Jamaican chemical company ties regional expansion to $75-m IPO
INDUSTRIAL chemical distributor, Paramount Trading, aims to raise $75 million for a 20 per cent stake in the company next week.
The initial public offering (IPO), which opens next Wednesday, is being undertaken to increase its manufacturing and blending capacity as well as expand its line of construction products.
Currently, the business generates almost 90 per cent of its revenue ($614 million during the 12 months to May 31) from chemical raw materials, food additives and related products.
Chemicals also accounted for 87 per cent of its $200 million gross profit for 2012.
But having started distributing specialists products to the construction sector two years ago, Paramount is on the verge of establishing itself as a regional manufacturer and distributor of France-based SIKA's admixture and construction products, such as epoxies for floors and waterproofing for roofs.
Paramount acquired Lechler's Construction Products and Supplies Limited, which was the local distributor of SIKA products.
The company's directors now need to formalise an arrangement with the French company that would make them a distributor to neighbouring countries.
"The directors now propose to promote the ability of the company to supply SIKA products more competitively both locally and in the region, given reduced manufacturing and shipping costs as compared to imported SIKA products or substitutes," said Paramount in its prospectus.
The board anticipates that its range of SIKA epoxies for floors will become key revenue drivers in the future. The floor epoxy is needed by local and regional food processing establishments, which need to meet new legislative and regulatory standards in the US and Europe, in order to export there.
Even then, the chemical supplier is already highly profitable and has grown significantly over the last four years.
Its revenue more than doubled from $281 million in 2008 to $614 million during the year that ended on May 31, while its pre-tax profit climbed from $5 million four years ago to $84 million this year.
One of the game-changers for the company was its purchase of the Bell Road, Kingston, location from DiverseyLever, which provided it with the necessary facilities for both chemical manufacturing and custom blending in 2010.
The deal also meant that Paramount could begin manufacturing and supplying certain products to DiverseyLever.
A year later it started distributing the SIKA branded products, which have ended up in large scale projects such as Digicel's new head office building in downtown Kingston, and the Falmouth cruise pier.
Revenue grew from $413 million in 2010 to $513 million last year, before growing by another $100 million in 2012.
Profit before tax moved from $21 million in 2010 to $65 million last year, and it grew by another 29 per cent this year.
However, the chemical company's financial performance got squeezed during the five months to October 31. Its revenue grew by two per cent, over the comparative period last year, while its $14.5 million pre-tax profit was seven per cent lower than the same five-month period last year.
On the other hand, the company significantly cut its current liabilities from $150 million as at October 31, 2011, to $88 million at the end of October this year.
Consequently, its working capital improved from $139 million to $169 million over the 12 months, while its capital base, which stood at $147 million on October 31, was 56 per cent higher than a year before.
At $2.43 a share, the price that is being offered for Paramount's shares which are to be listed on the Jamaica Stock Exchange (JSE) Junior Market after the IPO, the company is priced at $374 million, or 2.5 times the capital base of the company.
The valuation is also 4.5 times the chemical distributor's $83 million pre-tax profit for the 12 months to October 31.
What's more, Paramount is proposing to pay dividends of "not less than 25 per cent of net profits available for distribution". Given that after listing, the company will be exempt from income tax; its net profit could look like 54 cents a share next year, if it sees flat performance.
That could translate to a 13-cents-a-share annual dividend payment.
However, the proposed dividend policy also says that the payment would be determined after the amount for reinvestment in the company is worked out.
The funds that are to be raised are also to be used to improve the existing plant and processes, establish complementary facilities, and pay the lead broker, Mayberry Investments, for its financial advisory services.
Mayberry's take is set at 3.5 per cent of the value of the funds raised, while the total IPO cost — which include legal, auditors, and company registrar fees — is not expected to exceed $7.5 million.