Barita Investments Limited (BIL) Earnings Call Transcript & Summary

My pleasure to welcome you to the Barita Beat, the Pulse of our Performance. I'm Kerrie Baylis. I'm Vice President of Strategic Business Development and Investor Relations here at Barita. And I'll also be your moderator for today's earnings call. With me today is Ramon Small-Ferguson, our Chief Executive Officer of Barita Investments Limited. Ramon is also the Managing Director of Barita Unit Trust Management Co. Limited. Also with us is Stephen Phillibert, our Group Chief Financial Officer. Our objective today with the Barita Beats is to provide a comprehensive update on our first quarter financial results, which ended December 31, 2024, and were published via the Jamaica Stock Exchange website last week, Friday, February 14. We'll also touch on key points related to our business operations and future outlook. And as is customary, we'll also open for questions and answers once the presentations have concluded. Questions though can be entered specifically into the Q&A section on your screen, and they can be entered at any time throughout the discussions. So I will now hand over to our CFO, Stephen, who will take us through the financials.

Thank you very much, Kerrie. Good morning, ladies and gentlemen. All right. We'll start as usual with the operating income. We've had an increase of 9% or JMD 115 million in net operating revenue. That is comprised of increases in all of our focus revenue lines. Net interest income is up JMD 22 million, or 15%, to JMD 169 million. That is driven by the repricing of our liabilities downwards more quickly than our assets are repricing. We expect that this trend is one that will continue. We've seen where the inflation results support the Bank of Jamaica continuing in its current policy path. Fees and commission income up to JMD 905 million from JMD 812 million, an 11% increase. This is driven predominantly by our investment banking and asset management areas. Those have both continued to perform very well. Gain on investments up 56% to JMD 504 million from [ 2023 ]. We've seen a very good upturn in terms of our both realized and unrealized gains on securities. Operating expenses increased by JMD 66 million to 9%. We see here where the positive effects of our restructuring exercise, which took place a little over a year ago, continue to give us improvements. 17% decrease in staff costs down by about JMD 75 million to JMD 367 million. And that is offsetting an increase in our administration costs, which are up 25% to JMD 516 million. We also, this year, had a writeback of impairment provisioning, and this is as a result of the partial sale of our loan portfolio, which you'll see when we come to the balance sheet highlights. So with operating expenses moving at 9%, just as our net operating revenue had, it translates into a flat efficiency ratio at 53%. And the upshot of those is net profit after tax having increased 15% to JMD 551 million from JMD 479 million. Earnings per share will also be up 15% to JMD 0.46 from JMD 0.40. On the balance sheet, you'll see the loan line there down from JMD 13.3 billion as at the last audit to just under JMD 6 billion. I've made reference to that partial sale of the portfolio, and that has translated into increases elsewhere, so particularly in the securities portfolio represented by our pledged assets and marketable securities, which is up to JMD 118 billion, just under, from about JMD 108.5 billion as at the last audited. So total assets marginally down to just under JMD 140 billion net. On the funding side, total liabilities also down slightly to JMD 104 billion from JMD 107 billion. Repurchase agreements flat. We've had a trend downwards in our secured investment notes, and we are now reporting that we've closed out that line item. Other debt facilities up well about 12%, JMD 15.6 billion from just under JMD 14 billion, and shareholders' equity is slightly up to JMD 35.5 billion, rounded from JMD 35.3 billion. Capital adequacy, we continue to lead the industry at 24.6%, industry average being 21.2% and the FSC's minimum being 10%. And just a brief recap of the highlights. So net operating revenue again of JMD 1.4 billion, leading to net profits of JMD 551 million. And on the balance sheet side, assets of just under JMD 140 billion and equity of JMD 35.5 billion. With that, I'll hand over to Ramon Small-Ferguson to take us through the rest of the presentation.

Thank you very much, Stephen. Good morning, everyone. Good morning to our customers, our team members, my fellow shareholders. It's a pleasure for me to be here again at another investor briefing to talk to you about the performance of your company. So for Q1 of 2025 or the financial year 2025, as Stephen said, it has continued to be characterized by growth in certain key focus areas of the business, even in the context of a challenging backdrop or a challenging operating environment. There are some positives, however, despite the fact that global growth is showing a slowdown. Inflation has also, from a trading perspective, coming to -- almost come within the target band, certainly locally, at 5.7%. Trade is up, but the overall themes really center around a very dominated growth picture. Well, the United States, rather, is dominating the growth picture and is leading its peers. We're seeing the overarching trend of disinflation start to diverge, where it's moving faster in some countries than others. And we're seeing the pace of monetary easing also start to diverge across countries. Geopolitics is a critical theme and a central source of uncertainty as we look out to the next several quarters with a change in administration in the United States, while credit spreads remain very tight amid the overarching economic performance. On the local front, near-term growth is subdued by the continued effects of Beryl. We are, however, seeing that our improved fiscal policy framework and sustained fiscal discipline has really taken hold. The financial system remains adequately capitalized and is liquid. And we are seeing the effects of less restrictive monetary policy. Inflation is within the BOJ's target band. Unemployment is down to 3.5%, which is near at a record low, but GDP is negative. We are showing negative growth, as I said, primarily the Beryl impact. So let's talk about now the key drivers of our performance and really the pillars that underline our strategy for this financial year. I know we have written about this in our release, the Chairman would have commented on these key areas. Underlining our overall strategy for this year is customer centricity, client centricity, right? And central to that is deepening our understanding of our clients' needs. And having had a better understanding of the needs, we have ideated our own solutions to better meet those needs from a product perspective and certainly from a service perspective. So we are infusing more technology into improving our client experience. Revenue diversification is a critical underlining theme as well, or broadening our revenue streams with the objective of reducing volatility in elements of our performance. So in other words, we're growing the share of recurring revenue in our overall revenue base, hence, certain focus areas within the business. From a capital and liquidity perspective, we are certainly optimizing the management there. We have a very large endowment of capital, and we're ensuring that we're using that efficiently. And we're maintaining sufficient liquidity buffers to ensure that we're able to capitalize on opportunities as they present. And we are also very resilient in the face of uncertainty. And finally, on the alternative investment front, the focus here is to continue to unlock the value across the spectrum of that portfolio to include real estate, private credit, private equity. And here are some of the drivers. Certainly, the less restrictive monetary policy is expected to potentially impact key business areas. Stephen spoke about the effect that it's already having on our net interest income line. We anticipate more vibrant capital markets as well, which should augur well for our investment banking business. Complementing that is potential growth in our asset management business coming from improved investor confidence and better performance from the portfolios. The overall growth outlook is stable, and we expect to benefit from that. There are regulatory changes on the horizon, Twin Peaks as well as Basel III, and that is anticipated to impact overall the financial system to include [ those ]. Internally, we expect catalysts to come from our continued focus on cost optimization as well as our prudent capital management. And the outcomes are the recovering net interest income, improvements in investment gains from the tailwind of the shift in monetary policy. At the tail end of last quarter and culminating at the beginning of this quarter, we would have concluded an exercise with CariCRIS where we were awarded an external credit rating, an independent credit rating, which ranges from A+ on the local scale in Jamaican dollars to BBB+ on a regional scale in foreign currencies, a strong investment-grade credit rating and the agency spoke to the ratings drivers being a rising income, high asset quality, strong capitalization, and robust liquidity. We think this rating is another point of validation of our strategy, and it serves as an independent reference to our credit quality and strength as an institution, and we're pretty happy about this. So just to remind, key business lines, investment banking, treasury, trading, and brokerage, asset management and alternative investments, and we have focused on all these areas in different ways. On the investment banking front, we're expecting to capitalize on our recovery, with improved investor confidence being a theme of our current capital markets. On the asset management front, we're seeking to grow that business through improved investment returns and increased subscriptions. On the treasury trading and brokerage side, a recovery in investment gains are anticipated to be the primary drivers there. And on the alternative investment front, we are actively seeking to unlock the value in that portfolio through monetization efforts. All right. So the next section of the presentation will discuss another matter, which would have had a key milestone early in this calendar quarter in January, where the shareholders of Barita Investments Limited would have voted overwhelmingly to support the reorganization of the broader group, that Barita is a member of, under financial holding company structure. Now, under that structure, what will happen is that the shareholding or the majority shareholding of Barita, currently held by Cornerstone Financial Holdings Limited, about 75% or so, will move to be held by the Barita Financial Group, an entity that's going to be 100% or is currently 100% owned by Cornerstone Financial Holdings Limited. So the effective shareholding will not change, but that majority shareholding will move from being directly held by Cornerstone Financial Holdings Limited to being held by the Barita Financial Group Limited. Importantly, this reorganization will not at all impact minority shareholders. They will continue to hold the same number of Barita shares, the same percentage of the overall Barita shareholding. It won't impact them at all. And these shares will remain listed after the scheme is implemented. The scheme is being implemented simply to conform with the Banking Services Act, where entities that own [indiscernible] financial institutions within their group, which includes a bank, need to reorganize under a financial holding company structure. The impact, though, practically, we believe will center on 2 potential outcomes. One is we expect to become more customer-centric. We expect to be able to more seamlessly offer complete financial solutions between Barita, the investment bank, and our sister company, Cornerstone Trust & Merchant Bank, the banking arm of the now financial group. We also anticipate benefits from efficiency, as we will now more clearly be able to share services across the group. We continue to maintain our focus on risk management, governance, and internal controls. And that's underlined by strong policies and procedures. And if you recall, early in the post-acquisition period, Barita would have invested heavily, not only internally but externally, in a policy overhaul of the Barita group of companies. We have also fortified our processes and IT controls. We have a very strong enterprise risk management framework that's supported by experienced risk professionals. Our Chief Risk Officer, Senior Vice President for Risk Management, Geoffery Romans, has almost 2 decades of experience in this sector and very strong. We've reinforced our first line of defense, ensuring that the frontline is very attuned to their role in risk management. And we continue to focus on fortifying our talent with the best practices in risk management. Our risk management practices are supported by our strength of capital. It is important, right? And it gives us capacity to grow, the ability to withstand shocks, and it represents a very stable portion of our funding base, right? As a way of managing risk and improving our ability to serve our clients, we have made targeted investments in technology and our road map is on screen. We have completed Phase I of upgrading our core system, and we expect to complete Phase II in this financial year 2025. And on the final slide, I want to remind around what we see as our core competencies as an entity with 2 companies, the Barita Group and as a group overall, as we look towards the financial holding company structure. We're focused on innovation, finding improved ways to do the things that we do. We're focused on risk management and enhancing our risk capacity, our ability to withstand shocks and to take on opportunities. And we're focused on the customer. That's what we want our group to be known for, and that's what we are about. And with that, we're ready to answer your questions. I'll hand back over to Kerrie.

Thank you very much to both Ramon and Stephen. All right. So as mentioned, we're now going to open for our Q&A section. So just a reminder that if you haven't already submitted your questions throughout the presentations, you can go ahead and do so now. So please submit specifically in the Q&A chat box, and we'll go through as many as we can before we close off this morning. So I do see a few coming in already. Our first question that we'll take is, what will happen to the value of Barita's shareholders' interest following the restructuring and shift to ownership in Barita Financial Group Limited.

I'll probably take that 1, Kerrie. So just to reiterate what I would have said in the presentation, the fact is that the structure of the shareholding of the minority shareholders post implementation of the reorganization scheme will not change. They'll still own the same number of shares in Barita, the same proportion of the shareholding in Barita. The only thing that is expected to change is that the shareholding currently held by Cornerstone Financial Holdings Limited would move to the Barita Financial Group, an entity that is 100% owned by Cornerstone Financial Holdings Limited. So that's the only thing that is expected to change. It will continue to trade on the exchange as it has in the past for the last over a decade, and that's the only change.

Thank you, Ramon. All right. The next question is asking, how will the recent credit rating upgrade impact Barita's future growth and investment opportunities. So perhaps you can share a little bit about the credit rating as well.

Sure. No problem. So I would have highlighted the fact of the credit rating in the presentation. And really, as I said, what it serves to do is to independently validate the creditworthiness and the financial strength of the group. It effectively benchmarks it. Now, CariCRIS is the leading regional credit rating agency. So that really speaks to how applicable this rating is, not only in Jamaica, but outside of Jamaica. So from our perspective, one, we think a note of transparency for the business. It gives our stakeholders, I think, another source of confidence around what we're doing and our strategy; 2, I think it broadens our options with respect to diversifying or expanding our funding base. Certainly, it may open doors within or even outside of Jamaica, given that the credit rating is something that is widely recognized. So it really expands our options, our strategic options as a business, particularly from a funding perspective.

Thanks, Ramon. We have a question that is asking, is a Barita Bank on the horizon.

Maybe I can take that one. So what I can say is that the closest thing to a Barita Bank that's on the horizon is the reorganization of the group that will bring Cornerstone Trust & Merchant Bank and Barita Investments Limited squarely under one umbrella as a financial services group. What that will do is that it will position us as 2 separate entities within the same group as a unified force. So it will allow us to serve our clients almost in a seamless way. So what we anticipate is that the customers of Barita Investments Limited, once the reorganization is done, will probably feel more prominently the presence of the banking arm of our group. So that's as much as I can say about a Barita Bank. Cornerstone Trust & Merchant Bank will be very close to us very soon with the reorganization.

Thanks, Ramon. All right. So Mr. Johnson is asking if there's a time line for the development of the properties that we acquired on the North Coast in recent years.

Thanks for that question, Mr. Johnson. So the answer is yes. There is a time line, and a time line is evolving. We anticipate that with respect to the development of that property portfolio, we expect that within this calendar year, we'll start to see visible activity surrounding that. Now, as it relates to segments of the portfolio, we anticipate that the development will be phased over time. So certainly visible activity this year. Not sure whether the property -- the particular property that you are looking at will be on the slate for this year. But for sure, over time, it's anticipated that all the properties in the portfolio will be the subject of development.

We actually have another question related to real estate, but it speaks to the real estate funds and the current price of the fund, asking if there are any plans to split the price.

So to answer that, that's something that we've done before. It certainly means that it's something that we may be open to doing again. We continue to assess it. At the end of the day, what's most important to us is ensuring that we make our products most accessible to those persons who they are most suitable for. So it's an option that we have, and we'll continue to assess and determine what is the most appropriate course of action.

Thank you. We're getting some really great questions coming in, so thank you very much to our audience. The next one is asking what strategies drive Barita's revenue diversification and operational efficiency in the current landscape, especially with talks of a recession.

Very good question. So let me start with the operating efficiency and then move over to the revenue diversification. So from an operating efficiency perspective, there are 2 main areas of focus. So the overarching theme is productivity. What we really want to do at the end of the day, if I can define that, is to produce better quality with the resources that we have, or to expand the output with the resources that we have. So that's how we define productivity internally. So from a people perspective, we want to ensure that we have the right team composition, and we've done some of that work. We have been very strategic with our hiring. We've been very strategic with how we position the team within the organization. And as I mentioned before, we have already begun to benefit from the impending group reorganization with respect to the composition of the team. Now, with respect to administrative costs, we certainly have stepped up our use of technology, and we anticipate that, that will be a continued theme, us using more technology to get a better or a higher yield from the same level of cost. We have certainly been very smart about optimizing our physical footprint as well as an organization and ensuring that we don't compromise on service delivery in doing so. And finally, we're looking at substitution, cost substitution, is there a more cost-effective way to achieve the same outcome. This is a continued focus for us. It isn't siloed. It is embedded in our business. All our executives know about that focus, and it's something that we keep a keen eye on. And given where we are in our evolution, we have now started to see that optimization come to bear in terms of how we've been able to contain costs. With respect to revenue diversification, our focus there is really, as I mentioned during the presentation, seeking to grow the share of our revenue base that is more recurring, that essentially has a system around generating that revenue where, for example, it's much more programmatic. And how we have been focusing on doing that is really growing key areas of the business. We have been focusing on enhancing, from a yield perspective, the structure of our balance sheet, and that has been seeing some benefits with respect to our net interest income and improvements there. We've been seeking to grow our asset management business, grow the assets under management there and the fee income associated with that. We have certainly grown and developed our capital markets business. So the pipeline there is continuous and flowing, and that is reflective in how consistent revenues have been from that line of business. And generally, we are seeking to grow the customer-oriented elements of our business. And that underlines, I'd say, our revenue growth and diversification strategy. In earlier years, we would have made targeted investments in certain areas of the alternative investment spectrum. And we are now at a stage where we are realizing more and more elements of those investments as part of the revenue stack as well.

Thank you so much for such a comprehensive response. All right, [ Mr. March ] is asking if we have any bonds available.

So we always have bonds available, always have stocks available. We are a brokerage. So for sure, we have a range of investment options. We see ourselves as a window into the investment markets for our customers. So I'd say we probably have something for every risk appetite there is. So [ Mr. March ], please reach out to one of our advisors. I think we can help you.

Thanks. All right. I'm seeing a comment from one of our audience members querying the slide related to operating income, suggesting -- asking us to clarify the gain on investments increased by 56%, but there seems to be 2 discrepancies. The increase stated in millions versus and the second figure is stated in billions. Stephen, is that something you can clarify for us, please?

I can. Thank you for the observation. There is indeed a typo there. So where it says billion refers to million. Certainly, we'll be happy when we get gain on investments of JMD 500 billion [indiscernible].

Thank you. All right. Our next question is asking about Barita's key risk metrics and how do they stack up against its competitors, including capital adequacy and leverage.

Sure. Thanks for that question. So that has been a critical area of distinction for us in the post-acquisition period. Just to remind, between 2019 and 2021, we would have raised JMD 34.5 billion in permanent capital within Barita, which brought our capital adequacy ratio at a point in time up to almost 70%, which is 7x the regulatory minimum. Over time, we've utilized that risk capacity, deploying it into different areas of the business, and we're now down to about 25%, which is still 2.5x the regulatory minimum. And as Steve mentioned, above the industry average, right? We have one of the highest capital adequacy ratios within the sector. I think the second highest among the large dealers. And our capital levels, based on the last numbers that would have been released, represents about 1/4 of the capital within the entire securities dealing sector. Now to speak a bit about leverage, which looks at our total assets over our equity, our leverage ratio was just under 4x as at the end of December 2024, which is well below industry levels, which trend between 6x and 7x. I mean, some of the higher levered dealers are north of 10x. So you can see that we are well below that level in terms of financial leverage, which means that we have, one, a lot of capacity to absorb shocks to the extent that they present. We operate in a dynamic environment. And two, we have a lot of capacity to take on opportunities as they present, without significantly deteriorating our risk metrics down to any levels remotely near to regulatory minimums, and so on and so forth. So in short, I'd say that our risk indicators are implying that we are very strong as an entity. The credit rating seems to imply that, too, at A+. And it means that we are a business that can both defend itself against risk events and take advantage of opportunities as they present.

Thank you, Ramon. All right, I'm going to take a question from Mr. Harvey. It's a 2-part question, and I'm sure it's on behalf of all of our shareholders asking if Barita is going to pay dividends this year. And the second part is, do we have plans for an app anytime soon?

It seems all the questions are for me. That's right. So again, let me speak about the app first. So [ Barita app ] for sure, it's on our technology road map. It's in development. We expect to, subject to finalization, to be able to debut that to the public. I don't believe it will be here within this financial year, certainly within the next, we anticipate that there's a great chance that we'll [ roll that out ]. With respect to dividends, we have tended to pay dividends. Our policy around dividends is a risk-based one. So we definitely look at the key risk indicators within the business before contemplating the payment of a dividend. In the post-acquisition period, we have paid dividends fairly consistently. So that is as good an indicator as any with respect to the outlook for this year.

Thanks, Ramon. All right. So we have a question now from Ms. Anderson asking, how do you expect Twin Peaks and Basel III to impact the operations of Barita?

So the change in regulatory environment naturally brings uncertainty to the financial services landscape. Twin Peaks, in particular, is still in development. It is a regulatory model that has been applied in other countries around the world. I think 11 countries at this point in time. And it first would have emerged, I think, maybe 30 years ago. So despite that fact, it's still a regulatory model that brings with it some uncertainty. And certainly, all financial systems aren't created equal. So there will be nuances, I presume, with respect to the implementation of Twin Peaks in our financial system relative to even what would have happened elsewhere. That being said, as an organization, we've invested very heavily in risk management. We've invested very heavily in controls. We certainly think that we are very well prepared to take on changes that could come from a shift in regulatory stance, regulatory posture, regulatory requirements. Same for Basel III. We are on the cusp of moving into a financial group as an entity, and there has been a lot of preparatory work done by the members of our team surrounding the implications for that with respect to any requirements that will come from Basel III. Now, regulatory changes tend to be more restrictive in their nature. And it may mean that there are elements of ongoing practice that could be restricted or contained or changed with the entry of these 2 major regulatory changes. It is not apparent at this point in time to us how any of that would impact our ongoing business. It's something that we continue to monitor. And we are, of course, an adaptable entity. So we will shift as necessary as these things become more apparent.

Thanks, Ramon. There's actually just a quick follow-on question in regards to Basel III, asking if it goes away, would Barita still keep the Basel Accord standards?

That's an interesting question. So as of now, let me get into some technical details. As of now, our risk management framework actually aligns very well with international best practice. There are several elements of our internal framework that go beyond what is required from a regulatory perspective and align very well with the requirements under Basel III. So in short, whether we are under Basel III regime or not, our internal risk framework already aligns very well with many of the requirements of Basel III. So for sure, we'll continue to adopt the international best practice measures even if our local operating environment does not require it. Our risk framework dictates it -- our internal risk framework already dictates it.

Thanks, Ramon. So we've been having amazing engagement. I think we have time for maybe one, possibly 2 more questions, before we close off. So I'm going to take the question from [ Whitney ], which states that during the presentation, it was mentioned that Jamaica's GDP was in the negative. What could this indicate for potential investors?

So a negative GDP print is never a great thing to have to report on. But the fact is that unlike many instances in the past, where we had a negative GDP print, rather, and it was just any other Tuesday, we had no clue what caused it or what was necessary to bring us out of negative growth. In this instance, we recognize that it was event-driven. It was driven by Hurricane Beryl. That being said, the other economic indicators are telling us a different story. It's telling us that the country is very well poised to return to growth. It won't be an overnight thing. It won't be a snapback thing, but progressively, over the course of the next several quarters, all else being equal, it's anticipated that Jamaica will return to growth. The elements or pillars necessary to support growth in Jamaica have strengthened, they've improved. Institutional framework is there to support growth. We have displayed tremendous fiscal discipline over the last decade or so. And that, I think, should give investors very good confidence that growth will return and very good confidence that investment opportunities created by that growth and investment opportunities that will create future growth will emerge. So if I were an investor, which I am institutionally and personally, I would be very constructive at this point in time with respect to the opportunities that may emerge in Jamaica. I think we're very well poised for another run with respect to -- a positive run with respect to investment opportunities in this country.

Thank you. And I think we'll just ask our final question now from [ Jason Ellis ]. He's asking, is Barita looking to expand its footprint into the Caribbean region or beyond.

So right now, I think all our business lines serve customers outside of Jamaica. We will continue to do that to the extent that our licenses allow us to do. We intend to continue to grow that footprint responsibly. And it's really tied to us diversifying our business operations and capitalizing on opportunities as they present even further afield. With respect to boots on the ground, there are no immediate plans that I can speak to here in this forum. To the extent that, that changes, those disclosures will be made at the appropriate time. But for now, definitely an entity that is open to serving customers outside of Jamaica, again, subject to our license is allowing us to serve them in those particular ways, and we'll continue to expand that service.

Thank you so much. All right. So as mentioned, that was our final question for today. So ladies and gentlemen, that now brings us to the end of our Q1 investor briefing. We'd like to take the time to thank you, again, not only for joining us this morning, but for engaging with us in such a meaningful way. We really value this opportunity to be able to answer your questions. I should say that if you missed any of today's session, or you wish to review in further detail, you can visit our website at barita.com/beat, and you'll be able to catch the replay of this investor briefing. So we look forward to hosting you again soon, and we wish you a wonderful rest of the day. Thank you again.