A yearly financial review of Jamaican Financial Houses
Volume 16 November 2015
PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review
Table of Contents Objective Analysis ......................................................................................................................................... 2 JMMB Company Overview ............................................................................................................................ 2 JMMB Corporate and Social Responsibility .................................................................................................. 3 JMMB SUCCESSES ......................................................................................................................................... 4 JMMB CHALLENGES ...................................................................................................................................... 4 SPECIAL FEATURE - JMMB Competitive Analysis .......................................................................................... 6 Porter’s Five Forces Analysis ......................................................................................................................... 6 JMMB SWOT Analysis ................................................................................................................................... 7 JMMB Financial Analysis ............................................................................................................................... 8 Market Strength ............................................................................................................................................ 8 Profitability.................................................................................................................................................... 8 Operational Efficiency ................................................................................................................................... 9 Cash Flow Adequacy ..................................................................................................................................... 9 Long Term Solvency .................................................................................................................................... 10 Loan Efficiency ............................................................................................................................................ 11 Industry Analysis ......................................................................................................................................... 12 Country Contribution .................................................................................................................................. 12 SPECIAL FEATURE – JMMB Common Size & Trend Analysis ....................................................................... 13 JMMB’s business strategy ........................................................................................................................... 18 Recommendations ...................................................................................................................................... 19 Bibliography ................................................................................................................................................ 20 Appendices…………………………………………………………………………………………………………………………………………...21
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review
Objective Analysis
The herein analysis of the JMMB Group seeks to highlight and evaluate the financial performance of the group over the last five years (2011-2015). This will be done through a competitive analysis, financial analysis and industry analysis. Our findings will therefore assist in making recommendations to JMMB’s current and potential shareholders whether or not to invest in this company.
JMMB Company Overview
JMMB has established itself as one of the leading brokerage houses in the Caribbean. It is the brainchild of the late Joan Duncan. JMMB opened for business in November 1992 as the first Money Market Broker in Jamaica. The group is one of Jamaica’s largest securities dealers with several subsidiaries in Jamaica, including: JMMB Securities Limited, JMMB Insurance Brokers Limited, JMMB Merchant Bank Limited, JMMB Money Transfer Ltd (formerly Capital & Credit Remittance Limited) and JMMB Fund Managers Limited. The JMMB Group now offers a wide range of investment solutions, banking, remittances and
insurance services in Jamaica, Trinidad and Tobago and the Dominican Republic. JMMB Group began its expansion to other Caribbean markets in 1999, through a successful joint venture establishing Caribbean Money Market Brokers (CMMB) in Trinidad and Barbados. In 2005 JMMB acquired 50% shareholding in Inter-commercial Bank Limited (IBL) in Trinidad and Tobago, and later in 2013, JMMB gained full ownership of IBL. Also in Trinidad and Tobago, the JMMB Group opened JMMB Investments (Trinidad and Tobago) Limited in 2012. JMMB Dominican Republic opened its doors in 2006 and in October 2007 rebranded to JMMB Puesto de Bolsa. There are currently two locations in the Dominican Republic. JMMB is listed on the Jamaica, Barbados and Trinidad and Tobago Stock Exchanges. The main activities of the group of companies are: • Investments: J$, TT$, Peso, US$, Pounds, Euro, and CDN$ • Portfolio Management • Financial Advisory Services • Retail and Commercial Banking • Bond Trading • Unit Trust • Equities Trading JMMB Top Executives: Noel A. Lyon- Group Chairman Keith Duncan- Group CEO Donna Duncan Scott- Group Executive Director, Culture& Human Development Patrick Ellis- Group Chief Financial Officer Kisha Anderson- Country Manager Jamaica Guillermo Arancibia -Country Manager - Dominican Republic Nigel Romano- CEO, Intercommercial Bank Limited Ronald Carter - CEO, JMMB Investments (Trinidad & Tobago Limited)
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review
JMMB Corporate Responsibility
and
Social
Located at UTECH, The Joan Duncan school of Entreprenuership, Ethics and Leadership promotes ethical standards in business, reduce corruption in Jamaica and foster socioeconomic development. SCHOLARSHIPS - To ensure that future generations are equipped to fully contribute to a prosperous society, academic scholarships and bursaries are provided to several individuals from the primary to the tertiary levels, as well as summer camps.
THE JOAN DUNCAN FOUNDATION The JMMB group recognizes that as an arm of a corporate entity, it is their responsibility and purpose to support the building of the society and as such, through its Joan Duncan Foundation has had a record of outstanding Jamaican corporate citizenship making major contributions to education, health, sports and community development. Some of their major projects include; Y.U.T.E. – Youth Upliftment Through Employment programme a registered charitable organisation based in Kingston. TRANSFORMATIONAL TRAINING Recipients of funding from the Joan Duncan Foundation are given the opportunity to participate in a one-day course designed to help them to tap into their talents, fuel their passions and empower their lives. The Foundation has also funded capacity building workshops for guidance counsellors and empowerment training sessions for the public. JOAN DUNCAN SCHOOL ENTREPRENEURSHIP, ETHICS LEADERSHIP
OF &
Two new scholarships in support of the arts at the Edna Manley College of Visual & Performing Arts and a Scholarship for Journalism at the University of the West Indies were offered in 2013-2014. SCHOOL IMPROVEMENT - Throughout the year the Foundation supported several school improvement initiatives with donations such as St. Christopher’s School for the Deaf toward emergency alarm lights and Papine High School toward establishment of a greenhouse. AUGUST TOWN SPORTS DEVELOPMENT -The Foundation’s relationship with the August Town Sports Development Foundation continued with the support of their summer football programme, designed to keep at-risk youth involved in positive extra-curricular activities. CUMI – Committee for the Upliftment of the Mentally Ill The Foundation continued to be a strong and consistent supporter of this gem of a programme which provides comprehensive rehabilitation for those who face mental challenges as well as homelessness. FUNDING OF MEDICAL PROJECTSRecognizing that physical wellness is a most critical component in achieving full potential, the Foundation has assisted in funding of vital equipment, studies and projects such as;
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review University Hospital of the West Indies mobile electrosurgical machine for Operating Theatres UWI Research Project “The Prevalence of Low Vision and Blindness in Jamaican Children” Cornwall Regional Hospital: Neuromuscular Stimulator for the Physiotherapy Department. JMMB SUCCESSES Jamaica JMMB launched their new Integrated Branch at Knutsford Boulevard. Inspired by their client-centric culture at JMMB, has re-engineered processes that provide ease of interaction, empowerment of clients and more financial solutions in one central location. Increased client access with the roll-out of MoneyLine, an online system, which gives clients access to their JMMB portfolio (including Unit Trusts / Mutual Funds and Banking). Implementation of Client Financial Partnership Culture and Interaction Model, designed to drive a culture of needs-based integrity selling, enabling their clients to have access to a full suite of solutions across JMMB in Jamaica – banking, investments, money transfer and insurance brokerage services.
Trinidad Operationalizing and integration of the operations of JMMBITT and AIC to improve service delivery and increased efficiency Streamlining operations and implementing Risk & Credit controls in Inter-commercial Bank
Limited (IBL) while improving Corporate Governance in both their Investment and Banking entities
Dominican Republic JMMB expanded their operations to provide increased access to their growing client base, with the opening of a new branch located in Santiago de los Caballeros, outside the capital city of Santo Domingo, to serve the northern region of the Country (The first for any broker dealer in the industry). The roll-out of the “Young Talent Programme” - an outbound sales force focusing more on face to face interaction The approval of a Fund Administrator and a Trust Company, as well as the acquisition of a Banking license for a small savings and loan bank, Banco Rio, to complement their Investments arm, JMMB Puesto de Bolsa. JMMB CHALLENGES Jamaica Interest rates declined gradually during the fiscal year. At end March 2015, the benchmark 3- and 6-month Treasury bills yields fell by 162.2 and 211.2 basis points (bps) to 6.73% and 7.0% bps, respectively. Fiscal consolidation had resulted in the erosion of the real purchasing power of public sector workers who have had to endure minimal wage increases over the last 10 years. The National Debt Exchange Programme (NDX), subsequent changes
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review to the Repo market and the asset tax levied on financial institutions have also had unintended consequences.
pressures in the currency market and concerns regarding capital flight.
Dominican Republic (DR) Trinidad The economy of Trinidad and Tobago, had seen negative growth for the first half of the calendar year (projected to be (-2%) for 1st half 2015) The economic slowdown and need for revenue growth was driven largely by the sustained decline and low levels of petroleum prices (currently below $50/ barrel), slowing energy sector output and exports as well as further reductions in revenue from the non-energy sector In June 2015, Moody’s downgraded Trinidad and Tobago’s sovereign government bond rating and issuer rating to Baa2 from Baa1, and changed the outlook from stable to negative. The Central Bank of Trinidad and Tobago (CBTT) increased the benchmark repurchase (repo) rates four to 2.75% in March 2015, consequent on
DR is still grappling with issues of under-employment and low levels of productivity in some sectors. The high dependency of the sovereign’s economy on the USA, and reliance on primary export to China.
Efficiency Administrative expenses increased from J$5.67 billion to J$7.79 billion largely due to the expansion of the JMMB Group (through the acquisition of the IBL Group and AIC Securities in Trinidad & Tobago) which accounted for J$1.12 billion; costs attributable to the reorganization of the Group in the Dominican Republic and growth in subsidiaries across the regional markets of J$328.61 million. An increase in the asset tax in Jamaica of J$179.5 million borne by the Group, as well as normal inflationary increases across the Group factored into the increase in operating expense
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review
SPECIAL FEATURE - JMMB Competitive Analysis
JMMB operates in a highly competitive financial industry. It is ranked as the third largest financial house behind Bank of Nova Scotia’s Scotia Investments Limited and National Commercial Bank’s NCB Capital Markets respectively.
Porter’s Five Forces Analysis Threat of new entry – Low to medium The threat of new entrants to the financial industry in Jamaica is considered to be low or minimal to JMMB. The financial industry is capital intensive and is regulated by The Bank of Jamaica. They require details regarding the nature and source of wealth and funds that will be provided to support the start-up and ongoing operations of the organisation. As a result, access to finance is one of the major barriers to entering the industry. Another possible barrier is customer loyalty. Devotion to existing investment houses would prevent them from moving to newcomers in the industry. Bargaining Power of suppliers - High The Government of Jamaica is the largest supplier of debt and holds significant influence over the investment portfolio. The government holds substantial power and has a large enough impact to affect JMMB's margins and profitability.
Rivalry among existing competitors High
Threat of substitutes – High Bank of Nova Scotia Jamaica Limited and National Commercial Bank Limited offer similar products and services and as such, according to the Porter’s five Forces the availability of substitutes regarding JMMB will be high. The customers’ ability to substitute JMMB’s products and services with similar products from other investment houses, is easy and viable. This weakens JMMB’s power in the industry. Bargaining power of consumers - High In the financial sector JMMB’S customers have the power to easily invest with the competition such as BNS or NCB. This is because:
Switching to another (competitive) product or service is simple. Customers are price sensitive. Therefore, in order to maintain its market share JMMB must ensure that it continues to provide services that are competitive and customer focused.
JMMB operates in a highly competitive market with competitors offering similar products and
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review services to the public. One important aspect of differentiating service delivery is geographic accessibility. The Jamaica Fair Trading Commission’s website states that JMMB has branches in eight (8) parishes when compared to BNS and NCB with locations in all fourteen (14) parishes. This fact puts JMMB at a competitive disadvantage with its rival competitors. Over the period of review however, JMMB has implemented strategies to gain competitive advantage:
• The launch of its first financial-services branch in April 2015; offering consumers a onestop shop for all its services. • Rebranded the JMMB Money Transfer, the remittance arm of the group. This gives JMMB a competitive advantage in increasing its market share.
JMMB SWOT Analysis Internal Strengths Regional presence (Trinidad and Dominica) Customer care commitment – known for being customer focused, their community involvement and innovation. Variety of financial instruments and services. For example, insurance brokerage and pension management Introduction of intra island money transfer services – launched in October 2015 is said to be fastest of its kind in Jamaica. One of the largest Securties companies in Jamaica by Funds Under Management (FUM) Large client base of over 220,000
External Opportunities Potential acquisition of commercial bank license – will lead to increase customer portfolio and allowing it to lend at cheaper rates Acquisition of Inter-commercial bank of Trinidad – increase financial service offerings in the Eastern Caribbean. Expansion into the insurance market Growing their Branch Network Threats International and local economic climate, sovereign credit ratings and government actions Competitors Reduction in interest rates
Weaknesses Operates in a weak local economy Customers investments are not insured against loss – unlike commercial bank deposits, the investments in securities are not covered under the Jamaica Deposit Insurance Corporation.
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review Price Earning Ratio (PE) The Group’s PE ratio has moved by $0.43 cents between 2011[$6.07] and 2012 [$6.50]. By 2013 this hit an all time low [$2.64] with a gradual increase in 2014 [$4.05] to end FY 2015 at $5.98 which could mean that investor’s confidence in the Group has strengthened.
JMMB Financial Analysis
Price Earning
Market Strength The financial industry in which JMMB operates, its market strength is measured by the force and visibility of its brand, product offerings and services in comparison to that of its competitors operating in the same market. To measure the market strength of JMMB, in the context of its competitive environs the following ratios have been computed: Earnings per share (EPS), Price Earning (PE) ratio, Dividend yield, Dividend Payout, Dividend Cover and Book value per share. Earnings per share (EPS) EPS for March 2011 saw a change of $0.76 cents per share. March 2012 saw an increase of $1.51 cents. In March 2013 there was a significant increase in the EPS for JMMB by approximately 64% [$2.35]. This could be attributed to the Groups 100% holding in IBL. For 2014 there was a decline in EPS [1.74] and even further decline in 2015 to 1.18 cents per share.
EPS 2.5
2 1.5
7 6 5 4 3 2 1 0
Price Earning
2011 2012 2013 2014 2015
Dividend Yield/Dividend Payout Ratio The company has seen an increase in shareholders equity over the 5 year period moving from 6,980,736 in 2011 to 21,723,064 in 2015. This solid capital base reflects the Group’s continued strength and is a critical ingredient for future growth. Book Value per Share The Group’s book value per share unit showed a significant increase over the financial year and is at its highest since the company listed on the Jamaica Stock Exchange (JSE). Book value per share of common stock came in at J$13.32 up from J$11.46 in 2014. The stock’s closing price on the JSE as at the end of financial year stood at J$7.06, indicating significant value for existing and prospective shareholders.
EPS
1
Profitability
0.5 0 2011 2012 2013 2014 2015
Over the last 5 years JMMB has noted an increase in interest income on a yearly basis, with the largest increase of 22.7% noted in 2013 compared to 2012. However, this trend was not evident in the net profit ratio. A steady increase in net profit ratio was noted from 2011-2013 with a decline in 2014 and 2015. In 2013 there
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review was significant increase in net profit ratio. One of the main drivers of this increase in 2013 compared to 2012 is the 22.7% increase in interest income coupled with a 2 million gain on the acquisition of subsidiaries. The decline in profit margin was greatly impacted by a 37.3% or $2m increase in operating expenses in 2015 compared to 2014. Interest income has mirrored interest income movements over the last 5 years. However, there was an insignificant decline in 2015 compared to 2014. This was as a result of 0% movement in net interest income/gross profit in 2015 compared to 2014, even though there was 1m increase in interest income. This 1m increase in interest income was offset by a corresponding 1m increase in Interest expenses. Return on Capital Employed (ROCE) - The group maintained an average of 7% in the first three years and experienced a slight decline to 6% in 2014 and 2015, due to an increase in debt stock. The profit growth was slower than the increase in debt which clearly impacted ROCE. Return on Shareholder’s Funds (ROSF)Movement over the last 5 years was impacted by the shareholders equity increase (debt stock) as explained above for ROCE and therefore experienced a decline over the period.
Operating expenses 2015
2014
2013
2012
(0 2011
Total operating expenses increased by 37.3% to $J7.787B, compared to $5.670B in 2014. This is attributed to the expansion of the group and the regional presence in the Caribbean. Operating expenses as a percentage of revenue increased by 9% in 2015 when compared to the previous year. Interest income as a percentage of total assets has decline in 2015 as was the case in the prior 2 years. The only increase during the 5 year period was seen in 2012 when at 2.84%, there was a 0.61% increase over 2011. The main contributor has been the economic climate and reduction in interest rates worldwide. In April 2015 Bank of Jamaica announced reduction in its benchmark rate for Certificate of Deposits. This suggests that there is a possibility of further decline in the future. Operating income as a percentage of total assets shows a 0.52% increase in 2015 over the previous period. This indicates that if for any reason there is a decrease in revenue JMMB has the resources to generate profit.
Cash Flow Adequacy
Operational Efficiency
( 2,000,000)
increase in operating expenses of 43.6% over 2012. This was as a result of the acquisition of Capital and Credit Financial Group in 2012, which saw an increase in the financial offerings of the group.
( 4,000,000) ( 6,000,000) ( 8,000,000) ( 10,000,000)
JMMB has maintained and manage its resources consistently over the 5 year period. The most significant change came in 2013 with an
Cash and Cash equivalents increased significantly in 2014 compared to 2013. An Increase of 17.4M or 300% was noted. This was partly due to the company merging with Capital & Credit Merchant Bank (CCMB) in 2013 after which there was an influx of customer deposits. Net capital expenditure experienced a steady increase over the 5 years analyzed period. This is due to JMMB making steps in expanding not only in the Caribbean but also back home in Jamaica. JMMB in 2014 opened their Ocho Rios branch and shortly before this they opened their
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review doors in Santa Cruz. This explains the continued investment in the purchasing of tangible assets such as property, plant and machinery. Cash Flow Yield The line graph below shows the movement of the cash flow yield over the five year comparative period. In 2011 the cash flow yield for JMMB moved from -1.20 to 5.45 in 2012, 2.67 in 2013 to 4.74 in 2014 and 1.21 in 2015. These may depict that 2012 was the best year out of the five year comparative year as this was the year where the company generated the most profits in relation to the total value both debt and equity that investors have placed on the firm. According to industry standards the higher the ratio the more cash a company is generating for its investors. This would mean that 2012 was the best year to invest in JMMB followed by 2014.
Cash Flow Yield 10.00
Cash Flow to Sales 1.50 1.00 0.50 0.00 -0.50
2011 2012 2013
2014
2015
Cash Flow to Sales
In 2011 the cash flow to sales ratio resulted in a -0.16% this figure increased to 1.33% in 2012. This figure dipped to 0.92% in 2013 and then steadily grew to 1.18% in 2014. 2015 showed a major decline to 0.19%. This constant fluctuation in the cash flow to sales figures shows that JMMB needs to better manage their cash in relation to their revenue figures.
Long Term Solvency
5.00 0.00
-5.00 2011 2012 2013 2014 2015 Cash Flow Yield
Gearing Ratio 4.00 3.00
Cash Flow to Sales
2.00
The bar chart below represents the cash flow to sales (interest income) ratio experienced by JMMB over the five year comparison period.
0.00
Gearing
1.00 20112012201320142015
Moving from FY 2011-2012 the company drastically improved its gearing with the transfer of 7% of its total assets to non-distributable retained earnings reserve. This reserve constitutes a part of the company’s capital base in determining the capital adequacy ratio. Thereafter it has maintained an impressive average of 0.38 in the next 4 years.
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review growth was less than that which was recorded in NII and as such the Net Interest Margin showed positive results. This increase was however short-lived, as Net 2015 Interest Margin trended steadily downwards year over year from 2012 to 2015 where it ended at 2014 2.42%. This decline could be explained by the 2013 Leveragefact that while NII increased steadily over the period, the company’s total assets expanded 2012 significantly due to increases in cash & cash 2011 equivalents as well as loans and notes receivables. 0.00 5.00 10.00 15.00 Over the period under review, the company’s operating efficiency showed signs of fluctuation; moving from 39% in 2011 to 34% in 2012 then Over the past 5 years, JMMB has maintained an slipping to 42% during 2013.These movements average 9.85 leverage, meaning that debts can be were due to the fact that while Operating Income serviced 9 times before the reserves become outperformed Operating Expense marginally in depleted. 2012, this performance was not carried over to 2013 due to the impact of rising staff costs and other expenses. Notwithstanding a marginal recovery in 2014, staff costs and other operating Current Ratio cost continued to outpace operating revenue in 2015 thereby resulting in a 9% point decline in 2015 operating efficiency. Except for 2012, Loans & Advances as a 2014 percentage of Total Assets improved steadily; 2013 ending at 14.66% in 2015. This would have been 2012 encouraging for the company since its Interest 2011 Income potential would have been concurrently improved with this consistent growth in its loan 1.07 1.08 1.09 1.10 1.11 1.12 book. While credit loss provision as a percentage of its total loans & advances grew Current Ratio between 2011 and 2013, this would not have given rise to alarm since the growth in provisions was consistent with its growing loan The liquidity of JMMB is consistently greater portfolio. What would have been very than 1 indicating that a company’s liabilities are encouraging is the fact that between 2014 and less than its assets. The company has shown that 2015 the ratio of credit loss provision to total over the past 5 years it has been able to pay off loans and advances declined. This suggests that its obligations when due. a larger proportion of loans were being secured
Leverage
Loan Efficiency In 2012, the company recorded an increase in Net Interest Margin, which moved from 2.23% in 2011 to 2.84% in 2012. This was influenced by the combined effects of a significant growth in its investment securities portfolio and a reduction in notes payable, which resulted in net interest income for the company. While total assets also increased over the same period, this
by either real estate or readily realizable collateral hence the risk of loss in the event of default was reduced.
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review
Industry Analysis
Country Contribution
Billions
Industry Profit Trend 6%
$20
Jamaica
$10
25%
Dominican Republic
$2011
2012
JMMB
2013 BNS
2014
2015
NCB
69%
Trinidad & Tobago
In an effort to compare their position within the sector, the industry benchmark was computed using the financial statements for the last 5 years. The three companies used were JMMB and its two main competitors, Bank of Nova Scotia and National Commercial Bank. The main purpose of any organisation or group is to realise profits within the market in which it operates. In examining the net profit trend of all three companies, BNS and NCB was confirmed as the major players in the industry. JMMB continues to show consistency with noticeable increase in profits of 22% in 2013. The change was as a result of its regional acquisitions. JMMB and BNS showed a 20% decline in 2014 over the prior period. NCB however reflected a 35.7% increase over the similar period due to increase in premium income as a result of the acquisition of Advantage General Insurance Co. Ltd. The overall position of JMMB remains constant and relevant in the financial market.
Country Contribution Jamaica - J$1.3 billion Dominican Republic- J$475 million driven by growth in gains on securities trading Trinidad and Tobago - J$120 million driven mainly by contributions from IBL group
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review
SPECIAL FEATURE – JMMB Common Size & Trend Analysis
Common Size Analysis Balance Sheet The vertical common size analysis of the Jamaica Money Market Brokers Group Limited (JMMB) balance sheet suggests that JMMB adapts a moderate risk approach to their asset management as the percentages calculated on each line item showed very little variations between the three comparative years. Jamaica Money Market Brokers Limited Common Size (Vertical) Balance Sheet as at March 2013, March 2014 & March 2015 ASSETS
2015 000’
2014 000’
2013 000’
Common Size % 2015
Common Size % 2014
Common Size % 2013
9%
11%
3%
1%
1%
1%
1%
1%
1%
15%
13%
6%
1%
1%
1%
0%
0%
3%
72%
71%
83%
-
-
0%
0%
0%
0%
-
-
0%
0%
0%
0%
1%
1%
1%
0%
0%
0%
0%
0%
0%
100%
100%
100%
Common Size % 2015
Common Size % 2014
Common Size % 2013
1%
1%
1%
0%
0%
0%
9,109,778.00
4%
5%
5%
1,724,253.00 101,711.00
1%
0%
1%
0%
0%
1%
Cash and cash equivalents Interest receivable
18,672,388.00 2,561,634.00
23,326,420.00 2,619,996.00
5,831,430.00 2,220,864.00
Income tax recoverable
2,130,926.00
2,043,597.00
1,832,210.00
Loans and notes receivable
31,924,543.00
26,551,175.00
10,227,126.00
Other receivables
1,245,160.00
1,927,206.00
868,172.00
Securities purchased under agreements to resell Investment securities
272,596.00
652,986.00
3,890,913.00
157,226,757.00
145,777,726.00
138,412,944.00
Membership shares
50,520.00
Investment properties
457,591.00
457,591.00
Interest in associated companies
457,591.00 808,306.00
Intangible assets
1,060,277.00
1,005,314.00
472,522.00
Property, plant and equipment
2,033,688.00
1,841,497.00
1,296,136.00
Deferred income tax assets
38,933.00
150,384.00
447,951.00
Customers’ liability acceptances, guarantees and letters of credit, as per contra Total Assets
90,809.00
352,227.00 44,276.00
217,715,302.00
206,706,119.00
166,860,961.00
Jamaica Money Market Brokers Limited Common Size (Vertical) Balance Sheet as at March 2013, March 2014 & March 2015 STOCKHOLDERS’ EQUITY
2015 000’
Share capital
2014 000’
2013 000’
1,850,279.00
1,850,279.00
13,775.00
13,775.00
Retained earnings reserve
9,605,055.00
9,605,055.00
Investment revaluation reserve
2,037,032.00
636,397.00
109,014.00
56,233.00
Share premium
Cumulative translation reserve
-
1,850,279.00 13,775.00
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review Other reserves Retained earnings
Non-controlling interests Total Equities
LIABILITIES
Customer deposits
-
-
-
3%
3%
2%
10%
9%
10%
0%
0%
0%
10%
9%
10%
Common Size % 2015 18%
Common Size % 2014 17%
Common Size % 2013 4%
378,560.00
0%
0%
0%
341,082.00
-
-
-
66%
69%
81%
2%
-
-
-
-
-
7,567,587.00
6,173,689.00
20,964,714.00
18,335,428.00
16,693,373.00
758,350.00
353,552.00
519,503.00
21,723,064.00
18,688,980.00
17,212,876.00
2015 000’ 38,463,504.00
2014 000’
4,096,999.00
2013 000’
35,887,750.00 7,567,380.00
Due to other banks
435,032.00
283,386.00
Loan participations Securities sold under agreements to repurchase Notes payable
144,501,658.00
143,302,425.00
135,907,311.00
3,644,384.00
Loans payable Redeemable preference shares Deferred income tax liabilities Interest payable Income tax payable Other payables Liabilities under acceptances, guarantees and letters of credit, as per contra Payables
4,228,705.00
4,228,705.00
2,759,346.00
2%
2%
2%
682,307.00
627,360.00
536,698.00
0%
0%
0%
1,185,595.00
1,182,974.00
1,193,398.00
1%
1%
0%
397,758.00
83,671.00
11,546.00
0%
0%
0%
2,362,486.00
2,068,641.00
908,488.00
1%
1%
0%
90,809.00
352,227.00
44,276.00
0%
0%
0%
90%
91%
90%
100%
100%
100%
Total Liabilities Total Equity & Liabilities
88,017,139.00 195,992,238.00 217,715,302.00
206,706,119.00
149,648,085.00 166,860,961.00
The asset item cash and cash equivalents showed the most variation with a jump from 3% in 2013 to 11% in 2014. This sharp increase could be due to its further expansion in the region. At the end of the financial year for 2014 JMMB Puesto de Bolsa was recorded as the most profitable broker in the Dominican Republic. The years 2014 and 2015 reported percentages in a similar range 11% and 9% respectively. These figures further underscore the fact that JMMB’s expansion has allowed the company to generate more cash and cash equivalents. Property, plant and equipment would seem to be utilized efficiently as only 1% accounted for the total assets the company. This suggest that the company should not have an issue with cash flow being tied up assets that cannot be easily liquidated, an issue that affects many industry players today. Considering that the JMMB group has a popular investment house attached to it the relatively high figures under the investment securities category of 72% (2015), 71% (2014) and 83% could be considered typical. Again we see a small increase of 1% resulting from the comparison of 2014 and 2015. It is important to take note of the sharp decrease that occurred in the same category for the years 2013 -2014. This is partly due to the expansion not only in the region but also with the introduction of different services. JMMB is no longer just a brokerage house but also offers a very wide range of services inclusive of insurance, cambio and remittance. With regards to the liabilities of the JMMB group, there was again very little changes between the two comparative years. The overall total liabilities common size percentage increased from 90% (2013) to The Financial Edge – Yearly Review on Jamaican Financial Houses Vol.16
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review 91% (2014) and then a minor decrease to 90% (2015), whilst total equities followed a similar trend. The biggest change from the liabilities was the line item ‘customer deposits’. Here we see another sharp increase from 4% (2013) to 17% (2014) and 18% (2015). The movement of this percentage is due to JMMB acquiring Capital & Credit Merchant Bank (CCMB). The securities sold under repurchase agreements common size percentages may be considered misleading. This is due to the total equity and liabilities as the base figure. This base figure continued to increase over the three comparative years. Despite this declining percentage it is important to note that the ‘securities sold under repurchase agreement’ figures continued to increase this is due to the state of the money market. It is anticipated that the ‘securities sold under repurchase agreements’ will continue to increase with the introduction of retail repurchases in the Jamaican money market. Income Statement Jamaica Money Market Brokers Limited Common Size (Vertical) Income Statement as at March 2013, March 2014 & March 2015 ASSETS
2015 000’
2014 000’
2013 000’
Net Interest Income (Revenue)
13,337,816.00
12,279,750.00
11,251,553.00
Profit
2,047,282.00
3,062,059.00
3,856,863.00
Other comprehensive income items that may be reclassified to profit or loss: Unrealized gains/ (losses) on available-for-sale securities Foreign exchange translation differences Total comprehensive income for year, net of tax
1,619,731.00
94,847.00 3,572,166.00
1,483,011.00
1,629,269.00
157,944.00
93,819.00
1,736,992.00
5,392,313.00
Common Size % 2015
Common Size % 2014
Common Size % 2013
100%
100%
100%
15%
25%
34%
12%
12%
14%
0.71%
1%
0.83%
27%
14%
48%
The common sized income statement above reflects that profit has declined during the 2013-2015 period in comparison the revenue. Though revenue has increased over the period, profit has declined this is due to the expansion that JMMB has been currently undergoing. Once a company begins to expand then cash may become tied up in other fixed assets which may contribute to a decrease in the overall profit figures. JMMB over analyzed period has expanded in not only Jamaica but also the Caribbean, most notably the Dominican Republic. The category of “other comprehensive income items” has remained consistent over the three year examined period. Foreign exchange translation followed a similar pattern. Total comprehensive income in comparison to revenue on the other hand fluctuated between 2013-2015.
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review Trend Analysis Income Statement JMMB’s revenue from 2011-2015 has consistently increased year on year to reach the company’s highest level of revenue of $13, billion in March 2015. In 2013 the group recorded the largest increase when comparing years, when the revenue recorded was 22.76% more than the base year. The second highest increase was in 2014 when the company recorded a revenue growth of 9.14% when compared to the base year.
JMMB Revenue Trend 2011-2015 16,000,000.00 14,000,000.00 12,000,000.00 10,000,000.00 8,000,000.00 6,000,000.00 4,000,000.00 2,000,000.00 -
Balance Sheet The Group consistently increased its asset base over the 5 years period. This was achieved primarily through acquisitions with the most significant ones being Capital and Credit Financial in 2013 and Inter Commercial Bank Limited in 2014. What was also notable was the Group’s investment Securities which increased by over 98 Billion to 157 billion in 2015 (over 61% growth) when compared to base. This growth in the interest bearing assets further increased the revenue earning potential of the group. The Group’s loan portfolio also increased due to the acquisition of the bank in 2013.
Total Liabilities vs Total Assets 300,000,000.00 $'000
200,000,000.00 100,000,000.00
2015
2014
2013
2012
2011
-
Total Liabilities
The significant increases in growth in 2013 and 2014 were attributable to the group’s strategic acquisition of the Capital and Credit Financial Group in 2013 and the acquisition of The Inter Commercial Trust and Merchant Bank in 2014. This is still represents significant growth for the group though lower than the previous two years which both had specific trigger activities. The Group continued to see growth in its profit as indicated by the profitability ratio, there was a slowing down of this growth in 2014 and 2015 in the net profit margin when compared to the previous years. While the Group revenues increased their interest costs increased at even a higher rate for 2014 and 2015 which contributed to the decline in overall net profits. This increase in interest expense was due to the increase in the debt stock of the Group.
Total Assets
The growth in the company’s liabilities was also consistent and equally aligned with the growth in the assets. They were able to maintain a total asset to total equity ratio of between 9-10 percent over the five year period, this means the Group used a good mix of debts and equity to finance asset acquisition year over year. The group used a mixed of redeemable preference shares, bank notes and loans as the forms of debt used to finance asset acquisition and the operations of the business. JMMB’s redeemable preference share stood at 2.9 billion in 2011, it declined slightly to 2.8 billion in 2012 & 2013 and later increased significantly by 1.5 billion to 4.2 billion for 2014&2015. The 1.5 billion in increase was clearly used to help with financing one of the acquisitions of Inter Commercial Bank limited in 2014.
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PeakPerformance Business Consulting - Jamaica Money Market Brokers Financial Review The Group continued their model of using securities sold under repurchase agreement to finance its investments instruments. This was evident in the gradual increase in securities sold under agreements to repurchase of 10.84% in 2012, 26.32% in 2013 5.44% in 2014 and 2015 saw the lowest growth of 1%. In addition the Group utilized notes payable as a form of financing for 2011 and 2012 however this was discontinued in 2013 and 2014 and then marginally introduced in 2015. JMMB’s shareholders equity continues to grow as the company is making positive return on its
investments. The Group has paid dividend to its shareholders consistently over the last 5 years. This reflected in the groups dividend paid and earnings per share ratios. The Group has had a healthy positive dividend paid percentage over the period under review with 2015 recording the highest to date of 28% when compared with base year. This is also reflected in the groups return on equity as depicted in the bar graph below. This means that, except for 2011, the Group returns to its stockholders at a rate in excess of the average interest rate and the average inflation rate in Jamaica for the five year period.
Dividend Paid vs Shareholder's Equity 2015 2014 2013 2012 2011 DIVIDEND PAID
STOCKHOLDERS’ EQUITY
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JMMB’s business strategy Grow off-balance sheet products and services with the roll-out of their Mutual Funds and Pensions business lines Streamline operational synergies and grow the business by investing in infrastructure, technology and training and by also improving channel delivery of enhanced products and solutions to clients. Enhance their strategic position with a high quality sales team Continue to consolidate acquisitions in Trinidad and Tobago and to build-out the operations of JMMB Investments Trinidad and Tobago Limited Established “Financial Life Goals Centres” providing ‘one-stop shopping’ for clients and offering “goal-oriented” solutions across various business lines in a single location. Should the JMMB Group continue on this trajectory of profit making then they should remain a going concern.
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Recommendations Having done a 5 year analysis on The JMMB Group through its financials, and competitive advantage in the industry, we recommend to JMMB’s current and potential shareholders to invest. If you are a low to moderate risk investor then… invest in the JMMB Group The Group has a strong market presence, strong leadership team, potential and opportunity for growth. Its performance continues to be driven by gains on securities trading, foreign exchange trading and commission income. JMMB continues to seize market opportunities and is very proactive. Recently they received shareholders’ approval to allow up to 6 billion new preference shares for issue to the market, to finance any potential acquisition. The Group is already well on their way to remaining a viable option for investors as based on JMMBs unaudited financial results ending September 30, 2015; The Group Operating revenue grew by 17.8% to J$5.87 Billion Net Profit recorded J$1.21 billion Net interest income increased by 2.5% to J$2.77 billion
The Group has a large client base of 220,000 across its regional operations and continues to acquire new business lines. This is a positive trend and means growth for the Group
JMMB continues to acquire new business lines this is a positive trend and means growth for a company
JMMB consistently pays dividends to their shareholders and their Return on Equity is high.
The Group has also maintained a liquidity ratio of 1.09 and above for the five year period this means that the Group has been consistently able to settle their debts as they fall due.
They have achieved a sound net profit margin over the five year period. Loans as a percentage of total assets have improved steadily; ending at 14.66% in 2015 and Loans growth increasing by over 100% in 2014 and an additional 20% in 2015.
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Bibliography Accounting for management. (2011). Debtors or receivable turnover ratio. Retrieved October 19, 2011, from Accounting for management: http://www.accountingformanagement.com/debtors_or_receivable_turnover_ratio.htm Finance Scholar. (n.d.). Return on capital employed. Retrieved October 19, 2011, from Finance Scholar: http://www.financescholar.com/return-capital-employed.html Financial Education. (2007, January 31). Using Common Size Financial Statements to Forecast Earnings. Retrieved October 28, 2011, from Financial Education: http://financialeducation.com/2007/01/31/horizontal-common-size-income-statements/ Michaelides, G. (2011). Ratio Analysis. Retrieved 11 10, 2011, from Wikinvest: http://wikinvest.com/wiki/Ratio_Analysis Morning Star. (2010). Efficiency Ratios. Retrieved October 28, 2011, from Morning Star: http://news.morningstar.com/classroom2/course.asp?docId=145093&page=3&CN=com Needles, B. E., Powers, M., & Crosson, S. V. (2005). Financial and Managerial Accounting (7th Edition ed.). Boston: Houghton Mifflin Company. NetMBA Business Knowledge Centre. (2002). Finance: Common Size Financial Statements. Retrieved October 26, 2011, from NetMBA Business Knowledge Centre: http://www.netmba.com/finance/statements/common-size/ Tutor2U. (2011). Profitablilty Ratios. Retrieved October 28, 2011, from Tutor2U: http://tutor2u.net/business/presentations/accounts/profitabilityratios/default.html
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