Introduction
For more than a year, the state-owned Guyana Sugar Corporation Inc has been in the press, mostly for all the wrong reasons. Its 2008 annual report tabled in the National Assembly shows a staggering loss before tax of $6.2 billion, following a gain of $2.2 billion in 2007. Its Skeldon Sugar Modernisation Plant, touted as the saviour of the industry, has been stumbling from problem to problem; reports of excessive salaries paid to some senior managers were sensationalised, even as the corporation stoutly rejected demands from its main workers’ union for increased compensation and benefits. There were reports too, of one very senior officer – a director no less – resigning from the company after being locked out of a meeting, while another with huge experience in the industry, was given marching orders.
More recently the corporation was the subject of a very heated exchange in the National Assembly surrounding the actual date of payment of $4 billion made to enable the corporation to meet debt obligations. With the government side facing a dilemma of its own making – risking later embarrassment, or admitting that its Finance and Housing Ministers have by their silence misled the National Assembly while engaging in a breach of the law and a clear bail-out – this matter will not go away.
All change
Changes at the top of the corporation saw the termination of the much maligned management contract with Booker Tate after two decades; the resignation and replacement of the Chairman Ronald Alli by Dr Nanda Gopaul, former sugar unionist and political leader now at the Office of the President; a clean-out of the boardroom with the principal survivor being the ruling party’s General Secretary and now presidential aspirant, Mr Donald Ramotar; a new Chief Executive Officer, chartered accountant Mr Errol Hanoman with a mixed history with the corporation, brought back from the UK to take charge of the industry; the appointment of a new Deputy Chief Executive Officer with no prior work experience in the industry; and an Interim Management Committee that includes Ms Geeta Singh-Knight, local head of the failed insurance giant Clico.
For better or worse, they now carry the responsibility for the future of one of the country’s major industries, and by extension, determining the number of billions which taxpayers will have to pump yearly into the corporation, before the country can see any returns.
The result of these changes is an industry that is headed mainly by accountants, with field operations, marketing, and industrial relations coming after.
It has led too, to another study and recommendations for the industry, referred to optimistically as a ‘Blueprint for Success.’ Unlike the earlier Business Plan for the industry, the Blueprint is as secretive – and elusive – as the Holy Grail, precluding any widespread discussion or consultation among key stakeholders. One can only speculate about the reasons for the secrecy, and wonder whether the information in the document is considered too explosive for public knowledge.
Accounts quality
Starting today, Business Page will carry out its own assessment of the industry, beginning with the 2008 annual report and accounts which bear the audit imprimatur of Mr Deodat Sharma, the country’s Auditor General (ag), and his sub-contractor Deloitte and Touche, now TSD Lall and Co. I will consider the available options to preserve salvageable parts of the industry, the implications and costs of delays.
Given the inanimate nature of the patient, it is unable to consent to life-saving surgery, and its political and professional guardians need to act quickly, decisively and rationally, or face losing the industry once considered too big to fail. Perhaps the real question is whether Guysuco is too big – and too costly – to save as taxpayers are called upon to pump dollars like water into the fields, merely to keep the industry afloat.
Before going into the details of the financial statements, a few general points of accounting are worthy of mention:
1. But for some clever presentation of information, the company’s financial position is worse than it is shown to be. For example, nowhere do the financial statements disclose that at the end of 2008, the corporation had overdraft balances of $3.2 billion. In fact, the balance sheet misleadingly shows cash and cash equivalents of $960 million.
2. Amounts due to the Government of Guyana in respect of lease rentals are shown as having decreased by $104M, while amounts due to the Sugar Industry Labour Welfare Fund as increasing by $525M. The notes to the financial statements indicate that these should have increased by $218.5M and $870M respectively. If that is so, the liabilities in the balance sheet are understated by $667.5M.
3. Note 9 to the financial statements presents cash and bank balances net of overdraft balances, understating assets and liabilities and distorting ratios and measures. Guyana dollar balances were presented as a $1,895M payable, masking the true cash and overdraft balances. This also calls into question the positive foreign currency balances with a Guyana dollar equivalent of $2,855M.
4. The balance sheet carries deferred tax assets of $1,169M which seems overly optimistic having regard to the corporation’s prospects in the foreseeable future. The effect is to understate the after-tax loss in 2008, and overstate the net equity of the entity.
5. No deferred tax liability has been recorded in respect of the revaluation of property, plant and equipment, as required by International Financial Reporting Standards.
6. The consolidated accounts of a holding company must eliminate inter-company assets, liabilities and transactions. The amount due from the corporation’s subsidiary, Lochaber Limited, was not eliminated on consolidation.
7. Note 12 shows a convertible Government of Guyana debenture, but conversion terms or diluted earnings per share are not stated or presented.
8. In note 22, which states the foreign currency risk arising from a change in exchange rates, liabilities were added to assets to arrive at the net exposure. As a result, the level of net foreign currency assets in United States Dollars and GB Pounds is overstated by $12,276M.
9. Commodity Market Update published by the Ministry of Agriculture for the month of September 2009 noted that “The Euro rate at the end of the August 2009 averaged 1.439Euro/US$. In the same period in 2008, the rates were 1.4795. GuySuCo, however, has hedged a number of its shipments for 2009.” The financial statements for the year 2008 make no disclosure on hedging.
The Income statement
All figures in millions of Guyana Dollars
Source: Audited Financial Statements
Revenue in 2008 fell by 8.5% to $32,148M, which is less than revenue earned two years earlier. Guyana Dollar sales to Europe declined by 2.6%, to Caribbean countries by 44%, and were almost wiped out in North America. In terms of volume, export sales under the EU Protocol was about the same as in 2007 (152,229 tonnes) and US bulk was zero. Exports of bagged sugar to Caricom and the region declined from 31,160 tonnes in 2007 to 14,421 tonnes in 2008, while exports of packaged sugar to the region increased from 2,979 tonnes to 4,126 tonnes.
The decision to scale back on sales to the Caricom region was taken to enable the corporation to meet its commitment to the EU, resulting in waivers under the Common External Tariff being granted to several Caricom countries to import from outside of the region. Indeed, in November 2008, Guyana advised Caricom that it would be unable to supply the region with sugar in 2009, a development which would seriously affect our reputation as a reliable supplier, introduce a non-regional product at world prices, and make competition for us all the more difficult.
Ah na me, dis time
Cost of sales has jumped from 70.6% of sales in 2007 to a whopping 93% in 2008, but the report fails to explain or analyse why the cost of sales increased by $5,067M or 21%. The immediate suspect and whipping boy of the industry is wages and salaries, but the accounts show that in 2008, wages and salaries increased by a mere $50M, or 0.33% over 2007. What the report does show is that despite the corporation’s poor performance, the workers were given 8 days pay as Annual Production Inventive while their unions, GAWU and NAACIE, were paid 0.79 day per employee. The stated purpose of this latter amount is “to assist” two of the country’s most financially secure unions in their educational programmes; others will see this as a novel way to neutralise workers’ representatives.
Next week we will explore further the causes for the dramatic decline on operating profit and proceed to look at the balance sheet.