QWI IPO opens next week Monday

QWI Investments, a recent start-up investment company’s initial public offer of shares opens on Monday, September 16, with the sale of 600 million units.
The company has the option subject to the Financial Services Commission, to upsize the amount to 900 million shares if demands warrant it. Shares are being offered to the general public, at $1.35 each.
The amount expected to be raised is $787 million from the 600 million shares but could rise to just under $1.2 billion if the company upsize the issue to the maximum permissible.
The investment objectives of the Company is to invest primarily in securities of companies listed on the Jamaica Stock Exchange and on other recognised overseas stock exchanges with a medium to long term investment horizon to provide attractive risk-adjusted returns, with diversification across industries and regions. The portfolio will be actively managed on an ongoing basis guided by the investments team.
The company, currently a subsidiary of Jamaican Teas, really started operations towards the end of March when it acquired the quoted shares, from KIW international and Jamaican Teas amounting to $465 million. Since then it has grown the net assets by 52 percent to $705 million after accounting for operating expenses, well ahead of growth in the JSE composite Index over the same period. The performance equates to earnings per share in the period of 51 cents. At the end of July unaudited placed the net asset value at $1.52 per share.
Of the 600 million shares on offer, 270 million units are set aside for the general public. 115 million shares each are earmarked for NCB Insurance Company and NCB Capital Markets. Shareholders of Jamaican Teas and KIW International on record on 16 September 2019 can buy up 45 million shares at $1.25 each per share. Directors of the group and customers have 55 million units set aside at varying prices.
QWI had quoted shares amounting to $899 million at the end of July and current liabilities of $188 million. The closing date for the issue is set for 30 September but could be extended if market conditions demand it.
The QWI board is chaired John Jackson, John Mahfood, Cameron Burnet, all Chartered Accountants, Carl Carby, Management Accountant, David Stephens, Investor and business owner and Malcolm McDonald, Attorney at Law.
The shares are to be listed on the main market of the Jamaica Stock Exchange. NCB Capital Markets are the brokers to the issue and will be using their electronic portal to process all applications, which should allow for speedy processing of applications.
Persons involved in preparing this story, are connected to QWI investments.

The ugliness of Wigton demands action

Wigton inadequate disclosures in the quarterly report.

The capital market got a huge body blow with the release of Wigton Windfarm quarterly results for the first quarter to June that suggests a bright future outcome but the reality is vastly different.
Analysis of the results and historical data show clearly that investors have been unwittingly, duped into believing that the earnings of the company had blasted off sharply from 5.5 cents reported for the 2019 fiscal year, but nothing could be further from the truth. The directors’ report accompanying the June quarterly results is just inadequate, as it does not clearly communicate what investors can expect for the rest of the year. There is just very limited historical information to go by to help.
The company posted positive results for the June quarter, with profit jumping 109 percent from $175 million to $366 million with modest foreign exchange gains, resulting in earnings per share of 3.3 cents.  IC Insider.com’s computation puts full year’s earnings at 7 cents for the year assuming revenues grow 6 percent for the year.
Revenues rose 6 percent to $833 million for the quarter with gross profit rising from $606 million to $641 million. Other income comprising $34 million in foreign exchange gains moved from $60 million to $68 million. Importantly, finance cost fell sharply from $358 million to $147 million while administrative expenses edged slightly higher to $79 million from $78 million. The data is showing revenues in the first quarter of 2018 as 32 percent of the full year’s earnings. The next three quarters earned 68 percent or an average of 22.5 percent. If the similar development takes place this year, then earnings in the balance of the year will be just above that for the first quarter, as fixed costs will reduce quarterly profit considerably from that reported in the first quarter.
Going forward, there will be added cost ongoing cost associated with the listing, including listing fees, registrar services for the more than 31,000 shareholders, production of the annual report and annual general meeting as well as additional staffing.
Directors have a responsibility to communicate critical information to investors so that they can properly interpret the financial information presented and not having to guess exactly what is placed before them.

Jamaica’s Ministry of Finance newest office building

The Wigton’s June quarterly report falls far short of what is expected of a company of its size and with so many shareholders. The quarterly shows that production of energy grew 2.9 percent to 55,331,319 KWH but the directors stated that they expect to produce 169 Giga Watt Hours the average over the past three years. There is no mention of how the first quarter’s production, relates to the full year’s output. There is no mention of seasonality in the report. In fact, a review of the prospectus provides no information about seasonality, a critical bit of information that is missing. “If the company’s business is highly seasonal, IAS 34 encourages disclosure of financial information for the latest 12 months, and comparative information for the prior 12-month period, in addition to the interim period financial statements. [IAS 34.21]”
The shocking discovery is the composition of directors and shareholders of the company. People in authority should avoid conflicts of interest. The big question is, on what basis was the Wigton’s prospectus approved with a board member of the Financial Services Commission shown as a director of the company and subsequently a shareholder? Judges cannot oversee cases involving themselves, to do so, would be a huge conflict.

Elite Diagnostic IPO opens February 5

Elite Diagnostics could be in the Junior Market TOP 10 by the end of 2018.

Elite Diagnostic initial Public offer that was put off due to errors in the prospectus seems set to open this week, according to the brokers for the issue an advertisement in the Sunday Gleaner states.
According to the advertisement, the issue will open on Monday February 5 and is scheduled to close on February 12. The updated prospectus is expected to be posted on the Jamaica Stock Exchange website this Monday.
The issue was slated to have opened on January 22 at a price of $2 per share with the share and was scheduled to close on January 29 for a total of 70.68 million shares being offered to raise $141 million. Omission of depreciation charge from the profit statement, resulted in an overstatement of the profit for the September quarter resulting in an addendum to the report being released. The addendum did not address errors in the balance sheet relating to fixed assets and some other items, resulting in the cancellation of the opening of the issue. IC Insider.com gathers that the Jamaica Stock Exchange and the Financial Services Commission were reviewing the report last week to ensure that it reflected the correct position.
Of the shares available for subscription in the IPO, 18 million units are reserved for subscription at $2 each. The company currently has 282 million issued shares. The proceeds of the IPO will put the company in a position to repay a substantial part of the debt due lenders amounting to $202 million.
For the financial year ended June last year, the audited financial statements show revenues increasing to $263 million and net profits moved to $44.2 million from $29 million in 2016. Gross Profit margin is very attractive at 67 percent for the 2017 fiscal year with administrative expenses at 31 percent of revenues, excluding depreciation.
Notwithstanding the errors in the interim figures, Elite shares remain BUY RATED with IC Insider.com forecasting profit of 22 cents per share for the current year to June and 35 cents for 2019. The shares are expected to be listed on the Junior Market.

Stinking Berger behaviour

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There are some strange and shocking developments regarding the offer by Ansa Coatings International to purchase the minority shares in Berger Paints Jamaica.
First the directors in recommending that shareholders accept the offer made critical claims that are not back up by facts and they offer no information to support same. Secondly, the shares have been suspended in questionable manner and without adequate reasons.
The directors in recommending that shareholders accept the offer said,” in your directors view, it is highly likely that acceptance of the offer will take the aggregate holdings of ACI beyond 80 percent. Under the rules of the Jamaica Stock Exchange, where one shareholder either individually or collectively with concert parties holds more than 80 percent of the listed shares of a company, the stock exchange has the right to de-list such company. In fact the offeror has made it clear its intention to delist the Berger Shares.” The directors’ recommendation goes on to quote ACI statement that they will seek delisting if they acquire an additional 29 percent of the shares. “It is therefore clear that Berger Jamaica shares will in all probability be delisted from the JSE,” the directors’ statement concluded.
According to the directors, Ansa Coatings International controls 51.01 percent of the issued Berger Jamaica’s shares and as a result of this Offer, its holding will most likely exceed 75 percent.
It seems that for the recommendation to shareholders to be substantially based on the “highly likely that acceptance” taking the holdings of ACI beyond 80 percent and most likely exceed 75 percent, is highly flawed. Where did the directors get that information from and why did they not disclose the source in the recommendation. Why they did not think it appropriate to disclose the interim results figures up to August in the report?
At $10.88 per share, Berger is priced at 5 times the current years’ earnings against more than 13 for the main market, on what basis could it be regarded as a fair price?
The situation gets more curious and raises a huge question, is someone is trying to manipulate shareholders in giving away their shares at less than a fair price? That is the only conclusion to be arrived at, when without notice, the shares of Berger were without notice, suspended by the Jamaica Stock Exchange on Thursday, October 5, 2017 and is to remain suspended to Friday, October 13, 2017. According to a release late on Thursday, “this is to facilitate the processing of the transaction in respect to shareholders of the Company who have agreed to sell their shares to Asna Coating, as a part of their Takeover Bid of Berger.” That of course is a load of crap. Trading shares of Desnoes and Geddes a much bigger company was never suspended when Heineken acquired the minority shares in 2016, Hardware and Lumber shares were never suspended either, nor was Scotia Investments’ in Scotia Group’s recent acquisition of the minority shares. Why is there a need to prevent Berger shareholders who want to trade the shares if they so desire? Worse why is there need to suspend it beyond Monday?
The capital market cannot prosper as well as it should if the above abuses continue to take place without corrective action being taken. The Jamaica Stock Exchange and the Financial Services Commission should have intervened when the directors’ recommendation included information that was not backed up by facts and should have intervened and prevented the unwarranted suspension of trading in the company’s shares.

JSE correcting directors’ error

Marlene Street Forrest - General Manager of the JSE

Marlene Street Forrest – General Manager of the JSE

Shareholders of the Jamaica Stock Exchange (JSE) will have a much longer wait to see the increase in the number of issued shares take effect than the date originally indicated on Wednesday in a release by the JSE.
In the original release of September 21, the company said the “Board of Directors decided at a meeting held on September 21, 2016, that each ordinary share of the Company be subdivided into five shares, resulting in the issued and fully paid capital of the Company increasing from 140,250,000 ordinary shares to 701,250,000 units of no par value, with the record date of October 5.”
In an article reporting on the decision to split the stock IC Insider, stated that the directors had no power to effect a stock split or increase the issued number of shares, as only the shareholders of the company has the power to do so, at a general meeting.
Late on Thursday, the JSE has issued a new statement and now advises “that an Extraordinary General Meeting of the Company will be convened at a date to be decided and communicated following the Board of Directors’ decision at a meeting held on September 21, 2016 that each ordinary share of the company be subdivided into five shares. This advisory supersedes the announcement on September 21, 2016, in which the date 2016 was stated as the effective date for the stock split.”
The JSE regulates the companies listed on the stock exchange and broker members, for them to have made such a huge error, raises some major questions about their ability to regulate the market with the present cadre of regulators. Was the other regulator, the Financial Services Commission aware of the miststep.

Mitchell packs in CFF chair for FSC

H Mitchel 08-16Howard Mitchell has resigned from the Board of Directors and as Chairman of Caribbean Flavours and Fragrances (CFF). The only regret is that it has taken so long to be effective in light of his appointment and acceptance of a seat on the board of the Financial Services Commission. But it’s better late than never.
The question still arises though and it has to do with a matter where an investor has complained to the FSC about certain matters pertaining to CFF and its shareholdings and treatment pertaining to control of CFF by Derrimon Trading. How will the FSC handle this matter, to ensure that no one accuses it of an unfair ruling.
Back in 2008, I was approached to sit on the board of Financial Services Commission, it did not take me long to turn it down as I saw the potential for conflict. I was recently talking to two senior brokers and the issue of my recent appointment to the FSC came up. I advised them that I was not a member due to conflicts. But they indicated that they were of that view too and wondered why I was listed as a member, they never indicated if they accepted what I said but we never went much further with the issue. Suffice to say, that is indicated once I understood that I was to be appointed that is could not accept same, due to possible conflicts.
I was concerned about the late Emile George being chairman of a number of listed company boards and also chairman of the FSC. I wrote about it hoping that good sense would prevail but that was never the case.
I am aware that the issue of conflict or perceived conflict has been raised about the present FSC chair. I now note that Howard Mitchell has advised the Jamaica Stock Exchange that he resigned from the Board of Directors and as Chairman effective August 11, 2016 of Caribbean Flavours and Fragrances Limited (CFF) because of his appointment as Chairman of the Financial Services Commission and the possibility for there to be perceived a conflict of interest.
As a country we need to move to a place where such appointments should be seriously consider by both those who proposed and those of us who are asked to serve and so ensure a higher standard of governance.

Shameful, does the JSE care?

Glnr 21834 Investments, (formerly The Gleaner Company Limited) advised the Jamaica Stock Exchange that the Audited Annual Financial Accounts for March, 2016 will be late and unavailable for publication by May 30, 2016. 1834 anticipates that it should be available for publication on or before June 30, 2016.
This is bad news for investors and bad news for the capital market. Both the Stock Exchange and the Financial Services Commission who overseas such matters should hang their heads in shame for such failure that have deprived investors of getting important financial information on the company’s operations for more than 8 months.
In the past several companies have changed their year end, as recently as late last year Desnoes & Geddes and Access Financial changed their but provided investor with results for all relevant quarters, but the Gleaner Company who changed theirs to March from December did not do so. Regulators of the Stock Exchange gave some clumsy excuse why they could not ask for the December quarter results.
The rules of the Stock Exchange are quite clear, listed companies are required to submit a quarterly interim financial report within 45 days of each quarter. In the case where a company opts to release an audited account within 60 days of the year-end, they can opt in lieu of a quarterly report within 45 days.
The focus is on reporting quarterly, that comes before the audited. What seems to escape the regulators at the Exchange is that investors are kings and queens and they are to one to be foremost in the minds of the regulators to ensure that their investment is protected. One of the main means is timely financial information. If the exchange understood this they would have ensured that the Gleaner Company would be demanded to release the December results within 45 days.
Based on the exchange’s inadequate surveillance we now have a situation where the Gleaner Company (now 1834 Investments) have not reported financial for what looks like 6 months and who knows when it will release the information.
Markets thrive on information and that is the reason why the JSE opted long ago to the publication of quarterlies rather than a six months interim and it has served investors well.

Poor Carib capital market regulation

FSCAnyone with more than a passing interest in the Caribbean capital markets must be concerned at lax nature of how the system is regulated, in spite of having the oversight bodies in the form of the Financial Services Commissions in the region.
The glaring case of the abuse of power exercised by the Trinidad Cement board in the handling of the company’s right issue earlier this year, stands out as a clear case for regulatory action to protect investors. In this matter the company failed to properly inform shareholders of a strong improvement in the profit of the a for the first quarter and made it worse with Price Waterhouse Coopers signing a report that gave the impression that there was no profit for the quarter.
In Jamaica, we have a Financial Services Commission (FSC) that is said to be the regulator for the financial entities not regulated by Bank of Jamaica, much is lacking from them, their inaction in matters of critical import makes one wonder what taxpayers money given to them is really being used for?
When it comes to the FSC, one is reminded of a police station located across from a house of crime but does nothing, unless the neighbours complain about it. Here is a case be it small. One of the FSC regulated entities is late with its 2015 results, the company issued a statement to the stock exchange to say they would be late in releasing the audited statements and the audited figures would be released on December 4. They also had the lateness of the audited accounts in 2014, with December 5th being the promised date. Now the public is being told that Barita Investments Limited (BIL) the entity involved has advised that the Audited Financial Statements for the financial year-end 2014/2015 will be submitted to the Jamaica Stock Exchange (JSE)on or before December 29, 2015. That is a major shift in the time frame. No reason was given in the notice on the stock exchange site. The investing public has a right to know the reason for the lateness. The FSC that regulates the market, should be interested in knowing what the reasons are as well, but there is not even a peep out of them?
IC Insider spoke with Mrs Rita Humphries, Chairman of the company on Wednesday December 9, about the issues affecting the release and subsequently, the last posting was made on the JSE website. According to the Chairman, there were issues relating to reconciliation of a few accounts which required adjusting entries to be made. Barita had them reconciled and the auditors needed to go through the information and transactions to satisfy themselves that the end result is correct. Additionally, the auditors advised of none receipt of confirmation from clients some of which had already been sent on to the auditors we are advised. Last year the audit was held up by a difference of opinion between the auditors and the Barita over the issue of fully providing for the value of shares Barita held in Scotia Group on the basis the auditors said was the impairment of the investment. This was after they fully provided for the value of Barita’s investment in National Commercial Bank shares.
All this bring one back to the glaring errors in the audited accounts for Knutsford Express audited accounts for 2014 and 2015 for which there have been no request for revision of the reports, why? Are these regulators really serious in protecting investors? Take the most recent case of tTech. The prospectus for the company’s shares, made no mention of subscribers being asked to pay the JCSD fees. One day before the issue opens, a note is placed on the JSE website that the fee is to be paid by subscribers, even as the prospectus states that investors would not be paying any more than the $2.50, the shares were offered to the general public at. The JSE clearly did not intervene to prevent a chaotic situation from happening with some applicant including the fee and others did not as they were unaware of it. Thankfully, the management and brokers were sensitive to the issue and agreed to refund those who paid.
The FSC and the Stock Exchange police the system when companies are going to the public to raise money, but what happens after, very little? Goodyear was delisted from the JSE, shareholders got two payments form liquidation of the assets but about three years after, no information but there are no regulators dealing with the issue anymore, leaving many small investors to fend for themselves. That is not good enough.

tTech IPO JCSD fee breaches prospectus terms

NCB Capital Markets imposes JCSD processing fee  on tTech investors in breach prospectus terms.

NCB Capital Markets imposes cess on tTech investors in breach prospectus terms.

The tTech Limited public offering for shares in the company opened on December 16 and closed on the morning of the opening date following heightened interest in the stock. There is one bit of hitch and untidiness relating to the late imposition of JCSD processing fee on investors in the shares.
The imposition of JCSD processing fee is not only untidy, it is in breach of the terms of the prospectus and must be returned to those investors who paid it. There are no references to JCSD processing fee in the prospectus and under the heading of Statutory and General Information items 6 of the prospectus states, “All Applicants (including Reserved Share Applicants) will be required to pay in full the Subscription Price of $2.50 per Share, subject to discounts, where applicable. No further sum will be payable on allotment”. Most junior market IPOs, are highly anticipated, with several issues closing shortly after opening, leading most investors to apply for shares ahead of the opening day and so ensure that their application are on a timely basis. On Tuesday ahead of the opening of the tTech issue, a statement appeared on the website of the Jamaica Stock Exchange, to indicate that the “application form found in Appendix 1 of IPO Prospectus did not include any mention of the JCSD processing fee of J$134.00 (inclusive of GCT) that each application would be subject to. As such, the application form has been updated to include such commentary”.
TtechMost persons would not have been aware of the charge and so put in their applications without it while some included it, having seen the change. This places some applicants at a disadvantage small though it may be. Some investors are shocked that, the company and the broker did not absorb the charge for the cess and that the Financial Services Commission and the Jamaica Stock Exchange have permitted the late imposition of it. The charging of the JCSD processing fee inclusive of GCT is an irritant for investors and there are few solid reasons why companies are not treating the cess as a part of the cost of listing rather than asking investors to pay for it directly.

Knutsford’s flawed audited statements

KnutsIf the Jamaica Stock Exchange and the Financial Services Commission have the interest of investors at the forefront for protection they would demand the total withdrawal Knutsford Express’ audited reports for 2014 and 2015. The audited statements for both years, are filled with errors or questionable treatment of transactions, raising questions about the accuracy of the entire reports.
The report for 2015 has profit of $69 million or 69 cents per share versus $50 million in 2014 or $1.07 cents per share after deferred taxation of $5 million (2014: $5.6 million). Revenues amount to $454 million, a big 38 percent increase over the $329 million in 2014. Problem is that the earnings per share for 2014 is overstated due to inaccurate computation of the average number of shares issued in 2013. Further, the audited statement while showing earnings per share of $1.07 for 2014 in the income statement, goes on to state erroneously by way of a note, that “using the weighted average number of shares at end of 2015 would result in earnings being 50 cents for 2014”.
Since Knutsford is not taxable for the next 4 years it is difficult to see why the company would need to compute differed tax charge when whatever timing difference is likely to be less than 4 years on which no tax would be payable, the report does not give details so it is difficult to determine what items would result in such differences, but a look at the detailed expenses suggest that at best it would be a one year difference hence there is no need to book the differed tax.
JSE signThe audited financial report states “During January 2014, the Company raised additional capital of $99,862,700 from its initial public offering of 99,999,003 shares for its enlistment on the Jamaica Stock Exchange Junior Market”. This of course is completely wrong since the company issued 26 million bonus shares in 2013. While the public offering was for 20,000,000 ordinary shares, only 4,867,338 shares were offered by the company and 15,132,662 shares were existing shares of the pre IPO shareholders. At the time the IPO came, 95,132,662 ordinary shares were already issued, the average number of shares should be around 60 million rather than 46.8 million used to compute the 2014 EPS which would have worked out around 83 cents. That is around what it is and should be reported as. In addition there is no need to re-compute this figure and the 100 million shares in existence won’t change it one bit.
In the taxation note it states that the company at the end of 5 years “is required to delist and pay all exempted taxes within 5 years or opt to list on the main exchange for the next 5 years to maintain tax exemption received in the last 5 years. That seems to be stated incorrectly, IC Insider went to the manager of the stock exchange for clarification.
“ Those companies that have been given five (5) years will have to remain listed for 10 years as compared to 15 years had they been given 10 years incentive. They are not compelled though to migrate to the main market but can remain on the Junior Market if they are in compliance with capitalization and other Junior Market requirements”, the Stock Exchange reply stated.
Knuts signThe junior market rules require a mentor for these companies. One reason is to ensure that slip up like the above don’t happen. The issue begs the question what are the board of directors doing, after all they sign off on the financial report, they should ensure that information included that they are aware of, are not incorrectly stated.
Income statement| It would have been very informative if the profit and loss statement carried cost relating to functions such as direct operating cost, marketing and sales rather than all cost being lumped into administrative and other expenses, then one would easily see how the operating side of the business is doing before administrative cost.
But other questions remain, the listing of expenses show employer’s statutory payroll contributions at $31.84 million for 2015 and $16.58 million in 2014 versus salaries and related expenses at $86.86 million in 2015 and $54.65 million in 2014, these work out at 27 percent and 33 percent respectively. That of course cannot be correct as it should not be more than roughly 10 percent for Education taxes, National Housing Trust, Heart and National Insurance.