Corporate Finance- DFA 2002Y(3)

UNIVERSITY OF MAURITIUS FACULTY OF LAW AND MANAGEMENT

Ireland Blyth Limited (IBL) Risk and Return Analysis

Corporate Finance- DFA 2002Y(3)

Select any company on the Stock Exchange of Mauritius and write a report about 2000 words related to the firms activity (ies) and also with regards to its risk and return level. Comment on all your findings

Key factors included: Companys activities Capital structure; shareholding and dividend policy Major investors Dividend yield Beta Market price vs. IBL price Market return vs. IBL return

Corporate Finance- DFA 2002Y(3) Methodology To acquire the raw data and figures about prices and indices of the stock side of Ireland Blyth Limited, a meeting was held with the Manager of the Trading and Statistics Department of the Stock Exchange of Mauritius Ltd. The accuracy and the application of the statistics to this assignment were discussed with the manager. We also visited the showroom of IBL, where we were able to collect historical data and information about the company. Reference was made to last ten years annual reports of IBL, as well as the Fact book and handbook of the Stock Exchange of Mauritius. Websites of IBL and Stock broking companies like Associated Stockbrokers Ltd and CIM Stockbrokers Ltd were also visited.

IBLs commitment to shareholders We will have competent management with the appropriate expertise, who will provide leadership, guidance and know-how and who will strive to best utilise resources to achieve corporate objectives.

We are ultimately responsible for creating shareholder wealth at a rate sufficient for the group to take full advantage of future market possibilities.

Corporate Finance- DFA 2002Y(3) General Information Ireland Blyth Limited (IBL) was incorporated as a private limited company on 14th July 1972 following the merger of Blyth Brothers & Co. Ltd and Ireland Fraser & Co. Ltd, both of which had been trading in Mauritius since the early nineteenth century. It remained a private company until 1994, when it was quoted on the Mauritian Stock Exchange, thus converted into public. Its registered office is situated at IBL House, Caudan, Port-Louis, Mauritius. Activities IBL is one of the top three trading companies in Mauritius, having its activities diversified in almost every sector of the economy, namely: - Financial Services, - Retail - Seafood & Marine - Logistics, Engineering & Commerce

Corporate Finance- DFA 2002Y(3)

Annual report 2008

Corporate Finance- DFA 2002Y(3) Shareholding The share capital of the Company consists of 71,438,333 ordinary shares of nominal value Rs10 each.

Annual report 2008

Shareholding is segregated as the above, with major shareholders as: Ciel Investment Compagnie dinvestissement & Developpement Ltee The Anglo Mauritius Assurance Society Ltd 32.24 % 16.05 % 13.14 %

Corporate Finance- DFA 2002Y(3) Ownership of ordinary share capital as at 31 December 2008 was as follows:

Annual Report 2008

Dividend Policy The dividend policy of IBL has been subject to its performance, taking into account funding requirements of new projects. 7

Corporate Finance- DFA 2002Y(3) It has been and will be at least 30% of Group attributable profits. Dividends are declared and paid twice yearly.

Corporate Finance- DFA 2002Y(3) Status of companys dividend:

Shareholders Calendar: Financial Year End Reports Preliminary Results First Quarter Second Quarter Third Quarter Dividends Declaration August December Payment April October March May August November December

Corporate Finance- DFA 2002Y(3) RISK AND RETURN ANALYSIS Risk and return are the most important concepts in Finance. If decisions are to lead to benefit maximization, it is necessary that individuals/institutions consider the combined influence on expected return as well as on risk.

IRELAND BLYTH LTD Calculation of Total Return Total Market Years 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Dividend 0.73 0.18 0.1 0.4 0.6 0.9 1.65 1.25 1.25 1.25 1.9 1.5 1.65 1.65 1.2 Price 20.50 16.72 14.27 16.61 21.08 16.81 20.48 16.67 13.74 18.20 27.06 36.12 40.03 60.26 57.15 Dividend Yield _ 0.009 0.006 0.028 0.036 0.043 0.098 0.061 0.075 0.091 0.104 0.055 0.046 0.041 0.020 Capital Gain _ -0.184 -0.147 0.164 0.269 -0.203 0.219 -0.186 -0.176 0.325 0.487 0.335 0.108 0.505 -0.052 Return (%) _ -17.5 -14.1 19.2 30.5 -16.0 31.7 -12.5 -10.1 41.6 59.1 39.0 15.4 54.6 -3.2

RETURN ON A SHARE = DIVIDEND YIELD + CAPITAL GAIN R = DIV1 Po + (P1- Po) Po

10

Corporate Finance- DFA 2002Y(3) R = Return on a share Div1 = Dividend for the Current financial year Po = Price of share for the previous period P1 = Price of share for the current period From the table it can be deduced that there was an overall increase in dividend from the years 1994 to 2008. This is perhaps because of the gearing ratio that has improved to 50 % in 2008. The tight monitoring of fund usage has yielded positive results and management is continuously striving at measures to reduce further the gearing. From 1995 to 2008, there has been a small increase in the dividend yield. The small increase is the result of the dividend increasing fractionally more than the increase in the share price. There was a little improvement in capital gain from 1995 to 2008 This means that there was an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes. From 1995 to 2008 it can be said that there had been a slight improvement in the total return. Total return accounts for two categories of return: income and capital appreciation. Income includes interest paid by fixed-income investments, distributions or dividends. Capital appreciation represents the change in the market price of an asset. The return on an asset measures the increase or decrease in wealth that an individual has obtained through doing an investment.

11

Corporate Finance- DFA 2002Y(3)

Dividend Yield 0.12 Dividend Yield 0.1 0.08 0.06 0.04 0.02 0
19 95 19 97 19 99 20 01 20 03 20 05 20 07

Dividend Yield

Years

Figure 1 Figure 1 above illustrates fluctuations of dividend yields for IBL. From 1994 to 2008, there was a great percentage increase in dividend yield which is 122.22% increase. We can also deduce that, there was high dividend yield in recent years as compared to 90s.

12

Corporate Finance- DFA 2002Y(3)

IBL's Risk - return and Beta Estimation Beta Calculation For IBL: Semdex Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Price 476.1 344.44 353.46 391.12 465.6 435.69 390.1 340.92 399.26 549.58 710.77 804.03 1204.46 1852.21 1182.74 IBL Price 20.50 16.72 14.27 16.61 21.08 16.81 20.48 16.67 13.74 18.20 27.06 36.12 40.03 60.26 57.15 395.701 SUM Average 9900.48 660.032 8 26.3801 2 1.39818 0.09987 2.178 0.1556 0.8623 0.0616 Semdex Return (X) _ -0.277 0.026 0.107 0.190 -0.064 -0.105 -0.126 0.171 0.376 0.293 0.131 0.498 0.538 -0.361 IBL (Y) _ -0.175 -0.141 0.192 0.305 -0.160 0.317 -0.125 -0.101 0.416 0.591 0.390 0.154 0.546 -0.032 Return X*Y _ 0.0485 -0.0037 0.0204 0.0582 0.0103 -0.0331 0.0158 -0.0172 0.1566 0.1734 0.0512 0.0767 0.2939 0.0115 X _ 0.0765 0.0007 0.0114 0.0363 0.0041 0.0109 0.0159 0.0293 0.1417 0.086 0.0172 0.248 0.2892 0.1306 1.097 9 0.078 4 1.331 0.095 Y _ 0.0308 0.0198 0.0368 0.0933 0.0256 0.1004 0.0157 0.0101 0.173 0.3494 0.1523 0.0237 0.2986 0.001

No. of observation = 14 n = 14 x = 1.3981804 y= 20177992 x2 = 1.097911718 y2 = 1.33053897 BETA= nxy (x) (y) nx2- (x) 2 = 14 (0.8623278) (1.3981804) (2.177992) 13

Corporate Finance- DFA 2002Y(3) 14(1.097911718) (1.3981804) 2 = 12.07258 3.045225726 15.37076 1.954908431 = 9.027363474 13.41585157 = 0.67288806

Beta() of a stock or portfolio is a number describing the relation of its returns with that of the financial market as a whole. An asset with a beta of 0 means that its price is not at all correlated with the market; that asset is independent. A positive beta means that the asset generally follows the market. And in this case beta is positive. A negative beta shows that the asset inversely follows the market; the asset generally decreases in value if the market goes up and vice versa. The beta coefficient is a key parameter in the capital asset pricing model (CAPM). It measures the part of the asset's statistical variance that cannot be mitigated by the diversification provided by the portfolio of many risky assets, because it is correlated with the return of the other assets that are in the portfolio. Beta can be estimated for individual companies using regression analysis against a stock market index. COEFFICIENT OF CORRELATION = . nxy (x) (y) .

[{(n y2) - (y) 2} {nx2 x) 2}]1/2 = 14(0.86232) (1.39818) ( 2.1779) 14 .

Corporate Finance- DFA 2002Y(3) [{14(1.3305) 2.177992} {14(1.09791) (1.39818)}] 1/2 = 12.07248 3.045225726. [(16.449008) (13.97256)] 1/2 = 9.889691 15.16030 = 0.65234

The correlation coefficient a concept from statistics is a measure of how well trends in the predicted values follow trends in past actual values. It is a measure of how well the predicted values from a forecast model "fit" with the real-life data. Since correlation coefficient is positive and less than 1 in this case, it means that the returns of the two assets are not found on linear equations but are dispersed around the straight line with positive slope. The returns of the two assets are either increasing or decreasing but the proportional increase or decrease is not fixed. The correlation coefficient is a number between 0 and 1. If there is no relationship between the predicted values and the actual values the correlation coefficient is 0 or very low (the predicted values are no better than random numbers). As the strength of the relationship between the predicted values and actual values increases so does the correlation coefficient. A perfect fit gives a coefficient of 1.0. Thus the higher the correlation coefficient the better it is.

15

Corporate Finance- DFA 2002Y(3)

semdex price and IBL price

2000 1800 1600 1400 PRICE 1200 1000 800 600 400 200 0 1994 1995 1996 1997 1998 1999 2000 2001 year 2002 2003 2004 2005 2006 2007 2008 Semdex Price IBL Price

Figure 2 Figure 2 illustrates that there had been an overall increase for Semdex price. In 1994 the price was approximately Rs 500 and for period 15 it was Rs 1200, which shows an increase of Rs 700 during this period. In 2007, the Semdex Price was at its highest, that is, around Rs 1900. This might be because of increase in demand for shares. Moreover it can be deduced that there was an overall increase in the price of IBL and the highest price was at Rs 60.00 in 2007. The increase in price from 1994 to 2008 was due to the fact that there was an increase in the turnover of the different sectors of IBL. There was a 10 % increase of turnover on 2007. Moreover the Financial Services Sector has shown an outstanding growth in profits from operations Rs 100 M in 2007 to Rs 171 m in 2008. (71 % increase). But the percentage increase in IBL price higher than that of Semdex price. There was a 178.78 % increase in the price of IBL from 1994 to 2008. Whilst for Semdex, it was a 148.42 % increase.

16

Corporate Finance- DFA 2002Y(3)

RETURNS
0.800 0.600 0.400 RETURNS 0.200 0.000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 -0.200 -0.400 -0.600 year

Semdex Return (X) IBL Return (Y)

Figure 3 Here it can be seen that Semdex Return and IBL Return fluctuated. In 1994 both returns were negative. In 2007 Semdex Return was even much lower whereas IBL did not get any return . There has been a direct relationship between the Semdex Return and IBL Return except in the years 1996, 2000 and 2002. Though the trend for Semdex Return and IBL Return was almost the same, the proportion increase or decrease was different. From 1994 to 2008 Semdex had experienced 30.32 % increase in its Return. On the other hand, IBL Return fell by 81.71 % during the same period. This is caused mainly by the economic downturn.

The financial Position for some specific years can be explained. For example, in 2004 from an investors point of view. It was a good financial year for the Group. Turnover for 2004 was Rs 6.46 billion compared to Rs 5.78 billion of 2003, which

17

Corporate Finance- DFA 2002Y(3) represent an increase of 11.7%. Furthermore, good performance from Sun Resort Ltd contributed to the increase of the level of profit.

In financial year 2005, it was a tough year overall, but the Group managed to achieve a growth in turnover of 19%. This was mainly due to the Seafood Hub ( Thon des Mascareignes ) and Winners. This was the result of Financing of new projects ( Seafood Hub and Aviation ) as well as current activities and net finance cost of operation (rose from Rs 98 million to Rs 196 million ).

One important thing to note is that, recently Compagnie dInvestissement et de Dvelopment Limite (CIDL) expressed the intention to acquire 23,031,269 shares currently held by CIEL Investment Limited in IBL, representing 32.24% of the issued share capital of IBL. The proposed transaction will took place on 8 December 2009 at a price of Rs 28.00 per share. The transaction constituted a Cession de Bloc de Contrle under the Rglement Gnral de la Bourse de Maurice. In accordance with Article RG/TVII/3.3 of the Rglement Gnral, the Stock Exchange of Mauritius suspended dealings in the shares of IBL on the Official Market of the SEM as from the close of trading on 12 November 2009 in order to finalize the modalities with regard to the mantien de cours process which will last for a period of one month until 9 January 2010 during which the acquirer (CDIL) will have the obligation to purchase on the SEM all the shares that shareholders of the listed issuer (IBL) would wish to sell at a price to be determined by the SEM pursuant to Article RG/TVII/3.5. The SEM has set Maintien de cours price at Rs 36.00 per share. On Friday 20th Nov 2009 dealings of IBL Shares on the Official Market of SEM. was resumed.

18

Corporate Finance- DFA 2002Y(3) Given that the maintien de cours process is subject to conditions precedent being fulfilled and regulatory approvals being obtained, shareholders of IBL has been advised by the SEM to exercise caution and seek professional advice before dealing in their shares. The SEM also advised Shareholders wishing to trade in shares of IBL at the start of the maintien de cours period, to deposit their share certificates in the Central Deposiory and Settlement Co Ltd (CDS) at latest 2 Dec 2009.

19

Corporate Finance- DFA 2002Y(3) Conclusion From the graphs drawn in the expose, we would conclude that IBLs performance is declining on the market. Its dividend yield has decreased recently, together with its return and market price. However we should not be pessimistic about the future since IBL has expanded in several groups. Diversification, as we are already aware, is the key to all businesses success and the Company, having a wide portfolio of assets, will continue to provide positive cash flows. It will be the duty of Financial Managers to maintain provision of safe products and services so as to encourage more investors, and whereby increasing their market share. Ignoring the impact of financial crisis, IBL might have a better return. Though the dividend yield has been fluctuating, its market price has been increasing remarkably, ensuring investors confidence. Moreover the Company is operating profitably and progressing from years 2000 onwards. Despite the fact that the SEM suspended trading of IBL shares for eight days as from 12 th Nov 2009 to 20th Nov 2009, and investors couldnt trade with IBL shares on the Stock Exchange, the matter has now been resolved, and everything is under control. Trading of IBL shares has resumed and transactions are being carried out normally in the Stock Exchange of Mauritius. IBL remains one of the prime in Mauritius, contributing to the National Income and economy of the country. Note also that IBL allocates a considerable part of its activities to Corporate Social Responsibility (CSR) and for other social benefits.

20