Purity priced at $419m

Wednesday, November 07, 2012

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The maker of Purity baked goods will publicly offer nearly a quarter of its shares for $97 million next Tuesday.

Pricing the shares at $1.88 each values Consolidated Bakeries at $419 million, which is over 17 times the company's pre-tax profit for the 12 months to June 30.

But the valuation is also 8.5 per cent higher than the $385-million capital base it held up to the end of June, while the company has been experiencing rapid growth since it returned to profitability in 2009.

Consolidated posted a loss of $15.7 million in 2007 but turned a $2-million profit within two years before reporting profit before tax of $22 million in 2011.

What's more, the $11.4 million pre-tax profit it reported for the first half of 2012 was 20 per cent higher than the comparative period last year.

The profit growth over the last five years has been driven by strong sales growth — 150 per cent from 2007 to 2011 — coupled with tighter spending on operations, which less than doubled over the period.

The proceeds from the sale of the 52 million shares, or 23.4 per cent of the company being offered, are to be used to "further strengthen its operations, retool and improve its operational processes so as to fulfil its strategic plans and business goals and improve the Company's financial and non-financial performance", according to the initial public offer (IPO) prospectus.

More specifically, Consolidated aims to re-tool its bakery, install computerised route management systems to improve its distribution network, repay some debt and pay for the cost of the IPO — which is not expected to exceed $7 million.

The company also plans to "find productive use" for its unused real estate at its four-and-a-half acre property off Red Hills Road, where its administrative offices, plant, garage, and distribution facilities are located.

Consolidated currently manufactures baked products primarily under its "Purity" and "Miss Birdie" brands with a distribution network to key population centres throughout Jamaica and growing exports to the Jamaican Diaspora and ethnic markets of North America.

"Our route to market employs the direct store distribution or DSD method using our vehicles to deliver directly to retailers and other customers every day of the week, ensuring fresh baked products are always available to our customers," said Consolidated in its IPO prospectus. "The company has over 1,000 accounts primarily in the Kingston area serviced by over 50 sales employees and contracted persons.

"Recently our routes to market programmes have been customised creating new matrices resulting in even greater effectiveness."

After issuing the shares, Consolidated plans to list on the Jamaica Stock Exchange Junior Market, which will give it a 10-year tax concession, for which the first five years are free of corporate taxes.




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