Terrible 4th quarter, where losses climbed to J$61 million

Durrant Pate/ Contributor

Investment company QWI has reversed the gains made last year, posting a J$50-million net loss for its 2022 financial year, which ended in September.

The second half of the financial year was the most difficult, as losses started to mount at the Jamaica Teas group investment subsidiary in comparison to the first half when the company recorded a pre-tax profit of J$154 million. The reversal in profitability during the second half of 2022 was due to the softening of the stock markets in the United States and Jamaica.

As a result, QWI trimmed its portfolio and eliminated the loans that were used to purchase stocks in the US market. In addition, the company sold down the investment portfolio and held the cash, which it plans to use to re-enter the market when the Investments Committee feels it appropriate to do so.

September quarter loss of $61-million

A loss of J$61 million was incurred in the fourth quarter compared to profit of J$29 million in net income for the corresponding quarter in 2021. For the 2022 fiscal year, the company booked a pre-tax a loss of J$73 million compared with a profit of almost J$461 million during the same time last year.

This reversal resulted from a sharp deterioration in US share prices following increases in interest rates to combat inflation. To a lesser extent, the Jamaican stock market also deteriorated during the quarter.

The management of QWI reports that, “market conditions during the quarter and the fiscal year were generally unfavourable, which is reflected in significant unrealised losses, mainly in the overseas portfolio. Higher interest rates have been the primary cause of falling share prices locally and in the US”.

During the September quarter, overseas stock markets declined sharply. The main stock market in Jamaica continued the downward trend seen in the first half of the year, while the upturn in the Junior Market reversed in the final trading quarter of the financial year.

Realised and unrealised losses

QWI’s Jamaican investments produced J$65 million in realised and unrealised losses in the last quarter. As a result, QWI’s Net Asset Value of shares fell three percent from J$1.31 in June 2022 to J$1.27 at the end of September 2022.

However, this was a much better performance on the almost six per cent decline in the main Jamaica Stock market index. QWI recorded J$36 million in unrealised losses in the overseas portfolios and an additional J$13.4 million in realised gains.

Unrealised foreign exchange gains totalled J$4 million versus J$6 million a year ago. Administration costs ended the last quarter came out at J$23 million (2021-$14.9 million), primarily due to higher investment management costs, compared with the year ago quarter.

Equity capital shrunk

QWI ended the year with equity capital of J$1.73 billion, down from J$1.83 billion at the end of September 2021. The decline resulted from the J$47-million dividend payout in the year and the net loss incurred.

At the end of the quarter, the company had reduced its equity holdings listed in the USA and Trinidad and Tobago to US$2.3 million. The portfolio still includes positions in several leading information technology companies, retailers, aerospace and services companies.

Investments in local and overseas stocks amounted to almost $2 billion, with 82 percent represented by Jamaican listed stocks. QWI is holding approximately J$150 million in balances at its banks and brokers.

Borrowings at the end of September 2022 stood at J$346 million; all denominated in Jamaican dollars, compared with J$416 million at September 2021.

Optimistic outlook for 2023

The management has painted a positive outlook for 2022 advising shareholders, “we are of the view that our local portfolio is well positioned in stocks that have mostly reported positive profit performances but which remain below or at average market multiples of earnings. We also believe that local interest rates could be near to their peak, as local inflation returns to the six percent rate at the top end of the central bank’s target range. “

The management says the improved profit results being posted by several companies compared to 2021 is a positive development and reason for optimism about the prospects for most of its largest Jamaican holdings. QWI is encouraged by the continued rebound in visitor arrivals, sustained buoyancy in remittances which should wind up close to the J$3.5 billion received by the country last year, on-going expansion in the BPO sector as well as the boom in construction sector – buildings as well as roads.