Disclosure of relevant information by listed companies provides information for proper investment decision making and reduces concerns and mistrust if all materially important information is disclosed, thus improving investor confidence in those companies.
In order to deliver pertinent information to investors, management including directors of listed companies will have to go beyond providing the minimum information stipulated by law or accounting regulations.
Against that background, it is instructive to examine MPC Caribbean Energy a company with its shares listed on the Jamaica and Trinidad stock exchanges. In looking at this company and its extremely poor reporting it is worth noting that the state-owned Development Bank of Jamaica invested US$1 million in the company’s shares. It has become the norm that companies that hold subsidiaries must consolidate the financial results of the subsidies with that of the parent company so that investors can get a full picture of the financial performance and standing of the group as a whole.
The company has been an excellent example of how not to communicate with investors as they destroy credibility with investors. That is pitiful when it is considered that it has a need to go back to the market for fresh capital to continue expansion.
The company made two public share offers to raise funds from the public with both coming up short of the target, due to poor communication and the management’s lack of understanding investors and how to communicate with them effectively.
MPC recently reported comprehensive income of US$1.14 million for the year to December 2021, flowing from the net change in unrealized gain on investment amounting to $1.136 million less expenses of US$205 million. Both the auditors and directors failed to inform investors as to the true nature of the gain. At the end of the year, the above mentioned gains, pushed shareholders’ equity to US$20.8 million with total funds invested at US$30.9 million.
The auditors’ report states, “as required by IFRS 10.31, the Company has reflected the 85.69 percent ownership in MPC CCEF at fair value through profit or loss.”
Of course, the above method of providing financial Statements to investors is clearly not acceptable for a publicly listed company as investors are not getting a clear picture of what is happening within the group. The question that arises is whether the fair value gain is equal to normal profit from operations or not? Investors should not have to guess about this. This is important due to the most important method that investors use to value companies.
In addition, shareholders should know what is the income, expenses and profit that are generated by the group and what the full financial status is. The current approach does not disclose this information which is critical, but awfully sad. There is no other company on the JSE that reports in the above manner.
Shareholders deserve better from MPC
The structure between the listed company and its subsidiary is confusing with each having similar names making it much more difficult to understand which one does what. The company’s management is German, which adds uncertainty to it. The directors by and large are not well known and the manner of communicating with the public makes it abundantly clear that they are not in sync with investors.
Another issue that exists with the company, is that directors tend to use industry jargon in their commentary. The December report starts with – “In the fourth quarter of the year, the commercial and technical performance of the underlying assets of the Company’s investment in the Investment Company were within the expected range. Necessary technical measures were carried out, thereby, stabilizing the production of the underlying assets. ”That is great but they go on to spoil it by talking about OpEx value in the next paragraph. What is OpEx value? They know but few others do.
The bright spot is to be found in the Outlook released at the time of the interim report. “After implementing all the technical measures to resolve limitations that took place in the course of 2021, we are looking forward to 2022. In addition to the expected performance improvement of the underlying assets, the Investment Company expects to further diversify its portfolio with the operational asset Monte Plata Phase 1 Solar Park (33.4 MWp) in the Dominican Republic. The expansion of the Monte Plate Asset with Phase 2 (40.5 MWp) is progressing well and financial closing with the senior lenders FMO and DEG is expected to take place in Q2 2022. The completion of the acquisition remains subject to CNE approval, which is expected to be obtained in the course of Q1 2022. The start of operations of the expanded solar park with a total capacity of 74 MWp is targeted for Q2 2023. The PPA was signed on 15th October 2021 for a period of 15 years starting from the Commercial Operation Date. It will become the largest asset in the portfolio expanding the geographic footprint to a total of four countries incl. Jamaica, Costa Rica, El Salvador and the Dominican Republic.”
Here again, investors are left in the dark as none except the directors have any indication as to what is to be expected. Investors cannot be asked to invest in companies with such poor reporting. The Jamaica Stock Exchange owe the investing public to bring this terrible reporting and lack of information on the finances of the group to an end. The least that can be done is for investors to be presented with the audited accounts of the subsidiary along with those of the listed company for the annual as well as quarterly, that way the full picture will be disclosed.
