Reverses $1B losses posted in Q1 of 2020

Sagicor’s Manufacturing & Distribution Select Fund recorded a net profit of $500.9 million for the first three months of 2021, reversing the net loss of $1 billion posted for the comparable period in 2020.

The outturn for Q1 of 2021 was primarily due to unrealised appreciation in the value of investments. This reflected increases in some prices of listed manufacturing and distribution companies relative to the end of December 2020.

This was evidenced by a rise in the value of the Jamaica Stock Exchange Manufacturing & Distribution index by 12.8 per cent over the first three months of 2021. The Fund earned $23.9 million from dividend income for the quarter, an increase of 27.2 per cent relative to dividend income for the corresponding quarter of 2020.

The impact of COVID-19 on profits has impacted dividend pay-out, as some companies reduced pay-out during the third quarter relative to previous quarters. Of note is that some companies are still reserving dividend payments to buffer their cash holdings due to possible fall-out in the future.

Some companies may not be adversely affected by pandemic

The companies within the sector that provide household items may not be adversely impacted by the global pandemic. Total expenses for the September quarter amounted to J$7.8 million.

The cost was comprised mainly of management fees and transaction costs. During the quarter, the Fund continued to improve the portfolio weightings closer to the index weighting. The lower stock prices continue to provide an opportunity to increase holdings at a lower cost.

Acquisitions included holdings in Jamaica Producers, Lasco Distributors, Tropical Battery and Derrimon Trading Limited during their additional public offer. In addition, the Fund reduced its position in GraceKennedy and realised some gains.

This led to portfolio weightings moving closure toward index weighting during the quarter. At the end of March 2021, the total asset was valued at $3.77 billion.

This comprised of financial assets held by the fund $3.69 billion (98 per cent). The assets were financed by equity of $3.76 billion and liabilities of $10.8 million. The Fund invests in a representative sample of securities included in the respective indices that collectively has an investment profile similar to the indices.

Due to the use of representative sampling, the Funds may or may not hold all the securities that are included in the respective indices. More specifically, the Manufacturing & Distribution Select Fund seeks to track the investment results of an index composed of Jamaican equities in the manufacturing & distribution sector.

Decline in manufacturing and distribution

The manufacturing industry recorded a decline of 5.4 per cent for 2020 relative to the prior year. The industry’s performance was primarily attributed to reduced output in the Food, Beverages & Tobacco and the Other Manufacturing sub-industries. This reduced demand resulted from the impact of the coronavirus and factory downtime for maintenance activities.

The lower levels of tourist arrivals contributed to reduced demand for manufactured products, as there is a strong linkage between the tourism and manufacturing industries. Lower production levels in the Food, Beverages & Tobacco sub-industry were mainly due to meat  & meat products, bakery products, dairy products, prepared animal feeds, sugar & molasses, and beverages.

The decline in the Food, Beverages & Tobacco sub-industry was tempered by the growth in grain milling and vegetable & animal oils and fats. Despite a decline in the sector, there were areas of growth in some areas.

Higher output levels in chemicals & chemical products were largely attributed to a growth in the manufacture of paints, laundry soap, detergents & cleaning preparations, and pharmaceuticals, medicinal chemicals and botanical products. This is likely linked to the demand for sanitisation as part of COVID-19 preventative measures.

The distribution industry fell by 8.5 per cent in 2020, stemming from the overall decline in economic activity and reduced employment levels. Reduced output levels in the Agriculture and Manufacturing industries as well as a decline in imports of goods contributed to the decline in the industry.