Derrimon Trading priced at $560 million
DERRIMON Trading aims to raise $150 million through its week-long initial public offering (IPO), which opens next Monday.
At $2.05 a share, the IPO prices the company at $560 million, or a price-to-earnings ratio of 10 using the pre-tax earnings for the 12 months to August 31.
The valuation is also four times the capital base of the company, which reported sales of $3.8 billion and profit before tax of $51 million for first the eight months of 2013.
The distributor, which also operates four Sampars Cash ‘N’ Carry stores -— Washington Boulevard, Marcus Garvey Drive, downtown Kingston, and a Mandeville store — plans to use the proceeds of the IPO to expand its network of outlets, retire debt, upgrade software, and provide working capital.
In the offer of 26.8 per cent of the company, Derrimon has reserved a three per cent stake for its employees and a further 4.5 per cent of the shares for key suppliers and customers.
Just over 9.4 per cent of the shares are being issued to repay $52.7 million in loans that were made by three directors of the company — Derrick Cotterell, Monique Cotterell and Ian Kelly — who may opt to convert the loans to the shares issued in the IPO.
Most of the directors’ loans — $45 million — derived from debt-driven expansion since the start of 2013, which saw the company increase its overall debt from $74 million in debt (excluding payables) at the end of 2012 to $250 million at the end of August.
More specifically, it purchased equipment associated with the acquisition of Sampars Mandeville Outlet, replaced cold room equipment and undertook other expansion at the main warehouse at Marcus Garvey Drive, while increasing inventory levels.
Inventories on its balance sheet did grow by 11.4 per cent over the first eight months of 2013, rising from $305 million at the end of 2012 to $340 million, but compared to annualised sales of $5.6 billion that was roughly equivalent to three weeks’ sales.
Yet, Derrimon’s expansion has been aggressive to say the least.
It grew its revenue base from $807 million five years ago to $4.7 billion last year, while sales were up by 13 per cent during the first eight months of 2013.
Over that time, it acquired Sampars and established three further satellite outlets in its bid to increase vertical integration and retail market penetration.
Pre-tax profit also climbed from $8 million in 2008 to $36 million in 2011, before falling to $25 million last year due to increased finance costs, from $9 million in 2011 to nearly $20 million last year. It also saw gains on foreign exchange fall from $23 million in 2011 to $230,000 last year.
Derrimon operates primarily from its facility located on Marcus Garvey Drive. However, its distribution network extends islandwide. Its warehouse facility of approximately 100,000 square feet sits on 3.5 acres of land and is less than two miles from the port of Kingston. Its capital base stood at $140 million as at August 31, 2013.
