Sweet River IPO falls $60m shy of target

Thursday, August 28, 2014

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SWEET River Abattoir and Supplies Company's initial public offering (IPO) closed out $62 million shy of its target on Wednesday.

Lead broker VM Wealth told the Jamaica Stock Exchange (JSE) that subscribers applied for 30.6 million shares, totalling $118 million.

The company said that it would list even if it fails to raise the full amount.

"Assuming that the company raises at least $50 million in the invitation, the company will make application to the JSE for the shares to be admitted to the Junior Market," noted the prospectus for the IPO.

It will become the first slaughterhouse to be listed on the JSE Junior Market.

It is not yet clear how many subscribers came from the general public.

The slaughterhouse had set aside 25.8 million units (26.5 per cent of the company) at $3.86 per share for outside investors.

An additional 20 million shares are reserved for clients, employees, and so on.

The final tally and information on shares allocated is to be released today.

The abattoir aimed to raise up to $180 million for working capital needs and to retire debt.

"The net proceeds will also be used to fund the installation of a solar energy generation system," said the prospectus. "The effect of these actions will significantly reduce finance and operating costs and that, together with the increased production capacity, will provide a sound foundation for the growth in profitability."

The slaugterhouse made $15.8 million net surplus after tax on $311 million in revenues for its year ending March 2014. That performance was slightly down from the net surplus of $16.9 million on $286 million in revenues earned in 2013, financials indicate.

Despite the fall in profits, it still recorded a sizable return on equity of 24 per cent, compared with 35 per cent a year earlier.

But the company holds a lot of debt since starting its expansion drive two years ago.

Specifically, its total liabilities at $233 million are 3.5 times higher than its $65 million in equity in 2014.

That debt-to-equity ratio was even higher in 2013 at 4.4 times, company statistics within the prospectus revealed.

The company, chaired by Henry Graham, supplies both the local and tourist markets with cut pork.

Its main customers include Grace Food Processors Limited, Caribbean Producers Jamaica Limited, and Hamilton's Smoke House (a subsidiary of Jamaica Broilers Group).

The company holds 24 per cent market share, which equates to the third largest supplier of pork within the market, according to Sweet River data.

The company expects to finish constructing its 12,000 sq ft state-of-the-art abattoir located in Westmoreland by next month in order to better supply the local and tourism demand at roughly 2.4 kilogrammes of pork eaten per person in 2012.

On completion, the new abattoir will meet all international quality standards, which will facilitate the company's long-anticipated entry into the pork exportation market.

The new facility will allow Sweet River to expand its capacity from the current 120 pigs per day to between 250 and 300 pigs per day.

Additionally, the new abattoir will allow Sweet River to begin production of mutton. With these developments already in progress it truly is a great time to participate in Sweet River's growth," stated the prospectus.

Graham holds the largest number of shares at 14.9 million units. The listing will dilute his percentage ownership from 29.4 per cent to 15.3 per cent, according to the prospectus. Managing Director Valdence Gifford would see a dilution of his percentage ownership from 9.8 per cent to some 5.1 per cent.

The company was previously owned and operated as part of a GraceKennedy & Company Limited subsidiary for roughly 40 years. In its current form the company was incorporated in April 2009 and maintains all strategic relationships that existed prior to the acquisition, stated the prospectus.

Companies that listed on the Junior Market of the JSE prior to January 1, 2014 benefited from a 10-year concessionary tax regime. Since January, the new regime allows for five years of income tax relief.

"If the company is successful in listing, it will be entitled to the benefit of this new regime," stated the prospectus.

The offer, which ran for two weeks, from August 12 to 26, was co-led by MoneyMasters Ltd and Victoria Mutual Wealth Management.




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