Record revenues as Barita reaps from diversification
A shift from repos to fee-based services has generated solid income for Barita Investments Limited, but adjustments to support services and products as the realignments occur have also led to big expenses.
The upshot is that while Barita made net operating revenue of just over $1 billion last year, a record for the company, its bottom line shrunk as investment in new technology, staff and other administration costs took their toll.
Net revenue rose 12 per cent but net profit fell 14 per cent.
Managing Director Ian McNaughton says last year the company commissioned the Barita Integrated Investment Management System (BIIMS), which is proprietary software meant to manage transactions for all products and services offered at Barita. It includes a customer-relation module, which helps the investment house satisfy the unique needs of its clientele.
"We started to amortise those costs, so $30 million came on to our account this year that would not have been there the year before," said McNaughton.
"We also had some impairment costs on some Venezuelan bonds that we had and some bad debt provisioning for some loans that went awry," he told Sunday Gleaner Business after the company's annual general meeting last Thursday.
At the meeting, where McNaughton touted the $1-billion milestone to shareholders, he said the company's top-line performance was the result of a deliberate strategic shift beginning five years ago, when the company charted a course to reduce balance sheet risk and diversify revenue streams - reducing the dependence on repackaged repos.
McNaughton said Barita was successful at reorientating the company in terms of how it earned money. Using 2011 as a benchmark, he said that Barita was able to earn more in 2016 even though it made less in net interest income. That's because it began collecting more non-
In 2011, Barita made net operating revenue of $734 million, to which the biggest contributor was net interest income at $449 million, or 61 per cent of revenues.
Fast-forward to 2016 and of the $1.02 billion of net revenue, net interest income contributed $366 million or 36 per cent to the pool.
Over the same period, non-interest income has nearly doubled to 64 per cent of the pot.
McNaughton said the main driver of the diversified revenues has been the development of the unit trusts funds.
"In 2011, we had two funds with $2.3 billion under management generating $41 million of
revenue. In 2016, we now have eight funds with $12.3 billion under management generating
$288 million of revenue," McNaughton told shareholders.
Barita Chairman Rita Humphries-Lewin brought a similar message, telling shareholders that 2016 was a year when the company invested in business growth "especially in the areas of risk management, technology and to solidify (their) position as a premier player in the financial services sector".
Humphries-Lewin also underscored that the shift in business model came with an expansion of other product lines that suited the demands of Barita's clients.
"The fixed rate portfolios denominated in both Jamaican and US dollars were launched in May of 2016 and replicate the features of a traditional repo," the chairman said.
"This received strong support from our clients as they become more accustomed to investing in collective investment schemes," Humphries-Lewin said.
Barita closed the year with an increased asset base, which grew 12 per cent to $14.77 billion. Net profit fell to $207 million last year, from $242 million.