Gen Accident buys 3rd largest slice of Purity for $12 million

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August 23, 2013

GENERAL Accident Insurance Company snatched the third largest shareholding stake in Consolidated Bakeries, makers of Purity products, following a sale of shares in the June quarter by majority owners Chang Brothers Ltd.

What's more, the majority shareholders of the bakery reduced their stake in the company from three-quarters to just under two-thirds from the sale of 33 million of the 222 million total outstanding shares.

"We wanted to provide more liquidity in the market because there was the view that the shares were too closely held," stated Consolidated Bakeries director Anthony Chang in an Observer interview at his Red Hills Road head office. "They [General Accident] saw value in the shares and acquired some of them."

General Accident now holds 12 million of those shares which makes it the third largest block holder followed by JCSD Trustee Services — Sigma at 2.6 million.

Essentially, the general insurer bought a slice of Purity bakery — among the nation's most popular — for $12 million. It did so to grow its investment portfolio separate from core insurance activity. Prior to the June quarter it was not a top 10 sharesholder in Consolidated Bakeries.

"The shares were underpriced and we saw the prospects for increased profitability within the company," said Lochinvar Lungren, chief financial officer at General Accident, in a phone interview on Wednesday. "Plus we had confidence in the new management team led by Anthony Chang."

General Accident usually invests in blue-chip stocks, but Consolidated Bakeries offered "great value" for its investment float, he added. Already the general insurer has seen a 20 per cent gain on its investment.

"The price has gone up. We bought it at $1 and now it's at $1.20. There was no hard science to it. We saw value in the stock," Lungren added.

Consolidated Bakeries was, up to November 2012, a wholly owned subsidiary of Chang Brothers, the main entity through which the Changs — Vincent, Anthony and Niccola — hold ownership.

In December 2012, the percentage shareholding of Chang Brothers was reduced to 76.3 per cent-facilitate listing on the Junior Stock Exchange in that month.

"Subsequent to March 31, 2013, the shareholding of Chang Brothers Ltd was further reduced to 61.6 per cent as a result of share transactions," indicated the June 2013-ending six months' financials.

Chang Brothers currently holds 137 million of the 222 million outstanding shares. The individual shareholding in Chang Brothers is not precisely disaggregated. However, individually it places Anthony Chang with 18.3 million shares.

Consolidated Bakeries produces Purity, Miss Birdie and Hearty Goodness baked goods.

The company made a 474 per cent year-on-year rise in profit to $10.6 million for its June 2013 quarter.

Revenues, which hit $156 million in the quarter, were up 40 per cent year over year, due to windfalls from increased marketing. The rise in its marketing spend, although undisclosed, resulted in a marginal rise in its operating expenses-to-sales ratio at 29.7 per cent for the half-year versus 29.6 per cent for the same period last year.

The Kingston-based bakery raised some $100 million and listed on the Jamaica Stock Exchange Junior Market in December 2012. The proceeds of the IPO improved its working capital and operational processes.