Jamaica Producers to include Kingston Wharves in core operations
Jamaica Producers Group (JP) will classify Kingston Wharves Limited (KWL) as its subsidiary in the third quarter, the upshot being the port company will be included in the conglomerate's core operations.
JP now accounts for its interest in Kingston Wharves as an associate company.
The conglomerate currently earns 85 per cent of its revenues from food and 15 per cent from logistics. The reclassification of Kingston Wharves will lift JP's logistics earnings to 45 per cent. It marks the continuing evolution of JP, whose core business was led by banana trading up to a decade ago.
Jamaica Producers made the decision to recognise KWL as a subsidiary on consultation with its auditors. JP holds over 44 per cent of KWL and controls several board seats, including the chairmanship of the port company.
Its direct holdings of 600.7 million KWL shares represent 42 per cent of the port company.
Auditor KPMG, with reference to IFRS accounting standards, now views Jamaica Producers as having the ability to influence KWL, according to Jeffrey Hall, managing director of JP. Hall is also chairman of KWL.
"They looked at a number of factors including the holding and directorships and ability to influence the company in accordance with the IFRS," said Hall in a Financial Gleaner interview. "We are duty-bound by IFRS to reflect the fair value of the asset," he said.
Five of the 12 directors on the KWL board are also on the JP board, including Hall, his father Dr Marshall Hall, Charlie Johnston, Kathleen Moss, and Grantley Stephenson. Stephenson, who is also CEO of Kingston Wharves, is a relatively new addition to JP's board, having joined it last November.
The reclassification of KWL as a subsidiary would grow JP's annual revenues by roughly 50 per cent to some $13 billion. JP and KWL earned $8.7 billion and $4.6 billion, respectively, in their 2015 financial year.
The move to reorganise was not triggered by regulatory pressure, but it follows another shipping transaction finalised in the first quarter of 2016 that gave JP indirect ownership of another 2.5 per cent of KWL.
JP acquired approximately 13 per cent of Shipping Association of Jamaica Property Limited (SAJP), a company involved in property and investment holdings. That deal pushed JP's ownership in SAJP to 20 per cent.
SAJP itself holds 10.6 per cent of KWL, which meant the deal effectively increased JP's holdings of KWL. However KWL also holds nine per cent of SAJP.
In essence, the SAJP transaction resulted in JP holding some 42 per cent directly and 2.5 per cent indirectly in KWL, the conglomerate explained to the Financial Gleaner.
The classification was also referenced in the company's newly released second quarter results.
"We believe this will give our shareholders a much better understanding of the factors that affect the operating performance of JP and of its most significant and strategic assets," said JP chairman Charlie Johnston in a statement prefacing the financials.
"We expect that this will ultimately serve to improve shareholder value," he said.
JP's second quarter accounts reflect KWL as an associate company, but reflects a gain of $2.4 billion from the reorganisation. Subsequent earnings reports will reflect KWL as a subsidiary and include the port company's operations within JP's consolidated results.
JP earned net profit of $2.6 billion for the second quarter ending July 2, 2016, compared to $370 million in the prior year, due to the recognition of the gain.
"Our investment in KWL has been well managed and has performed well. The fair value of the underlying assets of KWL is now worth considerably more than the price per share that we paid for our interest in the company and the value per share reflected on our balance sheet," stated the company. "As such we have recorded a gain of $2.46 billion to reflect the fair value of net assets as at the end of this reporting period."
The cash flow statement, however, discounts the gain, with JP ending the second quarter at $491 million in cash and equivalents, compared to $366 million a year earlier.
JP's balance sheet also reflects equity of $19.2 billion at the end of the second quarter, up from $6.5 billion a year earlier. The rise relates to its accounting for KWL on its balance sheet.
Jamaica Producers told the Financial Gleaner that it has no plans to increase its current holdings in Kingston Wharves and is also satisfied with the current board composition.