Although based in Jamaica, JMMB Group (formerly, Jamaica Money Market Brokers Ltd), has significant operations in both the Dominican Republic and in T&T.
Despite achieving top-line growth, its profits were restrained by significant one-off expenses related to its expansion activities.
Issued less than nine weeks after the close of its fiscal year on March 31, 2015, we will now review JMMB Group’s performance for that period.
Changes in financial position
Total assets advanced from J$206.7 billion to J$217.7 billion last March, reflecting an increase of 5.3 per cent.
The largest component, investment securities, rose from J$145.8 billion to J$157.2 billion. Assets described as available-for-sale securities accounted for J$117.5 billion (2014: J$102.5 billion). Within this grouping, Government of Jamaica paper, including guaranteed debt, comprised of J$78.3 billion (2014: J$69.6 billion).
Securities described as loans and receivables fell to J$28.8 billion from 2014’s J$32.3 billion. Here again, Government of Jamaica paper accounted for the largest decline, moving to J$28.5 billion from the previous level of J$32.1 billion.
Cash and cash equivalents fell to J$18.7 billion from J$23.3 billion. There was a precipitous drop in the cash component to J$7.5 billion from J$13.7 billion.
On the other hand, cash equivalents rose to J$11.1 billion from 2014’s J$9.6 billion. Included in the 2015 balance were restricted sums totalling almost J$551 million. The larger component, at J$543.2 million, related to amounts held by a broker as security for funding other securities. The smaller element of J$7.7 million was deposited at 2.5 per cent interest with a building society to assist employees with home ownership.
Loans and notes receivable rose from J$26.6 billion to J$31.9 billion. Strong increases were recorded in sums due from both corporate borrowers and financial institutions. The former rose to J$17.6 billion from J$14.8 billion while the latter jumped to J$6.3 billion from a low base of J$2.4 billion. On the other hand, advances to individuals fell to almost J$9 billion from J$10.2 billion in 2014. These amounts represent gross values before impairment of J$1.04 billion (2014: J$0.9 billion).
Marginally helped by the acquisition of AIC Securities made in the current year, property plant and equipment rose to J$2.03 billion from J$1.84 billion. The major movements were additions of J$465 million and depreciation charges of J$287 million.
Total liabilities rose from J$188 billion to J$196 billion. Securities sold under agreements to repurchase accounted for J$144.5 billion (2014: J$143.3 billion). This category represented 73.7 per cent of total liabilities in 2015 and 76.2 per cent of total liabilities in 2014.
Out of this total, almost 62 per cent or J$89.25 billion is denominated in US dollars. A further J$44 billion or 30.5 per cent is denominated in Jamaican dollars with the remainder spread over five other currencies.
As part of its fund-raising activities, the group has both notes payable and redeemable preference shares outstanding. The notes payable were issued during the 2014/15 fiscal period.
Notes payable totalling J$3.64 billion comprises two portions. The larger quota is a senior unsecured fixed note denominated in US dollars with an outstanding value of J$2.3 billion. Interest is at 6.75 per cent. If it is not redeemed at its July 18, 2016 maturity, the noteholders may extend its maturity to July 18, 2019, but at a higher interest rate of 7.75 per cent.
The second component has a value of J$1.35 billion. This represents a subordinated debt of TT$80 million, which has a maturity of March 28, 2022 and incurs an interest rate of 4.5 per cent. This debt was issued by a Trinidad-based subsidiary, probably, Intercommercial Bank Ltd.
The group has four tranches of redeemable preference shares outstanding, totalling J$4.23 billion. Interest rates on these non-voting instruments range from 7.25 to 8.75 per cent.
Customer deposits rose to J$38.5 billion from J$35.9 billion, reflecting an improvement of 7.2 per cent.
Equity improvements
Stockholders’ equity advanced to J$20.96 billion from the previous level of J$18.33 billion.
Retained earnings improved by a net of J$1.39 billion to close 2015 at J$7.57 billion. The current year’s profit of J$1.9 billion boosted this figure while dividends to shareholders of J$538 million lowered the net result.
The investment valuation reserve improved by J$1.4 billion to J$2.04 billion; this reflected unrealised gains on available-for-sale securities.
Foreign exchange differences of J$165 million more than wiped out the previous year’s positive balance causing the cumulative translation reserve to end at a negative J$109 million.
With 1,630,552,530 ordinary shares outstanding, each share has a book value of J$12.85 (2014: J$11.24).
Total interest income expanded by 8.6 per cent to J$13.33 billion from 2014’s J$12.28 billion. With the exception of investment securities, all other streams of income advanced robustly.
Notably, interest from loans and receivables climbed by 58 per cent to J$2.51 billion from J$1.59 billion. Interest from resale agreements jumped to J$812.8 million from J$11 million (or by 7,216 per cent!) Even interest on cash balances scored a robust improvement, moving to J$46.2 million from J$16 million.
While still being the major component, interest on investment securities fell from J$10.66 billion to J$9.97 billion.
Total interest expenses climbed disproportionately by 15.1 per cent to J$8.07 billion from J$7.02 billion.
Interest paid on repurchase agreements rose by J$657 million or 10.5 per cent to J$6.92 billion from J$6.26 billion. Meanwhile, interest on notes payable jumped to J$806.8 million from J$451.6 million, reflecting a 79 per cent increase.
The increase in interest on redeemable preference shares moved to J$353.4 million from J$306.7 million; this reflects the interest on the two new tranches of preference shares that were issued in August 2013.
The net effect of these movements saw net interest income being almost unchanged at J$5.26 billion for both periods.
The group’s other major sources of income was its net gains on securities trading. This component climbed by a solid 47.1 per cent to J$3.42 billion from the previous year’s J$2.33 billion.
Other significant contributors to income were foreign exchange margins from cambio trading (2015: J$936 million; 2014: J$588 million) and fee and commission income (2015: J$546.3 million; 2014: J$427 million). In addition, fees earned from managing clients’ funds moved from J$129.6 million to J$154.8 million. Other miscellaneous income sources advanced to J$62 million from less than J$10 million in 2014.
The net effect of these changes saw total income climb by 18.8 per cent to J$10.38 billion from the 2014 level of J$8.74 billion.
Unfortunately, JMMB incurred staff costs that were 36 per cent greater than in the previous year and other expenses that climbed by 39 per cent.
The combined effect of these changes pulled down operating profit to J$2.59 billion from J$3.07 billion.
The impairment loss on financial assets of J$259.2 million, which related to its equity and corporate bond portfolio, obscured the modest J$19.3 million gain on the acquisition of AIC Securities Ltd.
After accounting for all these changes, JMMB’s after-tax profit registered at J$2.05 billion; this was more than J$1 billion lower than the J$3.06 billion earned for 2014.
These results translated into 2015 EPS of J$1.18 versus J$1.74 for 2014.
Segment performance
Both major operating units delivered strong top-line gains, whether measured by external revenues or interest income.
Unfortunately, both segments incurred unusual one-off increases in expenses relating to acquisitions of Trinidad-based companies.
JMMB’s interest in Intercommercial Bank Ltd moved from 50 per cent to 100 per cent. This change impacted the banking segment’s expenses and results.
The financial segment’s expenses were squeezed by the integration of AIC Securities Ltd (subsequently renamed JMMB Securities (T&T) Ltd). Even so, in its first 11 months as a JMMB subsidiary, the former AIC Securities contributed J$38 million (TT$2.25 million) to revenues and J$4.2 million (TT$249,000) to net profits.
Among other expenses that increased, the assets tax (in Jamaica) jumped from J$194.8 million to J$374.2 million. In its third quarter report, expenses associated with the two Trinidad acquisitions were given as J$795.8 million. In addition, there was a further J$662.4 million that related to integration and other costs.
Dividends and share price
Total dividends with respect to its 2014 fiscal period was J$0.33. For the 2015 period, an interim dividend of J$0.16 was previously paid on December 16, 2014 and, on June 29, 2015, a final dividend of J$0.16 will be paid.
Using the 2015 dividend of J$0.32 and a recent price of J$7.80, investors in Jamaica enjoy a yield of 4.1 per cent. This yield is almost on par with the local market, where the dividend is equivalent to almost TT$0.02 and its recent share price was TT$0.45.
In its home market, the share price of the predecessor company (JMMB) was traded at J$7 last June. The successor company, JMMB Group Ltd, peaked at J$10.00 on May 5, 2015.
The future
With much of its integration expenses behind it, the rebranded and restructured JMMB Group Ltd can look forward to a brighter future in its three major operating localities.
As an associate of NCBJ, which owns 26.3 per cent, it has access to many useful contacts.
When fresh funding is needed to finance future growth or settle maturing obligations, the lower rates available in Trinidad should make it the preferred choice.