Jamaica Stock Exchange Ticker: PBS Shares Outstanding: 123,272,727 units Consumer Sector: Other

JSE MARKET RESEARCH

COMPETITION Quarter 3

ANDRE RUMBLE

PROVEN WEALTH LIMITED

1 PBS

Table of Contents

Introduction ....................................................................................................................................2

Local Economic Landscape..........................................................................................................2

Global Economic Landscape ........................................................................................................2

Implications for PBS ................................................................................................... 3

Business Overview .........................................................................................................................3

Business Segment .........................................................................................................................5

Corporate Governance ..................................................................................................................5

Business Strategy .........................................................................................................................6

Market Analysis .............................................................................................................................7

Market Activity ..............................................................................................................................9

Dividend .....................................................................................................................................10

Five-Year Financial Analysis (FY14 – FY18) ............................................................................10

Income Statement .......................................................................................................................10

Balance Sheet .............................................................................................................................11

Cashflow Statement Analysis .....................................................................................................12

Unique Considerations/Issues ....................................................................................................13

Valuation .....................................................................................................................................13

Residual Income Valuation ........................................................................................................14

Enterprise Value to EBITDA Valuation Model ........................................................................14

Recommendations .......................................................................................................................15

Appendices ....................................................................................................................................16

Appendix A ................................................................................................................................16

Appendix B ................................................................................................................................17

Appendix C ................................................................................................................................20

Appendix D ................................................................................................................................20

2 PBS

Introduction

Over the past three (3) years there have been several

developments both positive and adverse on the local and

global economic landscape.

Local economic landscape

In 2013, the Government of Jamaica (GOJ) and the

International Monetary Fund (IMF) entered into then

Extended Fund Facility (EFF) Arrangement, which was

then replaced in 2016 by the Precautionary Stand-By Arrangement (SBA). Since then, the

government has taken prudent steps to improve Jamaica’s fiscal policy and lower the country’s

debt/GDP, which GOJ expects to be below 60% by 2025. Jamaica has benefitted from the IMF’s

EFF and SBA, as measures under the economic reform programme (ERP) have resulted in lower

unemployment rates and public debt levels, increase in foreign reserves, and a rise in consumer

and business confidence.1 The SBA is due to end in November 2019 and Jamaica has received the

nod of approval from the IMF that a renewal would not be required but instead the offering of

technical assistance as the country takes over the driver seat for further growth. The Bank of

Jamaica (BOJ) has also contributed to the reform of the country through its expansionary monetary

policies of inflation targeting by lowering interest rates to stimulate economic activity and

incentivize financial institutions to expand their private lending. In 2017, the BOJ set an annual

inflation target of between 4% and 6%.

Global economic landscape

The US-China trade war has had a negative impact on trading between two of the world’s

largest trading partners. The spill over of the trade wars have impacted a host of economies

as the US government tries to enforce protectionist policies and shift the trade imbalance

with China.

1 In the first quarter of 2019, the consumer confidence index was 177.5 points compared to the 175.5 points in the fourth quarter of 2018. Business confidence index increased to 151 points.

Stock Ticker PBS

Current Stock Price* US$0.58

Estimated Fair Value US$0.35

Implied Downside -39.66%

YTD Gain/(Loss) No change

Recommendation SELL

52 week High US$0.60

52 Week Low US$0.55

Shares Outstanding 123,272,727 units

*October 30, 2019

Table 1: Share Summary

3 PBS

The impending BREXIT has created uncertainties in Europe as particulars of a potential

deal have investors and trading partners in limbo, as the future of the British economy

depends heavily on the terms of the exit.

The global economic downturn continues to be fuelled by rising trade barriers and

increasing geopolitical tensions. According to the IMF2, growth is also being weighed

down by country-specific factors in several emerging market economies, and by structural

forces, such as low productivity growth and aging demographics in advanced economies.

Implications for PBS

The company earns approximately 55% of its revenues collectively from Guatemala, Costa

Rica, El Salvador and Nicaragua. These Latin American territories are exposed to the

external shocks of global economic developments.

A slowdown in global economic activity may affect PBS in those territories as companies

would demand less office equipment, and by extension maintenance and professional

services, due to lower business activity.

Due to the expansionary monetary policies locally, PBS may stand to benefit from

increased revenues through greater demand for distributed products, as the private sector

undertakes greater credit expansion. NCB being a major client for PBS, has been

undergoing a digital transformation and as a leader in the financial industry, other players

in the market have been gradually implementing digitization. This is a clear opportunity

for PBS to expand revenue. Also, in April 2019 it was announced that PBS was contracted

to provide supplies for the GOJ NIDS solution.

Business Overview

Productive Business Solutions (PBS) Limited is a member of the Musson Jamaica conglomerate

and was incorporated in Barbados in December 16, 2010. PBS was founded in 2001 as a division

of Musson, to acquire the business and assets of Xerox Corporation in Jamaica. It is now a holding

2 Full article can be found here: https://blogs.imf.org/2019/10/15/the-world-economy-synchronized-slowdown-precarious-outlook/

4 PBS

Table 2: Distribution Products & Professional Services

company for the Facey Group’s business solutions and technology businesses, operating in 15

territories across the Caribbean and Central America.3

PBS is the largest Xerox distributor in the Western Hemisphere with exclusive distribution rights

in Central America, specific Caribbean territories and Colombia (non-exclusive Xerox Agent).

The company has distribution relationships with CISCO, Oracle, Hewlett Packard (HP) and L3

Technologies Inc., as well as additional country specific brands such as NCR, Sony, HP, Dell,

Lenova, Datacard, Verifone and Kodak.

The company has a customer base of over 12,000 accounts in the Caribbean and Central America

and over 10,000 devices monitored through Xerox CMPS. PBS distributes and offers a wide range

of professional services:

3 The company was recently listed on the Jamaica Stock Exchange and the Barbados Stock Exchange in July 2017 and November 2017 respectively.

Distribution Professional Services

printing IT services

computing system integration

networking outsourcing

storage training and education

imaging channel managed printing services (CMPS)

security maintenance

point of sale prepaid phone and social cards

equipment products digitization

ATMs customer communication management

kiosks

cloud

supplies

paper

5 PBS

Business Segments

Revenue is classified into two broad categories:

1. Equipment Sales – comprising of hardware and software devices primarily Xerox, Oracle,

L3 and Cisco.

2. Recurring Sales

a. Paper and Supplies – including sale of equipment parts, leasing of equipment and

phone/ID/access cards.

b. Maintenance Services – including maintenance contracts of equipment, statement

printing and other services.

Figure 1: Revenue by Product Lines & Territory (YE 2018)

Corporate Governance

The governance structure consists of a 10 member board of directors chaired by Paul B Scott, CEO

and principal shareholder of the Musson Group. There are also three board committees: Executive

Committee, Audit Committee and Compensation Committee. The team’s expertise ranges from

finance, telecoms, sales and marketing which indicates a robust foundation of knowledge and

experience to guide the strategic growth over the medium to long term. Best practices suggest that

having 75% of the board members independent.

6 PBS

Business Strategy

Since 2017, the company has focused on expanding its footprint regionally into new markets,

whilst strengthening its presence in existing ones. Strong market presence and long-standing

relationships have laid the foundation for further growth for PBS as it continues to tap into new

markets. The near to medium term strategy can be broken down into three facets:

BUSINESS

STRATEGY

HOW IT WILL BE IMPLEMENTED

Revenue Diversification

Though the company has exclusive rights to distribute Xerox products

in 15 countries spanning the Caribbean, Central America and South

America, PBS has intentions to continue diversifying their revenues

through distribution and servicing of non-Xerox international

technology brands. Additionally, the company will be seeking to

expand as a trusted provider of information Technology (IT) solutions

and services with products from L-3 Security and Detection Systems,

Cisco and Oracle.

Expansion of Product

Offerings in Colombia

In 2017 after successfully receiving a grant to non-exclusive

distribution rights to distribute Xerox products in Colombia, the

company announced in 2018 that they were seeking to grow through

acquisitions in that market. In addition to its Xerox distribution

operations, PBS Colombia intends to distribute and service non-Xerox

international technology brands. Due to Colombia’s large GDP in

comparison to other major markets for PBS, the company is bullish

that country’s capital city of Bogota will help to drive earnings over

the near to medium term.

Expand Partnerships

Throughout Region

The long standing partnerships with leading multinational corporations

continue to reap fruits for PBS. The company plans to further expand

their strategic partnerships to widen the distribution network of

products across the existing markets.

Table 3: Business Strategy

7 PBS

Market Analysis

Table 4: PESTEL Analysis

Political factors

Geopolitical risk from unrest that permeated Nicaragua caused Nicaragua to fall from

the company's second largest revenue provider to fouth. PBS engages in business-to-

business (B2B) marketing, thus having a lot of business spending and has a wide

customer base across most sectors and in 15 different territories. Hence they have

diversified their concentration risk, however, the company experiences tax burdens

from operating in non-tax efficient regions.

Economic factors

Exchange rate volatility from JMD earnings and other minor currencies from other

territories, introduces currency risk since earnings are reported in USD. Translation

losses occurs owing to territories such as Jamaica that is experiencing a floating

exchange rate. Also, the countries in which PBS operates are developing countries that

have improving economies. The Jamaican economy is experiencing a low interest rate

climate and as such, PBS may look to refinance existing debt.

Social factors PBS has untertaken philanthropic actitivies in the terroities.

Technical factors

PBS is a distributor of technology products and services. The company does not own

any technolgy. It does not invest in research and development. Given the era of the

fourth industrial revolution, there are upcoming tech companies that are

implementing artificial intelligence and machine learning to enhance the digitization

and business solutions. This may pose as a threat to PBS becoming obsolete.

Environmental factors

PBS has an environmental policy that was stated in the 2018 annual report. The

company is committeed to reducing energy, water and noise pollution as well as

harmful substances during production. However, it is still a very paper intensive

company and therefore still poses a threat to the environoment.

Legal factors

PBS intends to expand into Colombia, particularly Bogota. Currently, PBS is not an

exclusive distributor of Xerox in Colombia, which is the main product line there.

Bogota is a rising tech scene which makes it highly competitive.

8 PBS

Figure 2: SWOT Analysis

Figure 3: Porter's Five Forces

9 PBS

Market Activity

Since PBS listed at US$0.55 per share in 2017,

the performance has been underwhelming.

Average daily volumes in 2018 with trades

only taking place on 6.37% of trading days.4 In

2019, trading activity was even more muted

with the stock trading on only 16 days on very

small volumes.

Figure 4: PBS Limited USD Ordinary Shares Combination Graph showing trading volumes and closing prices over the one year

Source: Jamaica Stock Exchange

4 Trading days = 16 of days / 251 of trading days per year

Last Traded Price US$0.5750

52 week high US$0.6000

52 week low US$0.5500

52 week volume range 100 to 104,800 units

YTD returns No change

YoY Returns -1.69%

Shares Outstanding 123,272,727 units

Table 5: Trading Summary

10 PBS

For most of 2018, trading activity was relatively subdued. This due to the fact that the top ten

shareholders account for 97.4% of the shares outstanding. Since 2019, the trading volumes were

less than 0.026% of the total amount outstanding.

Dividend Policy

PBS expected to commence dividend payout in 2018 of no less than 60 percent of the free-cash-

flow.5 Total dividends of US$1,000,000 were paid in May 2019 accounting for approximately 79

percent of the 2019 second quarter free-cash-flow.

Five-Year Financial Analysis (Dec ’14 –’18)

Income Statement

Revenues declined from US$202.21M in FY 2014) to US$179.29M in FY 2018; representing a

CAGR of -2.96% over the five-year period.

This decline reflected the reduction in the sale

and distribution of Telecom equipment

(Xerox); partially offset by the growth in the

sale and distribution of Other Equipment

(regionally distributed Technology brands

including Cisco, Oracle and L3) and Xerox

Equipment. Since 2018, the company has

shown an improvement in revenue growth.

The driver behind this was the sale of

technology brands such as Cisco, Oracle and L3, as the company seeks to diversify its income

stream away from Xerox Equipment. Additionally, the decrease in revenues from Xerox

Equipment was attributable to the political unrest in Nicaragua resulting in Nicaragua being

displaced as the second largest income generating territory for the company, to the fourth largest

in FY 2018.

5 Free-cash-flow, being operating cash-flow less capital expenditures.

Figure 5: Revenue and EBITDA for the period Dec '14 - 18

11 PBS

Direct expenses over the five-year period trended downward from 2014 (US$131.79M) to 2017

(US$98.66M), before rising slightly to US$104.23M in 2018. Gross profit grew marginally from

US$70.41M to US$75.07M as the company had a change in the mix of products and services with

more equipment and less services and supplies/parts which helped to generate higher margins.

Over the five-year period gross profit margin increased from 34.82% to 41.87%.

Despite fluctuating staff costs under selling, general & administrative expenses (SG&A) over the

five-year period, operating profit margin double from 3.11% to 6.56% as the company

implemented tighter expense control.. The company has been exploring opportunities to expand

in the Latin America region and the funding for the acquisitions since 2016 have been funded

through external debt financing. Consequently, finance costs grew, to its highest, over the period.

PBS has a heavy tax burden from operating in several territories across the region. Taxation

expense over the five-year period on average has been 82.5% of profit before taxes. Consequently,

net profit over the period fluctuated widely with the company experiencing net losses in FY2016

and FY2017. Net profit margin over the period fluctuated from 0.09% to 0.07% as net profit in

2018 was US$134K.

Balance Sheet

As at FY2018, total assets were US$167.04M, up from US$150.75M in 2014. The growth in total

assets were driven by trade and other receivables as the company expanded its distribution base of

brands across the region. Trade and other receivables made up 26% of total assets and grew from

US$39.22M to US$50.59M over the

period. Inventories made up the

second largest (23% on average)

weighting of total assets due to the

nature of business for PBS where the

company distributes products.

Inventories grew from US$31.46M to

US$42.96M. Property, plant and

equipment along with intangible

assets made up 13% on average of total assets over the period. Cash and cash equivalents fluctuated

from US$4.46M to US$6.57M as it averaged 7% of total assets.

Figure 6: Chart showing Total Assets, Liabilities and Equity for FY2014 to FY 2018

12 PBS

Total liabilities increased from

US$116.7M to US$131.4M, driven by a

growth in borrowings which offset the

decline in due to related parties. The

company’s balance sheet is mainly funded

through debt financing as the Debt/Asset

ratio over the period gradually increased

from 0.27X to 0.45X, while debt/equity

almost doubled from 1.18X to 2.12X. The company’s capital structure plans include more debt

financing versus equity financing. Total debt almost doubled over the period from US$40.06M to

US$75.62M. Borrowings in the form of private secured debt outweighed the redeemable

preference shares by almost two times, as the company tried to secure more affordable cost of

funding. Total shareholder’s equity grew modestly from US$34.1M to US$35.7M as currency

translation losses under Other Reserves eroded the growth in share capital.

Cash Flow Statement Analysis

PBS’ operating cash flows over the five year period from 2014 to 2018 have been volatile due to

volatile earnings for the company. It fluctuated from US$11.19M in 2014 to US$0.72M in 2018.

Net borrowings have been mostly positive over the five year period the company financed most of

its debt payments through proceeds from new loans. Additionally, capital expenditures (net PP&E)

by PBS have been funded from borrowings, as thin profit margins and accumulated deficits pushes

the company to seek external funding to finance projects. Net PP&E expenditures fluctuated from

US$1.35M to US$2.25M over the period.

Figure 7: PBS Capital Structure for FY 2014 to FY 2018

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18

NET PROFIT MARGIN 0.09% 0.82% -1.90% -2.76% 0.07%

ASSET TURNOVER RATIO 1.34 1.07 1.24 1.07 1.07

FINANCIAL LEVERAGE 4.43 4.79 4.79 4.28 4.42

RETURN ON EQUITY 0.51% 4.22% -11.30% -12.65% 0.35%

DUPONT ANALYSIS

Table 6: Dupont Analysis

13 PBS

Unique Consideration/ Issue

PBS operates in 15 territories across Latin America, the Caribbean and the US. This geographical

diversification strategy has enabled the company to mitigate against concentration risk for

revenues. However, this diversification strategy has brought underlying costs to the company,

given the volatility of revenues, net income has suffered as result.

The differing tax rates in these countries have caused a significant a tax burden to the

company which continues to erode earnings before taxes (EBT). On average taxes as a

portion of EBT amount to 82%.

The company’s reporting currency is US$, however majority of the territories have their

own currencies that have varying levels of volatility against the US$.

These issues give rise to the concern that PBS may be reaping the negative effects of over-

diversifying in territories that may have high tax rates on corporates. Though the issue of high

taxes may be unavoidable, the company could look to deleverage its balance sheet to reduce

financing costs. This will help to carve out a larger EBT, which will allow the company to

experience larger net profits.

Valuation

The typical valuation models were not deemed usual.

Dividend Discount Model (DDM): PBS has an inconsistent history of paying dividends

which renders this valuation model meaningless.

Free Cash Flow to Equity (FCFE) Model: The historical and forecasted FCFE for the

company are projected to be negative, which will not yield a meaningful valuation.

Method of Comparables:

o P/E Valuation: PBS has not had a consistent history of positive earnings and which

will not yield a meaningful valuation.

o P/B Valuation: The justified P/B is projected to be negative which does not yield

a meaningful valuation.

14 PBS

Residual Income Valuation Model

The residual income model6 was an appropriate methodology. This allowed for a meaningful value

to be derived even though the forecasted residual income values were negative. The estimated

share price using the residual income model forecasted for three years was US$0.23, as PBS is

projected to have negative residual income which will lower the initial book value for the company.

Enterprise Value to EBITDA Valuation Model

The EV/EBITDA valuation model was also another appropriate valuation model. Due to the

positive values derived for the model, this enabled the inputs to be meaningful as the company did

not have a consistent history of positive FCFE or earnings. The share price derived from the

projected EBITDA and EV multiple was US$0.46.

Table 8: EV/EBITDA Valuation

6 Residual income valuation method uses the sum of the company’s book value and present value of expected future residual income to value a company. Residual Income is the net income less equity charges. Cost of equity used in the RI model was 9.00%.

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021

Enterprise Value (EV) - - - 131,151 141,097

EBITDA 16,100 17,181 13,892 14,657 20,746 16,524 17,289 18,092

Shares Outstanding 45,001,000 45,001,000 45,001,000 123,271,000 123,271,000

Share Price (US$) - - - 0.57 0.58

EV/EBITDA - - - 8.95 6.80

Total Debt 40,061 65,640 66,128 72,500 75,621 80,246 83,557 86,968

Cash & Cash Equivalents 4,463 38,536 4,962 12,097 6,570 6,570 6,570 6,570

Projected EV 123,048

Weighting of Debt in EV 0.55 0.54

Equity Value from Projected EV 57,100

Share Price From EV/EBITDA USD 0.46

EV/EBITDA VALUATION FIGURES IN THOUSANDS OF USD

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021

Net Income 172 1,596 (3,260) (4,746) 134 288 302 317

Equity Charge 3,065 3,174 2,821 3,467 3,207 3,174 3,139 3,103

Residual Income (2,893) (1,578) (6,081) (8,213) (3,073) (2,886) (2,837) (2,786)

Discounted RI (2,647) (2,388) (2,151)

Equity Value 34,053 35,267 31,343 38,517 35,629

Value from RI Model 28,443

Shares Outstanding 123,271,000

Share Price USD 0.23

FIGURES IN THOUSANDS OF USD

RESIDUAL

INCOME MODEL

Table 7: Residual Income Model

15 PBS

PBS expects to do further acquisitions across the region with a major focus on Colombia. This

should positively impact revenues over the three-year period from 2019 to 2021. Additionally,

PBS will be seeking options to refinance existing debt obligations to bolster profitability. At the

end of FY2021, PBS is projected to have net profit of US$317K (EPS: US$0.003).

PBS’ fair value from all valuation methods ranges between US$0.23 to US$0.46 with an average

fair value price of US$0.35. This suggests that the stock is overvalued by 39.66% relative to the

current price as at October 30, 2019.

Recommendation

The recommendation is to SELL PBS stock. The company continues to seek new ways to diversify

revenue streams while adding additional revenue territories like Colombia. However, these

initiatives may only materialize over the medium to long term for the company. However, over

the short term, given the highly leveraged balance sheet, and the high tax burden from different

regions, we expect to see lacklustre performance from the company over the medium which may

negatively impact shareholders wealth.

16 PBS

Appendices

Appendix A

Table 9: Shareholders' Profile - Ten Largest Shareholders

Source: PBS Annual Report 2018

Table 10: Shareholders' Profile - Shareholding of Directors

Source: PBS Annual Report 2018

17 PBS

Appendix B

Figure 8: Income Statement - 5 year Historical & 3-year Projections

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021

31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21

Continuing Operations

Revenue 202,210 194,287 171,129 171,906 179,294 188,259 197,672 207,555

Direct Expenses (131,796) (120,232) (100,360) (98,660) (104,226) (112,955) (118,603) (124,533)

Gross Profit 70,414 74,055 70,769 73,246 75,068 75,303 79,069 83,022

Other Income 703 1,483 1,066 685 1,397

Selling, General & Administrative Expenses (64,823) (67,505) (66,696) (67,744) (64,507) (68,150) (71,557) (75,135)

Impairment Losses 0 0 0 0 (194) 0 0 0

Operating Profit 6,294 8,033 5,139 6,187 11,764 7,154 7,512 7,887

Finance Costs (4,792) (4,166) (6,798) (8,902) (9,154) (5,508) (5,784) (6,073)

Profit/ (Loss) Before Taxation 1,502 3,867 (1,659) (2,715) 2,610 1,645 1,728 1,814

Taxation (1,317) (2,271) (1,601) (2,031) (2,476) (1,357) (1,425) (1,497)

Net Profit/ (Loss) From Continuing Operations 185 1,596 (3,260) (4,746) 134 288 302 317

Discontinued Operations

Loss From Discontinued Operations (13) 0 0 0 0

Net Profit/(Loss) For The Year 172 1,596 (3,260) (4,746) 134 288 302 317

Other Comprehensive Income

Items that may be subsequently reclassified to

profit or loss:

Currency translation differences on the net assets of

foreign subsidiaries (870) (752) (547) (265) (2,456)

Items that will not be reclassified to profit or loss:

Actuarial Losses - termination of benefits 0 370 (117) (166) 0

Revaluation gain on property, plant and equipment,

net of taxes 0

(870) (382) (664) (431) (2,456)

TOTAL COMPREHENSIVE PROFIT/ (LOSS) (685) 1,214 (3,924) (5,177) (2,322)

INCOME STATEMENT

PROJECTEDFIGURES IN THOUSANDS OF USD

18 PBS

Figure 9: Balance Sheet - 5 year Historical & 3 year Projections

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021

31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21

Non-Current Assets

Property, Plant & Equipment 24,437 23,068 22,475 20,291 22,657 23,790 24,979 26,228

Intangible Assets 23,996 22,534 21,070 19,618 18,393 17,216 16,114 15,083

Lease Receivables 2,219 2,495 2,032 2,082 2,393 2,584 2,791 3,014

Long Term Receivables 670 366 893 1,386 1,566 1,566 1,566 1,566

Deferred Tax Assets 987 823 961 1,015 1,439 1,439 1,439 1,439

52,309 49,286 47,431 44,392 46,448 46,595 46,890 47,331

Current Assets

Due From Related Parties 18,790 9,043 4,226 6,231 7,611 9,894 9,894 9,894

Inventories 31,461 34,939 35,486 42,700 42,956 47,509 52,545 58,115

Contract Assets 0 0 0 0 826 0 0 0

Trade and Other Receivables 39,222 41,134 36,724 43,593 50,589 55,648 61,213 67,334

Current Portion of Lease Receivables 721 952 1,526 1,885 2,048 2,048 2,048 2,048

Taxation Recoverable 3,782 7,078 7,960 9,565 9,992 9,992 9,992 9,992

Cash and Cash Equivalents 4,463 38,536 4,962 12,097 6,570 6,570 6,570 6,570

98,439 131,682 90,884 116,071 120,592 131,662 142,262 153,953

Total Assets 150,748 180,968 138,315 160,463 167,040 178,257 189,152 201,284

Equity

Attributable to Shareholders of the Company

Share Capital 45,001 45,001 45,001 57,317 57,317 57,317 57,317 57,317

Other Reserves (7,534) (10,358) (11,026) (13,751) (16,207) (16,693) (17,194) (17,710)

Accumulated Deficit (3,414) 276 (2,984) (5,533) (6,030) (5,909) (5,791) (5,675)

34,053 34,919 30,991 38,033 35,080 34,714 34,332 33,932

Non-Controlling Interests 0 348 352 484 549 549 549 549

34,053 35,267 31,343 38,517 35,629 35,263 34,881 34,481

Current Liabilities

Trade and Other Payables 27,835 32,039 28,992 39,059 40,487 46,560 53,544 61,576

Contract Liabilities 0 0 0 0 3,670 3,670 3,670 3,670

Due to Related Parties 47,364 45,185 10,385 7,249 8,043 8,928 9,910 11,000

Taxation Payable 743 2,319 916 2,407 2,602 2,602 2,602 2,602

Short Term Loans 12,850 9,356 18,190 1,991 1,526 6,121 10,712 14,133

Current Portion of Long Term Loans 3,864 6,336 0 627 99 1,280 10 49,903

Bank Overdraft 0 0 0 0 3,505 3,505 3,505 3,505

92,656 95,235 58,483 51,333 59,932 72,666 83,953 146,388

Non-Current Liabilities

Retirement Benefit Obligation 0 0 0 579 565 565 565 565

Deferred Income Tax Liabilities 692 518 551 152 423 423 423 423

Borrowings 23,347 49,948 47,938 69,882 70,491 69,340 69,330 19,427

24,039 50,466 48,489 70,613 71,479 70,328 70,318 20,415

Total Liabilities 116,695 145,701 106,972 121,946 131,411 142,994 154,271 166,803

Total Liabilities & Equity 150,748 180,968 138,315 160,463 167,040 178,257 189,152 201,284

BALANCE SHEET

FIGURES IN THOUSANDS OF USD PROJECTED

19 PBS

Figure 10: Statement of Cashflows - 5 year Historical

Figure 11: Financial Ratios - 5 year Historical

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18

Cash Flows from Operating Activities 11,188 12,434 (27,453) (5,886) 722

Cash Flows from Financing Activities

Interest Paid (4,451) (3,980) (5,690) (4,154) (6,771)

Proceeds from Borrowing 3,816 33,462 36,739 22,082 4,291

Repayments of Borrowings (9,299) (7,883) (36,251) (17,450) (2,063)

Issuance of Shares 0 0 0 12,316 0

Net Cash (Used in)/ Provided by Financing Activities (9,934) 21,599 (5,202) 12,794 (4,543)

Cash Flows from Investing Activities

Interest Received 465 206 53 13 549

Purchase of Property, Plant and Equipment (4,284) (1,854) (3,050) (5,422) (2,945)

Proceeds from Disposal of Property, Plant and Equipment 2,936 2,533 2,066 5,631 694

Net Cash (Used in)/ Provided by Investing Activities (883) 885 (931) 222 (1,702)

Net (Decrease)/Increase in Cash and Cash Equivalents 371 34,918 (33,586) 7,130 (5,523)

Cash and Cash Equivalents at Beginning of the Year 5,102 4,463 38,536 4,962 12,097

Exchange Losses on Cash and Cash Equivalents (1,010) (845) 12 5 (4)

Cash and Cash Equivalents at End of the Year 4,463 38,536 4,962 12,097 6,570

STATEMENT OF CASH FLOWS

FIGURES IN THOUSANDS OF USD

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18

DUPONT ANALYSIS

NET PROFIT MARGIN 0.09% 0.82% -1.90% -2.76% 0.07%

ASSET TURNOVER RATIO 1.34 1.07 1.24 1.07 1.07

FINANCIAL LEVERAGE 4.43 4.79 4.79 4.28 4.42

RETURN ON EQUITY 0.51% 4.22% -11.30% -12.65% 0.35%

PROFITABILITY RATIOS

GROSS PROFIT MARGIN 34.82% 38.12% 41.35% 42.61% 41.87%

OPERATING PROFIT MARGIN 3.11% 4.13% 3.00% 3.60% 6.56%

NET PROFIT MARGIN 0.09% 0.82% -1.90% -2.76% 0.07%

RETURN ON ASSETS 0.11% 0.96% -2.04% -3.18% 0.08%

LIQUIDITY RATIOS

CURRENT RATIO 1.63 1.90 2.37 3.13 2.79

QUICK RATIO 0.72 1.02 0.95 1.43 1.30

EFFICIENCY RATIOS

ASSET TURNOVER 1.34 1.07 1.24 1.07 1.07

INVENTORY TURNOVER 4.19 3.62 2.85 2.52 2.43

LEVERAGE RATIOS

DEBT/ASSET 0.27 0.36 0.48 0.45 0.45

DEBT/EQUITY 1.18 1.86 2.11 1.88 2.12

INTEREST COVERAGE RATIO 1.31 1.93 0.76 0.70 1.29

OTHER

TOTAL DEBT 40,061 65,640 66,128 72,500 75,621

SHARES OUTSTANDING 45,001,000 45,001,000 45,001,000 123,271,000 123,271,000

E.P.S 0.004 0.035 -0.072 -0.039 0.001

B.V.P.S 0.76 0.78 0.70 0.31 0.29

EBITDA 16,100 17,181 13,892 14,657 20,746

HISTORICAL INFORMATION

20 PBS

Appendix C

Appendix D

References

PBS in talks for new acquisition. (2019, September 29). Retrieved from

http://jamaicagleaner.com/article/business/20190929/pbs-talks-new-acquisition.

Productive Business Solutions Selected To Provide Supplies For NIDS. (n.d.). Retrieved from

http://rjrnewsonline.com/local/productive-business-solutions-selected-to-provide-

supplies-for-nids.

Jamaica Stock Exchange Limited. (n.d.). Retrieved from

https://www.jamstockex.com/marketdata/listed-companies/trade-information/pbs/latest.

(n.d.). Retrieved from https://www.grouppbs.com/.

Assumptions to Financial Projections

●The company expands operations in Colombia to include additional suite of products for distribution

●Revenues are assumed to grow by 5% each year to include further expansions within Colombia.

●The company direct expenses will be 60% of revenues over the three year period, which represents the average over the historical five year period.

●The company SG&A will be 36.2% of revenues over the three year period, which represents the average over the historical five year period.

●The Tax amount will be 82.5% of EBIT, which is in-line with the rate over the five year historical period.

● Balance sheet items were forecasted using the historical two year average from 2017 to 2018, as the company went under more structural changes in those years compared to prior.

●Both the redeemable preference shares and the private bond were held to maturity.

●Short term loans was the balancing figure to fill any shortfall in funding needs.