Hall: Strong dollar cost JP $500m
The rise in value of the Jamaican dollar last year cost Jamaica Producers Group Limited hundreds of millions of dollars.
The bulk of Jamaica Producers’ $29 billion in annual revenue takes the form of foreign currency that’s converted to Jamaican dollars. The company holds food and logistics assets in multiple countries.
“Whereas in 2021 we might have had an exchange gain, we had an exchange loss in 2022 and the combined impact, or delta, on that is north of $500 million in the year,” said JP Group Managing Director Jeffrey Hall, who was the featured guest at the Mayberry Investors Forum on Wednesday.
The audited financials indicate that the group booked $415.6 million as exchange losses related to translation of its foreign operations, compared to a gain a year earlier of $77.4 million.
Jamaica Producers holds stakes in local wharfing operations which bills clients in US dollars but settles in local currency, according to Hall. Those operations and others which hold assets in US dollars were slightly affected by the 2.3 per cent appreciation of the Jamaican dollar against its US counterpart. But Jamaica Producers also owns manufacturing businesses in the Netherlands and Spain, which made a seven per cent decline in the euro of particular concern for Jamaica Producers.
“There was a material appreciation of the Jamaican dollar to the euro,” said Hall.
Holding cash in hard currency has generally worked to Jamaica Producers’ “advantage” over its 90-plus years of existence, said Hall. That’s because the local dollar has depreciated in almost every year since Independence in 1962.
“We are still keeping a long US dollar position on the cash side of the business,” he added.
In 2022, the Jamaican dollar meandered beyond $158 to the USD at one point, but climbed back down to close the year at $152.05, having appreciated by two per cent.
Relative to the euro, the JMD appreciated by seven per cent in 2022.
“So we had to overcome that to get the results in 2022,” said Hall of the currency appreciation.
So far in 2023, the exchange rate has ranged above $155 against the USD, but was nearly back to its starting position on Wednesday at $152.65; while the Jamaican dollar has appreciated two per cent against the euro, which traded at $161.30 on Wednesday.
Jamaica Producers made $3.98-billion consolidated profit for its full year, compared to $3.82 billion a year earlier, but that’s because its share of profit from associated companies and joint ventures grew fivefold to $1.35 billion.
The rising value of the dollar cut into its margins, producing less profit from the group’s operations, at $3.5 billion, compared to $4.47 billion in 2021.
The operations of Jamaica Producers Group will be merged with PanJam Investment by the end of June to create the new Pan Jam Group Limited. Initially, both groups had expected completion of the tie-up by March. PanJam Investment owns real estate and holds investments in Sagicor Group Jamaica and other companies.
Under the deal, Jamaica Producers will transfer its assets to PanJam and take a 34.5 per cent stake in the new Pan Jam Group. The food and logistics company’s assets are currently being held in a new entity called JP Global, which is being utilised to effect the transfer.
Hall indicated that the merger at $110 billion in combined assets, would allow Jamaica Producers and PanJam to acquire larger companies.
“We are always looking at deals,” said Hall. “Our shareholders equity is between US$450 million and US$500 million. We definitely have space to accommodate more leverage. I would say, from the standpoint of equity, we are well covered in the immediate term,” he added.
Shares in JP and PJAM both trade on the Jamaica Stock Exchange. After the merger, both will remain listed on the market. Pan Jam’s accounts will reflect its businesses, but also the new assets acquired from Jamaica Producers. Jamaica Producers’ books, on the other hand, will largely reflect the performance of Pan Jam Group as its investment.
“JP will become a holding company, with its primary asset being 34.5 per cent of Pan Jam Group, which we think is a great asset, along with some cash and real estate,” said Hall.
Hall said that the merger was done to increase shareholder value in the long run through acquisitions and revenue growth.
“We are not chasing short-term stock gains,” said Hall. “It is not a primary focus of ours to run up the share price to hit some narrow quarterly event. It is a priority for us to acquire and hold very good, long-term businesses.”
The combined enterprise will have four main business activities: property and infrastructure, primarily in Jamaica; specialty food, primarily in Europe (Netherlands and Spain) and Caribbean snacks and agro-businesses in the region; global services, which include investments in the outsourcing sector, hotels, tour attractions, and freight forwarding; and financial services holdings in Sagicor Group Jamaica.
“Those are the businesses we are in, and we intend to stay in those businesses,” said Hall