Thu | Feb 22, 2018

Scotia Group Jamaica underperforms for Canada, blames currency movements

Published:Friday | December 2, 2016 | 12:00 AMSteven Jackson
Scotiabank Centre, headquarters of Scotia Group Jamaica.

The annual net income at Scotia Group Jamaica (SGJ) remained largely flat in hard-currency terms, but its total comprehensive income plummeted to its lowest levels in at least five years, according to financial data released by its parent, Scotiabank Canada.

The results reflect currency depreciation on Canada's books rather than operational the performance of the local business, said executives.

Scotia Group net income at year end October totalled some CAD$127.6 million, or roughly $12.2 billion in local currency, compared to CAD$131.2 million a year earlier - a decline of 2.7 per cent.

It is based on a computation of the Canadian parent's financials released this week in which it was revealed that the net income from its non-controlling stake in SGJ at CAD$36 million CAD$37 million a year earlier, from which the Financial Gleaner extrapolated for the full ownership. Canada indicated that its non-controlling interest stands at 28.2 per cent of the local subsidiary.

Scotiabank Canada, in its reporting on the full year results, revealed that Jamaica's comprehensive income plunged from CAD$283 million to CAD$71 million. That is a 74 per cent decline.

SGJ chief financial officer Frederick Williams said it is due to Canada's special accounting of currency movements on the net assets in Jamaica.

SGJ will shortly release its full-year financials in local-currency, which comes on the heels of one of its best third-quarters in years.

"You will see our results next week," said Williams, who is barred from commenting on the numbers ahead of their full release to the market.

"We appreciate your interest in the performance of Scotia Group Jamaica Limited and look forward to sharing our fiscal 2016 results after our board meeting on December 7," Williams said.

Total comprehensive income seeks to account for changes to net profit based on unrealised gains or losses on securities, pension plan assets, and so on. A Gleaner analysis of Canada's previous annual reports over five years indicates that this year would represent the first decline as well as the lowest comprehensive income for the local operations.

The five-year results are: CAD$71 million in 2016; CAD$283 million in 2015; CAD$119 million in 2014; CAD$118 million in 2013; and CAD$101 million in 2012.

Williams explained that the fall in comprehensive income was due to a specific treatment of currency movements by Canada in relation to the hard-currency changes in the net assets of the group. He added that to the extent local currency fluctuates against the Canadian dollar, the impact of that fluctuation is recorded in other comprehensive income, or OCI, which is a component of equity.

"Total comprehensive income for fiscal 2016 would, therefore, include the negative impact of the devaluation of the Jamaican dollar (JMD) versus CAD on the value of SGJ's net assets," Williams explained.

He adds that in fiscal 2015, the JMD appreciated against the CAD and would have positively impacted OCI in that year.

Williams downplayed any concerns about the impact of extraordinary events when asked if currency movements alone would account for the decline.

The local currency depreciated 7.3 per cent against the Canadian dollar over 12 months, ending October 2016, to close at J$96.25 from J$89.66.

SGJ reported a rise in total assets to CAD$5 billion, up from CAD$4.8 billion a year earlier, according to Scotiabank Canada's report, while its total liabilities increase to CAD$3.86 billion from CAD$3.66 billion a year earlier.

Regionally, Scotiabank Canada's operations in Latin America (Banco Colpatria) rebounded year on year from a deficit of CAD$165 million to CAD$152 million in total comprehensive income. The Trinidad & Tobago subsidiary, however, declined by roughly half from CAD$214 million to CAD$118 million in 2016, which actually puts its performance ahead of Jamaica for the second time in five years.

Scotiabank Trinidad is run by Anya Schnoor, who is from Jamaica, while the Jamaican operation is run by Jacqueline Sharp, who also has regional oversight of some Caribbean markets.