Barita Investments Limited has delivered operationally better results over 2009, despite a 1.5 per cent reduction in net profit for the group at year end September 30, 2010.

Ian McNaughton, general manager for the Group, which comprises Barita Investments Limited and Barita Unit Trust Managers Limited (BUTM), told Caribbean Business Report (CBR) yesterday that the reduction, from $98.6 million to $97 million year on year was as a result of the below projections performance of the equities market and expenses related to the Initial Public Offer (IPO) this year which the company absorbed. Barita listed on the Jamaica Stock Exchange on January 14 this year.

The listing on the JSE facilitated a $202.8 million or 78 per cent increase in cash flows to the Group which stood at $259.3 million at the end of 2010.

“The listing would have had a major effect on the improved cash flow,” said McNaughton.

“The other contributions would have been more of an intrinsic nature as the requirements of a public company has created a greater levels of visibility for the organisation and consequently greater investing public interest,” he added.

For the Group results, performance remained relatively consistent following a 29.8 per cent reduction in interest expense and a corresponding 83 per cent increase in net interest income which grew from $157 million to $286 million year on year. McNaughton said the reduction in Treasury Bill rates reduced the cost of the liabilities, and thereby increasing the margin on investments. Barita also realised a $140 million gain on the sale of investments in 2010, which was $89.7 million more than the end of 2009.

Operating expenses increased by $31.8 million or 10.4 per cent, as the Group kept staff costs relatively constant with just a $6.8 million increase over prior year, led mainly by increases in commissions, statutory contributions and pension costs. Wages and salaries actually decreased by $5.2 million in 2010.

“Barita managed to keep our operating expenses to within six per cent of the prior year, excluding IPO costs, while at the same time expanding our revenues from trading activities to counteract the translation losses and the below projected revenues from equities,” McNaughton said.

“In the context, I would say Barita did extremely well taking into consideration that the JDX and the Jamaican dollar appreciation are situations that occurred five months and eight months into our financial year respectively, which gave us little time to reconfigure our approaches,” he added.

McNaughton is satisfied that the Group has performed creditably, given the performance of the segments and results that were impacted by foreign exchange movements and the revaluation of the Jamaican dollar. The fixed Income segment, which includes money market activities and securities broking, recorded a $404.3 million gain, while funds management, which includes the administration of two unit trust funds, recorded a decline of $3.2 million in 2010. ‘Other’, including the operation of foreign exchange cambio, stock broking and any other income brought in $21.6 million representing mostly the translation gains resulting from the depreciation of the Jamaican dollar.

BUTM contributed $11 million to the share of profits for the Group even though segment results for funds management was down $3.2 million in 2010.

“Translation gains in 2009 were $120 million compared to translation losses of $39 million for 2010 a turnaround position of $160 million, this was the main reason,” McNaughton said. “Therefore flat net profit performance in this context would show that Barita was significantly better operationally in 2010 than in 2009.”

In 2010 Barita’s foreign exchange and translation losses grew 116.7 per cent over 2009. The Group holds US$195.6 million in cash whereas its exposure to the euro is 28,000, GBP 809,000 and J$66.8 million. McNaughton said that despite the revaluation of the Jamaican currency this year and the translation losses already recorded, the USD remains a high value asset and therefore the group continues to hold USD funds.

“The FX assets are high yield assets and therefore provide a good interest income stream, however in an environment of an appreciating J$ this has to be managed carefully as translation losses will result. We monitor very carefully the situation as there is a threshold where translation losses will exceed interest income depending on the extent of the J$ appreciation at which point the decision would have to be made regarding the asset. We do not expect any further significant appreciation of the J$ in the coming financial year,” McNaughton said.

The reduction in interest rates following the JDX has also prompted many financial institutions to increase their share of the market for loans, Barita strategy remains consistent with this trend as loan receivables increased 114 per cent over 2009. While McNaughton downplays the significance of non-performing loans, he said the receivables “actually represents an increase in the loan book and it is a strategy for the company.”