn around the Jamaican sugar industry within the specified time frame.
Several efforts to contact Agriculture Minister, Dr. Christopher Tufton were unsuccessful, as there was no response to messages left for him between 10 a.m. and 5 p.m. yesterday.
http://www.sunheraldja.com/article/show/1385
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