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Sagicor Jamaica 2012 results
A powerful motivator for a company to finalise its audited accounts and pay a dividend before a specified date seems to be the enactment of a new tax measure. Effective April 1, 2013, the tax on dividends for Jamaican residents will increase from five to 15 per cent. Thus, Sagicor Life Jamaica (SLJ), as well as many other Jamaican companies, took the necessary steps to ensure that shareholders are taxed on their dividend at the lower rate. SLJ will pay a final dividend of J$0.19 on March 28, 2013.
SLJ’s dominant shareholders are Sagicor Financial Corporation with a 51 per cent shareholding and Pan-Jamaican Investment Trust Ltd with 32.76 per cent.
For the year ended December 2012, SLJ saw its assets increase by 8.7 per cent to J$175 billion from J$161 billion as at the end of 2011. This asset growth was not matched by a similar increase in profit attributable to shareholders, which rose by only 4.9 per cent to J$5.79 billion from 2011’s J$5.52 billion.
Balance sheet changes
Asset growth was concentrated in financial investments, which increased by 7.8 per cent or from J$114.8 billion to J$123.8 billion as at December 2012.
Under the classification of financial assets at fair value through profit and loss, there was an increase of J$3.89 billion in its holdings of Government of Jamaica short term deposits held. This was more than offset by a decline of J$4.44 billion in its holdings of available for sale government of Jamaica securities.
Increases in other available for sale securities were also noted in foreign government securities and corporate bonds; these items rose by J$1.35 billion and J$2.55 billion, respectively. Also helping achieve the J$9 billion improvement was the huge reduction in the amount of pledged assets; in 2011, this reduced total investment assets by J$7.8 billion but, in 2012, this line item was only J$3.9 billion.
Also exhibiting a significant change was cash resources, which increased to J$4.75 billion from 2011’s J$2.88 billion. This increase mainly reflected a rise in demand balances at banks.
Derivative instruments grew by a multiple of five times; in 2011, this figure was only J$0.8 billion, but it exploded to J$4.25 billion as at December 2012.
The singular reason for this increase was that its subsidiary, Sagicor Investments Jamaica Group, entered into an agreement to swap the quarterly principal and interest receipts on a euro currency note for US dollars at future dates at a fixed interest rate and exchange rate. This created a currency swap asset of J$3.952 billion together with an offsetting liability of J$4.022 billion. The contract expires in February 2015.
Securities sold under agreements to repurchase moved up by almost 80 per cent. From its 2011 balance of J$1 billion, this item increased to J$1.79 billion. These are primarily reverse repurchase agreements collateralised by government of Jamaica securities.
On the liabilities side of the equation, the most significant change occurred in the policyholders’ balances, which mostly comprises of segregated funds, insurance contracts and investment contracts.
These aggregate amounts grew to almost J$53 billion from J$47.9 billion as at the end of 2011, or by 10.5 per cent.
Shareholders’ equity also showed a strong 15.4 per cent growth. This item advanced from J$28.3 billion as at December 2011 to J$32.6 billion as at the end of 2012.
The most significant change occurred in the retained earnings balance, which increased by J$3.279 billion or 20.5 per cent to J$19.26 billion as at December 2012.
Income, expenses and profitability
Sagicor Jamaica’s net premium revenue improved by only 4.1 per cent to J$19.5 billion from J$18.8 billion in 2011. Despite this, claims accelerated by 14.4 per cent to reach J$10.4 billion from 2011’s J$9.1 billion. These changes resulted in a decline in its’ underwriting profit to J$9.2 billion from the J$9.7 billion experienced in 2011.
Somewhat counteracting this decline was the increase in net investment income. This measure improved from J$7.6 billion in 2011 to J$8.7 billion last year, or by 14.1 per cent. This increase was due almost entirely to a reduction in its impairment charge, which declined to a modest J$5 million from the 2011 figure of J$834 million. This item related to an Exchange Traded Fund (ETF) held by its Cayman Island subsidiary.
Fee income also registered a healthy improvement of 8.6 per cent. The 2012 figure of J$1.54 billion was J$122 million greater than the J$1.42 billion earned in 2011. In this income segment, two items stand out.
First, stock brokerage fees jumped from J$30.4 million in 2011 to J$40.1 million; this change of J$9.7 million or about 32 per cent may be related to the transaction during 2012 whereby its parent company, Sagicor Financial Corporation, sold down its shares in SLJ to Pan-Jamaican Investment Trust. The other significant change was corporate finance fees, which earned J$44.3 million; in 2011, this line item did not exist.
Other operating income increased from a modest J$891 million in 2011 to a more robust J$1.74 billion last year.
Total expenses rose to J$10.9 billion from J$9.7 billion incurred in 2011. The major components include administration expenses, staff cost and commissions and sales expenses. With only two exceptions, all components registered upward changes.
Provision for credit losses fell to J$8 million from J$36 million in 2011. Also, finance costs declined to zero from almost J$77 million incurred in 2011.
Overall, profit before tax came in at J$6.85 billion from J$6.64 billion in 2011, representing an improvement of 3.2 per cent. Despite the higher profit, taxation declined in both absolute and percentage terms. The tax expense fell to J$863 million from 2011’s J$884 million. As a percentage of income, the 2012 effective tax rate was 12.6 per cent in contrast to the 13.3 per cent rate applied for 2011.
SLJ earned J$5.987 billion after tax, showing a four per cent improvement over the previous period’s J$5.754 billion.
After allowing for non-controlling interests of J$197 million the profit attributable to shareholders came in at J$5.79 billion; this represented a 4.9 per cent improvement over 2011’s figure of J$5.52 billion. In addition to the lower tax rate, profit attributable to minority interests was lower by J$34 million in 2012 over the J$231 million recorded for 2011.
The company reports its results along four major business classifications: individual lines, employee benefits, banking and asset management and, finally, other. All segments showed higher revenue compared to their 2011 performance.
In 2012, individual lines generated J$10.6 billion in revenue compared with J$9.4 billion delivered in 2011.
Despite this growth, net profit contracted by 18 per cent to J$2.1 billion from the previous year’s result of J$2.57 billion.
Claims and expenses increased by a lower percentage than revenue, however, the biggest change was observed in actuarial liabilities; this item moved from less than J$50 million in 2011 to J$1.15 billion in 2012 and was the major reason for the division delivering lower earnings.
The reason for this huge increase was the lower interest rate regime, introduced under the Jamaican government’s new debt exchange programme (NDX) announced in February 2013.
The employee benefits segment saw its revenues advance by 4.5 per cent to reach J$15.15 billion in 2012 from the J$14.51 billion achieved in 2011. In this case, higher sums paid in claims and expenses in 2012 were significantly offset by a reduction in actuarial liabilities. Consequently, this division’s net profit rose to J$2.36 billion from 2011’s J$2 billion, or by 18 per cent.
The banking and asset management segment delivered 5.2 per cent higher revenues in 2012 than for 2011; this translates to 2012 revenues of J$4.15 billion versus the J$3.95 billion recorded in 2011.
However, this revenue increase was accompanied by a steep decline in profitability, which fell from J$1.62 billion in 2011 to a more modest J$1.35 billion in 2012.
One factor that contributed to this decline was the introduction of premium and other taxes, amounting to J$110 million in 2012; no such expense was recorded for 2011. Somewhat mitigating this increase was the elimination of finance cost in 2012; in 2011, this item consumed J$76.9 million.
Benefits and expenses also rose by a disproportionate 16.4 per cent to J$1.89 billion from 2011’s J$1.63 billion.
In the case of the other business segment, external revenues leaped by almost 84 per cent to J$1.54 billion from 2011’s J$837 million. This revenue boost was accompanied by a strong improvement in profits; this measure moved from a loss of J$278 million in 2011 to a profit of J$108 million in 2012.
Effects of NDX
SLJ holds J$50.24 billion in Jamaican-denominated bonds and J$7.49 billion in bonds denominated in US dollars. For the local currency portfolio, the reduction in interest rates ranges from 62 to 100 basis points.
In contrast, for the US dollar denominated funds, the reduction in interest rates spans from 150 to 180 basis points. Durations now extends from 1.55 years to 9.13 years. Previously, they ranged from 0.74 years to 9.12 years.
Sagicor Jamaica’s share price ended on December 31, 2012 at J$10.11. However, since the announcement of the Jamaican government’s debt exchange programme, its price has declined and it closed last Friday at J$6.95. This reflects an expectation that interest income will decline in the early months of 2013, thus negatively impacting its current income and profits.
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