BOJ: Economy likely declined in Q2

Economic activity for the June 2013 quarter is estimated to have declined within the range of negative 0.8 percent to positive growth of 0.2 percent the central bank said in its latest report on the economy. This performance compares to average decline of 0.7 per cent for the four preceding quarters.

The weak performance of the economy continued to reflect low external and domestic demand. Low domestic demand reflected the impact of depressed real wages and high unemployment the central bank said. The data compares with a decline of 1.3 percent that the Statistical Institute of Jamaica said occurred in the March quarter and an estimated decline within the range of -1.2 per cent and -0.2 per cent by BOJ.

The preliminary out turn compares with the central bank’s forecast for the quarter of real GDP growth within the range of -0.5 per cent to 0.5 per cent for the June 2013 quarter.  This performance it then said should reflect expansions in Mining & Quarrying and Construction offset by contractions in Hotels & Restaurants and Agriculture, Forestry & Fishing.

BOJ600x250The central bank outlined the various areas of growth or contraction. For the review period, contractions are estimated for the tradable and non-tradable industries. The performance of tradable industries primarily reflected declines in Export Agriculture, Manufacturing and Hotels & Restaurants. Electricity & Water Supplies and Domestic Agriculture drove the contraction in the non-tradable industries.

Agriculture, Forestry & Fishing is assessed to have contracted further in the June 2013 quarter, relative to average quarterly decline of decline of 2.1 per cent for the preceding four quarters. The decline in the industry was largely associated with unfavourable weather conditions, weak global demand and the continued impact of the coffee rust disease. Specifically, the outturn for the review quarter reflected contractions of 5.7 per cent and 41.0 per cent in domestic and export crop production, respectively. This compares to an expansion of 12.7 per cent in domestic crop production and a decline of 20.4 per cent in export crop production in the June 2012 quarter. The estimated decline in export crop production largely reflected a contraction of 41.3 per cent in sugar cane milled relative to a decrease of 20.4 per cent in the corresponding quarter of 2012. The fallout in sugar cane milled reflected the earlier commencement of the crop year relative to the corresponding period in 2012.

For the review quarter, Hotels & Restaurants is estimated to have contracted marginally relative to growth of 4.7 per cent in the June 2012 quarter. Of note, the industry’s performance was reflective of estimated declines in both sub-industries. The fall in Hotels was inferred from declines of 0.2 per cent and 0.4 per cent in stop-over visitor arrivals and visitor expenditure, respectively, relative to the corresponding quarter in 2012.

With the exception of the March and December 2011 quarters, Electricity & Water Supply is assessed to have contracted since the March 2010 quarter. The performance of the industry in the June 2013 quarter reflected decreases of 2.3 per cent and 0.1 per cent in electricity consumption and water production, respectively. Lower electricity consumption was primarily influenced by disruptions in transmission due to technical losses and theft. Continued drought condition hampered water production during the review period.

Following five consecutive quarters of growth averaging 0.7 per cent, output for Finance & Insurance Services is estimated to have contracted in the June 2013 quarter. The downturn was largely institutions’ participation in the National Debt Exchange in February 2013.

Mining & Quarrying is estimated to have recorded growth in contrast to the contraction of 9.7 per cent in the June 2012 quarter. The improvement in the industry was primarily reflective of increased capacity utilization of 40.6 per cent in the alumina industry relative to 37.4 per cent in the June 2012 quarter. This improvement reflected normalization at one alumina plant that had encountered technical difficulties in the corresponding period of 2012. Against this background, total alumina production increased by 8.6 per cent. However, due to maintenance activity at the bauxite plant, crude bauxite production declined by 4.4 per cent. In this context, total bauxite production grew by 2.2 per cent during the period.

For the June 2013 quarter, marginal growth is assessed within Construction compared to a contraction of 4.2 per cent in the preceding June quarter. The performance of the industry mainly reflected the impact of infrastructural development programmes and hotel projects such as Highway 2000, Riu Palace Jamaica and Memories White Sand Resort.

Related posts | Economy probably contracted 2.5% in Q2 | Mining & Agriculture dent GDP badly | BOJ: Little or no growth to June | BOJ estimates GDP decline in Q1

BOJ confirms IC Insider FX report

Jamaica’s central bank purchased US$193.6 million (net) from the market in the context of tight Jamaica Dollar liquidity during the June quarter putting the Net International Reserves at end of June to US$1.003 billion, US$119 million above the outturn for end of March 2013. The increase is in line with what IC Insider surmised in our post “What’s BOJ up to in FX & money market?” that it was the central bank driving the exchange rate movement. The Bank’s gross reserves at end-June 2013 amounted to US$1.88 billion, representing 12.9 weeks of projected goods and services imports.

The central bank in its latest release on the economy stated that “given periodic episodes of demand pressures, the Bank offered two USD indexed bonds and nine VR instruments as part of its liquidity management programme. These actions would have also constrained the pace of adjustment of the exchange rate”.

BankofJamaicaBOJThe Bank estimates that there was a decline of US$72.4 million in Net Private Capital (NPC) flows during the quarter. NPC flows declined in the context of heightened concerns regarding the near-term outlook for the exchange rate. This reduction was, however, constrained by tight Jamaica Dollar liquidity which limited the ability of investors and merchants to hedge against further movements in the exchange rate. In this regard, the net open foreign currency position of authorized dealers (AD) is estimated to have declined by US$207.3 million during the quarter. Most of the reduction in AD positions occurred in June. These developments contributed to an increase of 10 per cent in average per diem purchases to US$28.8 million relative to the March 2013 quarter. Concurrently, average per diem sales increased by 25.1 per cent to US$32.3 million, the BOJ statement concluded.

Related posts | What’s BOJ up to in FX & money market? | BOJ offers 3 new CDs | BOJ raises rates to attract money

Government may wipe out deficit

Jamaica could wipe out its fiscal deficit for the 2013/14 fiscal year if measures announced by the Government achieve the targets set. A primary surplus, the target that has been set, will translate to a surplus before interest cost of around $100 billion. The Minister of Finance spoke of a potential $17 billion savings from the swap out of old loans into loans with lower interest rates that would reduce interest cost to around $100-120 billion.

According to the Minister of Finance, the first debt exchange in 2009 saw the average coupon on outstanding domestic debt decline by an average of 650 basis points to 12.5 per cent. The JDX resulted in $700 billion domestic debt refinanced from an average of 18 per cent to 12 per cent; 25 new benchmark securities replaced 350 illiquid bonds; and 99.2 per cent participation — the highest on record world-wide.

The estimated annual interest cost savings for the Government was projected at $41 billion. In fact the government saved vastly more in the first full year as interest rates fell sharply afterwards.

The new debt exchange earlier in February of this year (JDX2) along with the tax package should see interest rates across the system fall as more funds are taken out of the economy with limited need to borrow new funds. This won’t happen immediately but over the course of the year. This will mean lower borrowing cost but also lower withholding taxes for government. The wiping out or virtual wiping out of the fiscal deficit will mean government will be borrowing no new funds from the local economy and could well repay some to the system.

Pressure will be eased off the Jamaican dollar and people should not be surprised if there is some revaluation of the dollar. The JDX2 debt exchange will not have the same impact as the first one on the business sector. For one, interest rates were in the mid-teens to mid-twenties when the first one was implemented. JDX2 is expected to save $17 million less than the $41 million estimated back in 2009 and is worth far less in real terms as inflation has made the savings worth about 50 percent or so less. Banks are less dependent on government paper for income as they have aggressively expanded their loan portfolio.

The tax package is a poor commentary on the government’s views on increased production and productivity. To add taxes on businesses that our main trading partners don’t have to bear is a direct hit on the country’s competitiveness. Increasing cost on production is clearly not the way to go but that is exactly what’s been done.

All in all, the main objectives of cutting the fiscal deficit quickly are right but many of the methods being implemented are the wrong medicine.

Related posts | Fiscal deficit target exceeded again | Gov’t raking in taxes | GOJ: Deficit cut

Image courtesy of StuartMiles/FreeDigitalPhotos.net

Profit up, margins shrink at Seprod

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Shrinking margins and lower gross profit could not prevent Seprod from enjoying a bump in profit of $312 million in the June quarter versus $161 million in 2012 and $542 million for the six months period versus $453 million in 2012.

Seprod got a boost of $107 million from the sales of equities in the June quarter. Also in the quarter, they benefitted from a gain of $54 million from holding of assets in foreign currency. Finance and other operating income rose to $112 million in the quarter, up from $80 million in 2012 and for the six months, $206 million versus $167 million. Management has kept selling and administration cost under control with both areas falling in the latest quarter and just rising slightly for the year to date period. Selling expenses which came out at $100 million for the quarter was $6 million less than in 2012 and admin cost came out at $372 million versus $374 million in 2012. For the six months, selling expenses climbed by $4 million to $198 million and admin went to $784 million up from $751 million in 2012. Finance cost moved up to $42 million from $26 million in the June quarter and in the six months period, it rose from $48 million in 2012 to $82 million in the latest period.

Revenues | Revenues were down 2 percent in the first quarter, falling to $3.7 billion and off by $74 million from the year ago period. However, revenues increased by a healthy 17 percent to $3.7 billion in the June quarter and is up 7 percent for the 6 months to June.

The biggest issue the company is currently having is a sharp fall in profit margin. To June 2012, gross profit as a percentage of direct cost was 28.2 percent and has fallen to 24 percent for the 6 months to June this year and to only 21 percent versus 24 percent in the June quarter. The deterioration has occurred in the distribution segment as profit stagnated at $99 million, a slight 3 percent rise in that area while sales rose 11.5 percent. In the manufacturing segment, profit is up by 12.5 percent to $893 million and revenues is up 3.5 percent to $4.7 billion.

Earnings per share for the 6 month period is $1.05 and the full 12 months to December should be around $1.80-$2.

Finances | Seprod has $3.9 billion in cash and investments. Borrowing is at $2.26 billion up a billion dollars from June 2012. Current assets are well in excess of current liabilities by 3 to 1 and equity stands at a strong $9.6 billion.

Longer term | Seprod has never been one of those sexy companies but it has done remarkably well since listing back in the 1990s. It appears that for 2014 and beyond a lot is being predicated on the fortunes of the sugar operations in St Thomas where the target for sugar production is the processing of 300,000 tonnes of canes that should work out to around 25,000 tonnes of sugar. Management indicates that the expanded canes farms are already planted and the production should be coming in the 2014 crop. The group acquired Bowden Estates with 3,000 acres along with another property in the area and lands that were in bananas have now been planted out in canes. Management states that the sugar company is critical to them as a foreign exchange earner that can supply foreign currencies for the group when needed.

Related posts | Seprod’s dividend consideration | What’s really up at Seprod?

FX: Stable rates all round

Tuesday, 20th August 2013 | Trading on the forex market resulted in fairly stable rates on Tuesday for buying and selling the three main foreign currencies. Trading in US dollars brought in $27 million at 7 cents more on average as the rate settled at $101.29 and $26.7 million selling at a cent more than Monday’s average rate as it closed at $101.94. The change in trading the Canadian dollar was somewhat different from the US dollar as it took 10 cents on average to purchase the Canadian at $96.41 as purchases amounted to $756,000 and sales took place at 36 cents less than Monday’s average rate for $563,000 at the average rate of $98.26. The pound fell on both the buying and selling rates as it cost dealers 6 cents less at $157.09 in buying £1.26 million while the selling of £716,000 took place at 27 cents more at $159.46.

Overall the equivalent of $30 million were purchased and $28.66 million were sold.

FX_TRADE+Currency+Aug20There was no change in the lowest selling rates for the Canadian dollar and Pound and none in the highest selling rate for the US dollar. The highest buying rate for the US dollar was off 5 cents to $102.45 and the low price was $83.92 but the lowest selling rate was at $98 down $1.50. In the case of the Canadian, it took 25 cents more in buying the currency at the highest rate which ended up at $98.95 and 11 cents less for the highest selling rate of $102.40 but $3.25 more for the lowest selling rate of $95.70. For the Pound all 3 rates declined with the highest buying moving down by 80 cents to $159.90, the highest selling was down $3.65 at $162.73 and the lowest at $154, off 35 cents.

FX_TRADE+HighLow+Aug20

JSE: Moderate gains

Tuesday, 20th August 2013 | The market closed off today as stocks of 28 companies traded with a volume of 3.69 million valued at $20.57 million. There were 8 stocks advancing and 10 declining as all the indices gained moderately except for the junior market. The cross listed had no trades.

The All Jamaica Index gained 533.18 points and closed at 85,994.08 and the JSE Market Index increased by 303.03 to close at 85,676.88 the Junior Market closed down by 15.33 closing at 794.11.

Main market | Cable & Wireless traded 401,991 units firm at 15 cents, Carreras had 50,460 units changing hands at $49.10 valued at $2.478 million, Caribbean Cement accounted for 75,913 as the stock traded as high as $2.50 before it closed at $2.22, up 12 cents, Desnoes & Geddes traded 386,000 units valued at $1.74 million and lost 2 cents to close at $4.50, Grace Kennedy traded 6,050 units lost 4 cents to close at $56.95, Jamaica Money Market Brokers saw 577,150 units changing hands valued at $4.9 million and closed at $8 down 10 cents for the day. National Commercial Bank 29,696 shares traded with a closing price of $18.51, down 5 cents. Pan Jamaican Investment Trust had just 7,539 units trading firm at $51.10. Sagicor Life Jamaica Limited 7,720 saw trading at $9, which is down 50 cents from Monday’s traded price but the offer at the end of trading was $8.45 for 26,000 units. Scotia Group had one of the largest trades in monetary terms as 299,551 units changed hands at a closing price of $21.01 to cost $6.37 million, the stock traded firm.

JSEIndicesAug20Junior market | Trading picked up in the junior market on Tuesday with the Lasco companies picking up in volume as profit taking in the shares appears to be ending while demand is returning for them. Consolidated Bakeries traded 354,230 units, the most since June 28 and closed at $41.41, up a cent. Blue Power traded up to $9.60 but closed at $9.21, up 3 cents in trading 36,100 units. The company posted improved quarterly results yesterday and investors seemed to have been responding positively to them. Cargo Handlers closed at $13, up 38 cents in trading 3,000 units, Dolphin Cove lost 80 cents in late trading to close at $8.20 with only 1,200 shares trading. Lasco Distributors closed at $1.46 in trading  574,199 units, Lasco Financial Services traded 376,901 firm at $1.52, Lasco Manufacturing closed at $1.59, down a cent in trading  379,616 units.

IC bid-offer Indicator | At the end of trading, the Investor’s Choice bid-offer indicator shows that bids for 1 stock was higher with 2 stocks having offers lower than their last selling price. This is the weakest this signal has been since we started tracking and suggests a ‘sideways market’ at this time.

Related posts | Blue Power profit up 20%

TTSE: Trinidad Cement still holds sway

Tuesday, 20th August 2013 | Trinidad Cement stock price has more than doubled since late June. Yet it continues to be in demand as the stock led today’s trading with 455,377 units changing hands valued at $884,472. The stock traded firm at $1.95. Scotiabank Trinidad & Tobago with a volume of 113,314 shares accounted for the bulk of money invested in the market amounting to $7,931,980 as the stock closed firm at $70.

Trading in the market remained moderate with the stocks of 9 companies changing hands, with 3 advancing, 2 declining and 4 trading firm resulting in a volume of 700,215 shares crossing the floor of the Exchange valued at $9,269,574.

Scotia Investments Jamaica, contributed 69,392 shares with a value of $142,155 as it put on 1 cent to close at $2.03 but traded as high as $2.05, while Grace Kennedy added 33,692 shares valued at $111,288 while losing 9 cents to close at $3.30. National Flour traded 20,140 firm at 70 cents.

TTSEAug20Unilever Caribbean with a mere 500 units trading gained $0.23 to end the day at $55.25 as the bid at the end of trading was at $55.28 for 1,000 shares. Clico Investment Fund, posted a volume of 5,300 shares valued at $112,890 and declined by 20 cents to end at $21.30.

JMMB did not trade on Tuesday but had a bid for 458,940 units at 50 cents the same as Monday’s last traded price and an offer of 143,000 units at 57 cents.

IC bid-offer Indicator| At the end of trading, the Investor’s Choice bid-offer market sentiment indicator shows that bids for 3 stocks were higher with 2 stocks having offers lower than their last selling price.

Exports push Jamaican Teas’ profit

A strong 70.6% increase in exports for the nine months to June helped in pushing profit at Jamaican Teas up to $75.3 million or 16 percent when compared to $64.8 million for the similar period of the prior year.

Export sales accounted for 52 percent of the total manufacturing sales for the latest quarter. The improvement in exports was driven mainly by increases in sales to the USA and Trinidad. Results for the June quarter were not as strong as the prior two quarters with an increase of 9.5 percent to $24 million as local sales slipped marginally compared to $22 million in the comparative period in 2012. While the growth in profit for the year may not appear impressive, the quality is far better as there was a large $13 million swing in earnings reported from gains on investments in 2012 resulting from a $10 million gain in 2012. While there was a $3 million loss this year, the net amount is partially offset by a $5 million gain from exchange rate movement.

The group recorded improvement in sales for the first nine months of the financial year, increasing by 34.5 percent to $783 million versus $582 million in the prior year. Improved sales was due to healthy increases in both export and supermarket sales, including the newest supermarket in Sav-La-mar, which was acquired by the company in March 2012.

The supermarkets also contributed to the bottom-line improvements which helped the improvement in revenues and profits. The results do not yet reflect sales from the completed real estate development which the group expect to be reflected in the final quarter of the fiscal year in September.

Image from Behance.net

Image from Behance.net

Associated company | The company’s jointly owned supermarket in Montego Bay, continues to show improvement but has not shown profit to date. Sales in the quarter rose 11% above the similar period of 2012. Management stated, “We enjoyed an encouraging improvement in sales since the start of the quarter pushing us closer to a break even position. Our share of the loss is $2 million in the latest quarter which includes an adjustment of $640,000 to deferred tax asset to reflect the reduction in tax rate from 33 1/3 percent.”

Investment | The company has short and long term investments of $142 million which includes $76 million of quoted equities.

Going forward | There are good indications that the final quarter should be better than that for 2012. In the 2012 final quarter, a large an impairment loss on investments of $9.3 million had to be made. In this year, the situation might swing in the other direction with the booking of the sales of the apartments. Beyond the September year end, the purchase of a property in St. Thomas should start to contribute to profits from the housing development for 72 two-bedroom single family homes.

Regarding another property purchase, management reported that, “The company will be moving the manufacturing operations to a new facility by the end of 2013, it has adequate space for our operations now and for the foreseeable future. While there may be no savings from this move, it is not expected to cost more than the current rental for the existing space. Ownership will result in savings going forward as inflation drives up rental rates.”

Financial position |The group continues to maintain a healthy financial position with good cash flows, adequate bank credit facilities and investments. Receivables increased by $41 million, which is due to a significant increase in exports that have longer credit terms. Management further stated that, “All the short and long term loans will be cleared subsequent to the quarter end from longer term loans and proceeds from the sale of the apartments. The company recently announced plans to issue $200 million of Corporate Bonds with attractive features for the investor including the fact that interest will be paid monthly and will be traded on the Jamaica Stock Exchange. The funds will be used to pay off more expensive debt and assist with funding our next real estate development. We have also obtained medium term financing from Bank of Nova Scotia for funding of the Bell Road property acquisition.”

Related posts | Jamaican Teas expands property arm | Jamaican Teas buys property | Profits up 19% at Jamaican Teas | Is the real estate market bullish?

Economy probably contracted 2.5% in Q2

Data out of Jamaica Public Service Company (JPS) suggest the economy probably contracted by as much as 2.5 percent in the June quarter compared to the same period last year. According to JPS in its June 2013 quarterly report, the amount of electricity sales net of energy costs fell by 16 percent compared with the same quarter last year. Over the same time the exchange rate for the Jamaican dollar fell by 13.6 percent. JPS reports their accounts in US dollars but bill in Jamaica dollars with the main energy cost tied directly to US dollars.

The consumption of electricity is not a fool proof determinant of Gross Domestic Product (GDP) performance but since electricity is used in generating most economic activity, it’s a good guide of what may be happening in the wider economy. Earlier this year, STATIN reported the GDP data that showed a decline of 1.3 percent in the first quarter.

JPS reported in its June quarter profit statement a decline in revenues of 8.5 percent and gross income fared even worse with a 16 percent fall, compared to the similar period in 2012. By contrast, the year-to-date revenues are down a little under 8 percent and gross profit off just 6 percent. The gross profit would be a better indicator than gross revenues as the latter removes the impact of price movement of fuel on the computation.

power-lines150x150pxJPS grossed US$267 million in the June quarter versus $291.5 million in June 2012 and US$536 million compared to $581.7 million in the six months to June 2012. Gross profit came out at US$62 million for the June quarter this year, while the gross profit in 2012 was US$73.8 for the June quarter and for the six months to June US$130 million and US$137.9 for the six months to June 2012.

Expenses | JPS was able to cut operating expenses by US$6.7 million in the quarter and just over US$8 million for the six month period compared to 2012. No doubt the change in the value of the Jamaican dollar versus the US dollar reduced much of the local input cost when converted to US dollars. But the cost of money went up US$2.3 million to nearly US$15 million for the June quarter and nearly US$9 million to reach US$32.6 million for the six months.

Profit | JPS ended up with profit of only US$1.1 million in the latest quarter and only US$315,000 for the six month period. In 2012, profit for the quarter was US$5.887 million and year to date US$7 million. The problem is that these returns are well off the rate of return that JPS is allowed to make under their licensing regime, which is about a 16 percent return on equity.

The poor profit performance has impacted the finances of the company. While equity is at US$445 million, debt is running closely behind at US$379 million. Cash collection is an issue with receivables equalling the full quarter’s revenues when it should not exceed 45 to 60 days. But cash, which was at US$26.5 million at the end of 2012, is now only US$4.3 million at the end of June — what would be called a fast evaporation of funds.

Related posts | Mining & Agriculture dent GDP badly | BOJ: Little or no growth to June | BOJ estimates GDP decline in Q1

Inflation continues moderation

The rate of inflation as computed by the Statistical Institute of Jamaica seems well under control especially in light of the impact of the movement of the Jamaican dollar which would have had impacted on prices as well as the increase in the price of oil on the world market. The calendar year–to-date inflation rate was 4.4 per cent up to July. The fiscal year-to-date since April 1st and point-to-point rates were 1.6 per cent and 9.7 per cent respectively.

The All Jamaica ‘All Divisions’ Consumer Price Index for July was 200.9. The rate of inflation was 0.5 per cent, an increase of 0.3 percentage point above the 0.2 per cent rate recorded for June 2013. The index for the heaviest weighted division ‘Food and Non-Alcoholic Beverages’ moved upward by 0.6 per cent mainly due to higher prices for ‘Fruit’ and Vegetables and Starchy Foods’. The index for the group ‘Fruit’ rose by 2.4 per cent, while ‘Vegetables and Starchy Foods’ went up by 1.2 per cent. There were also upward movements of 0.2 per cent in the index for ‘Transport’ and 0.8 per cent for ‘Housing, Water, Electricity, Gas and Other Fuels’, which are the second and third heaviest weighted divisions respectively.

‘Communications’ was the only division with a decline in its index. The 3.7 per cent decline resulted from reduced call rates following the decision of the Offices of Utilities Regulation to lower termination rates for telephone calls.

The other divisions that recorded increases were ‘Alcoholic Beverages and Tobacco’ 0.3 per cent, ‘Clothing and Footwear’ 1.3 per cent, ‘Furnishings Household Equipment and Routine Household Maintenance’ 0.5 per cent, ‘Health’ 0.1 per cent,  ‘Recreation and Culture’ 0.6 per cent, ‘Restaurants and Accommodation Services’ 0.3 per cent, and ‘Miscellaneous Goods and Services’ 0.7 per cent. There was no movement recorded for ‘Education.

There were increases in all three regions Greater Kingston Metropolitan Area (GKMA) up by 0.8 per cent, Other Urban Centres (OUC) up by 0.5 per cent, and Rural areas increased by 0.3 per cent

Related posts | Business inflation expectations | Inflation slows to a crawl | Inflation up in May