Premium Nutrients 2007 annual accounts - Dividends

Well the profits for 2007 was 7.2m ringgit but Premium is going to pay out 4.3m ringgit as dividends. The focus really should be to reduce debt. The net profit operating margins are pretty dire. I am not including 2003 because of the one-off 32m cost of listing.

In 2004, at the group level sales was 403m and net profit was 6m. That is an net operating margin of 1.5%.

In 2007, sales were 716m, but the net profit was just 7m. That is a net operating margin of 1%!

The focus should be to pay down debt and rebuild its working capital (current liabilities - borrowing is 123m) and ability to invest. Right now it continues to borrow heavily to invest and for working capital purposes (13m was paid out in interest in 2007), so just going thought the annual reports since 2003, you realise the company has been operating rather precariously. Paying out dividends on 1% margins is not the smart long-term decision to build up the company and improve its share price and future ability to pay better dividends. It is a short term short-sighted decision that is all too familiar to Premium.

As at the end of December, the co had 4m in the Bank, yet is paying out 4.3m in dividends.

Conflict of interest

NLFCS owns 32.13% of Premium and the Chairman of NLFCS owns 12.78%. The issue here is the obvious conflict of interest. The Chairman of NLFCS is the chairman of Premium. But is he the chairman of Premium as the 2nd largest shareholder or as a representative of NLFCS? These 2 positions are completely separate. He should sit on the Board to represent his personal interest, but NLFCS should nominate someone completely independent as Chairman of Premium to protect their own interest. Say in this case when the board of Premium are voting on its dividends. To NLFCS as an entity, getting dividends would not be a priority. Rehabilitating the company and improving its share price and getting it to a point where the potential for greater amounts of dividends down the line would be far more important, since they are long term investors. For an individual investor, well he has seen the share price tank and all he cares about is getting his dividends/money, he might need the money, etc. So 2 different interest. So on what basis does the Chairman of NLFCS base his voting decision on as the Chairman of Premium Nutrients? NLFCS may have other directors in Premium but the reality and practice is the chairman is effectively block voting on the combined 12.78% he owns and NLFCS's 32.13%.

Firstly he really should not have the same interest as NLFCS so that these kind of conflicts do not have the opportunity to occur and secondly it raises the question whether he gained his interest at the expense of NLFCS.

So short-term or long-term? The Chairman's personal interest or NLFCS's long term interest? On what basis are paying out dividends on a 1% margin made?