Expenses declining to stem losses
By Durrant Pate
Investment company, QWI Investments has experienced its worst financial year in 2020 since its December 2018 inception, reporting pretax losses year to date of $531 million.
This was due primarily to losses amounting to $524 million on its Jamaican investment portfolio, countered by $43 million in gains on its overseas portfolios. The losses reported for its 2020 financial year ended September 2020 was $490.81 million relative to a gain of $389.50 million last year.
For the review period, QWI recorded tax credit of $77.82 million (2019 tax charge: $82.26 million), thus resulting in net losses for the year under review of $452.97 million compared to the 2019 profit of $248.60 million. Notably, for the last quarter ended September 2020, QWI recorded a small profit for $8.08 million versus $136.45 million reported for the quarter ended September 2019.
Losses drive down equity capital
The company ended its 2020 financial year with equity capital of $1.42 billion, down from $1.87 billion at the end of September 2019, as a result of losses incurred during the year. At the end of the fourth quarter in September, QWI held almost US$3 million in equities listed in the USA and Trinidad and Tobago, including positions in several leading information technology and drug companies, retailers, defence contractors and payment processors.
QWI holds investments in local and overseas stocks amounting to $1.63 billion, of which 74.4 percent of the Investment Portfolio are in stocks listed on the Jamaican market and the vast majority of the balance invested in the US market. In its fourth quarter and end of financial year report QWI states that it utilised a limited amount of borrowed funds in its investment activities.
At the end of the period, borrowings amounted to $199 million compared with $186 million in September 2019.
Fall in JSE Market
While the Jamaican equity values declined sharply during the financial year, stocks in the financial sector collectively suffered more than the other sectors. This resulted in the Jamaica Stock Exchange (JSE) financial sector index falling from 142.78 points to 99.48 points, or 30 percent at October 21, while the main JSE index had a lower decline of 24 percent over the period.
“The financial sector has the heaviest weight in both our portfolio and the JSE index, hence the sharper fall in that sector would have had a greater impact on the portfolio and other areas of investment,” QWI reported in its fourth quarter and 2020 financial year report.
The fall in the financial sector stocks was due mainly to two factors – increased provisions made for expected credit losses and the suspension of dividend payments by some banks. Since September 2019, the main JSE index declined by 26.2 percent and QWI’s NAV per share declined by 24 percent.
Some expenses declining
Administrative and other expenses amounted to $41.88 million, a decline over the $51.07 million recorded in 2019. However, for the quarter ended September 2020, administrative expenses fell to close at $10.15 million compared to the $33.67 million recorded in 2019.
Interest expenses for the year, rose totaling $19.62 million, up from the $12.55 million recorded in 2019. For the quarter, interest expense closed at $5.50 million relative to $9.51 million last year.
QWI’s main expenses during the fourth quarter and the year was management fees paid to Jamaican Teas as well as interest expense on the company’s borrowings. Added to these expenses was a foreign exchange translation loss in the quarter of almost $12 million.
Investment decisions are overseen by the members of QWI’s investment committee who are paid an incentive fee, based on the performance of the company. During the year, no investment fees were incurred.