Businessuite Markets
FESCO In Growth Mode, Significant Investments Set To Spur Future Growth And Profitability
Jeremy Barnes Chief Executive Officer For Future Energy Source Company Limited (“FESCO”) Has Released The Following Unaudited Fourth Quarter Results To March 2024.
Executive Summary
We are pleased to report that the Company has achieved its best year to date as it relates to gross profit, J$1,455,217,297, operating profit (EBIT) J$672.3 million, up 18.7 % from J$566.4 million, earnings before interest, taxes, depreciation and amortization (EBITDA) J$846.9 million up 42.3% from J$595.4 million.
Shareholder’s equity of J$2.15 billion as at March 2024 is up 64.7% or J$842.9 million year over year from J$1.30 billion as at March 2023 which is almost seven times (7X) the Company’s shareholder’s equity of J$318.4 million as at March 2021.
For the year, the Company was able to achieve its main targets to:
1. Create brand awareness for FESGAS™ and establish an accretive and sustainable LPG business;
2. Increase service station network foot print and increase fuel sales measured in litres;
3. Increase profitability, specifically as it relates to operating profit (EBIT) and operating cash flow (EBITDA)
4. Execute significant investments in capital expenditure (CAPEX); which does not yet reflect in sales or profit but for which the Company forecasts sustainable returns in the medium term and whilst having generated ROE after tax of 30%.
Net profit after tax (NPAT) of J$515.1 million slipped 9.8% or J$56.2 million year over year from the Company’s record profit achieved last year of J$571.3 million.
The slippage in Net profit reflects a significant increase year over year for:
1. Interest expense (net) +J$165.3 million;
2. Depreciation +J$136.7 million and;
3. Advertising expense +J$31.4 million.
The increase in interest expense, depreciation and advertising, in the main, is reflective of and is attributable to our medium to long-term vision to expand our network foot print, our expansion into LPG distribution and to increase brand awareness for both FESCO and FESGAS.
The Company’s discrete quarterly (Q4: 3 months) performance reflects the booking of outstanding supplier invoices relating to previous quarters within the year. Normalised net profit for the 4th quarter (Q4) would have been approximately J$112 million versus the reported J$49.1 million. Accordingly, for a more meaningful discussion we will focus our analysis and reporting on the full year’s (12 months) performance instead of the three months ended March 31, 2024.
The Company’s annual performance reflects an increase in gross profit, operating profit (EBIT) and EBITDA.
All whilst acquiring, establishing and distributing LPG via our FESGAS™ brand, which includes two (2) company operated LPG filling plants, increasing our network foot print by three (3) service stations: FESCO Kitson Town, FESCO May Pen, and FESCO Port Maria, improving brand awareness, and increasing its advertising, depreciation and interest expenditures.
For the year, the Company achieved:
1. Gross profit: J$1,455.2 million up J$567.4 million or 63.9% vs year ended March 2023
2. EBIT: J$672.3 million up J$105.9 million or 18.7% vs year ended March 2023
3. EBITDA: J$846.9 million up J$251.6 million or 42.3% vs year ended March 2023
4. Net profit: J$515.1 million down J$56.2 million or 9.8% vs year ended March 2023
5. Book value of equity: J$2.15 billion, up 64.9% since March 31, 2023.
FESCO has no control over the supply price of fuel and, instead, focuses more on quantity of fuel sold and gross profit.
Financial Highlights:
For the year ended March 31, 2024, FESCO recorded Turnover/Revenues of J$28,777.3 million which reflects a 9.49% or J$2,495.1 million year over year increase. Several factors affect revenue/turnover with the supply price of fuel being a major component.
For quarters Q1 and Q2 all fuel prices fell significantly versus the previous year, and for Q3 and Q4 diesel prices fell significantly while gasoline prices increased negligibly. Accordingly, FESCO’s growth in Turnover for the year ended March 2024 reflects significant growth in litres of fuel sold.
Again, the Company’s discrete quarterly (Q4: 3 months) performance reflects the booking of outstanding supplier invoices relating to previous quarters within the year.
Normalised net profit for the 4th quarter (Q4) would have been approximately J$112.0 million versus the reported J$49.1 million. Accordingly, for a more meaningful discussion we will focus our analysis and reporting on the full year’s (12 months) performance instead of the three months ended March 31, 2024.
FESCO recorded gross profit of J$1455.2 million for the year which reflects growth of 63.9% or J$567.4 million year over year. The improvement in gross profit reflects both increasing throughput (measured in litres of fuel sold) and diversification of product offerings (fuel types including LPG) and services (increased retail presence).
Operating Expenses of J$784.5 million, for the year, is up J$477.2 million versus last year or 155.3%. This expansion of expenses directly reflects the expanded:
1. Operating locations including the additions of: FESCO Kitson Town, FESGAS Bernard Lodge and FESGAS Naggo Head;
2. Asset base which includes increased operating LPG and service station assets; Operational scope (which now includes increased retailing and manufacturing);
4. Early stage new business costs including but not limited to:
a. business acquisition;
b. property acquisition and development costs; and
c. business integration costs.
The Company is committed to and has expanded its Marketing and Advertising expenditure to create brand awareness for its “FESGAS” branded LPG products, among other initiatives. For the year, the Company’s advertising expenditure was J$47.0 million which is up 201.3% or J$31.4 million for the year.
Staff costs for the year of J$270.7 million, which is up J$155.1 million from J$115.7 million last year, reflects the expansion of our staff complement (up from 68 to 131) and is consistent and reflective of our expanded operations, operating locations and operating scope and remains relatively efficient as it is just 34.6% of overall expenditure (2024: 34.6% vs 2023: 35.6%) and just 18.6% of gross profit (2024: 18.6% vs 2023: 13.0%).
Other Expenses which includes but is not limited to security, insurance, listing fees and trust services (JSE and JCSD), motor vehicle expenses, and irrecoverable GCT for the year of J$184.4 million, which is up J$132.1 million from J$52.3 million last year, reflects the Company’s expanded operations, growing asset base as well as one-off charges. Other Expenses is 23.6% of overall expenditure (2024: 23.6% vs 2023: 16.1%), and is 12.7% of gross profit (2024: 12.7% vs 2023: 5.9%).
The Company’s LPG operation is capital intensive as it relates to its fixed asset requirements to establish and fulfil the business’ services and operation. Accordingly, depreciation and interest expense will in the forming period outweigh its medium and long term “weight” relative to gross profit exemplified by depreciation for the year totalling J$164.7 million versus J$28.4 million last year. Similarly, interest expenses (net) for the year of J$157.2 million has increased year over year by J$165.3 million.
In summary, staff costs, bank charges, advertising, and asset based expenses including but not limited to depreciation, insurance, and security continue to be our main expense items.
Our operations continue to be efficient, represented by our total operating expenses being approximately 53.8% of gross profit. Notably, for this stage of our LPG business development, the Company’s total operating expenses excluding depreciation is just 42.5% of gross profit.
The Company’s expense profile is changing and will reflect its expanded and evolving scope of operations. The Company’s expenditure and revenue targets are in line with its internal forecast and mix of established and early stage business expenses.
For the year, FESCO recorded operating profit or EBIT of J$672.3 million which reflects 18.7% or J$105.9 million, year over year increase. Earnings before interest, taxes, depreciation and amortisation EBITDA was J$846.9 million up J$251.6 million or 42.3% from J$595.4 million earned in the previous year ended march 2023.
For the year, FESCO incurred finance costs (net) of J$157.2 million which reflects interest costs related to its debt/bonds etc., net of interest income and foreign exchange gains.
For the year ended March 2024 profit after taxes of J$515.1 million reflects a slight decline of 9.8% or J$56.2 million, year over year.
Book Value or Shareholders’ Equity as at March 2024, has increased to sum J$2,147.1 million, up from J$1,301.9 million as at March 31, 2023 which reflects increased profitability, profit retention and revaluation reserve increase of J$330.1 million.
The Company remains significantly, and sufficiently liquid represented by net current assets of J$330.2 million (March 2023 J$302.0 million) and cash and cash equivalent balances of $282.4 (March 2023 J$287.9 million).
As at March 31, 2024, the Company’s Debt to Equity (D/E) (long term-static) is 0.72 versus 1.36 from March 31, 2023. The improved ratios (current ratio and D/E) reflect long term debt repayment of both principal and interest, and increased shareholder’s equity (both undistributed profits and revaluation reserve increases).
A Look Ahead
FESCO continues to monitor the moderating inflationary forces within the economy, the recent interest “freeze” by the central bank, the near full employment in many sectors of the economy, a resilient and expanding tourism product among other factors affecting consumer consumption as well as our allocation of investment capital.
The Company must also navigate industry-related margin contractionary forces and consolidation within the industry. The Company remains mindful of opportunities for growth and further investment. Internal or self-funding via profit generation, profit retention, at this time, has proven to be the most efficient and cost effective source of capital to fund growth.
The Company opened its twenty third 23rd service station, FESCO Hayes (DOCO) in April 2024. FESCO expresses gratitude to its staff and contractors who participated in the project’s execution. Valued stakeholders, you are invited to patronise the station and it is hoped that you will experience great fuelling services and other conveniences at all FESCO branded service stations.
FESCO recently received approval for its proposed service station on Spanish Town Road, “FESCO Oval”. FESCO Oval will be a company owned and company operated service station (COCO) and will facilitate increased retail presence within the Kingston and St Andrew (KSA) region. FESCO Oval intends to showcase the creativity, forward thinking, mindfulness, commitment to community and the immense potential of Jamaica and Jamaicans; we believe it will embody our tag line and motto, “Proudly Jamaican”. The development will take approximately fifteen (15) months to execute and we anticipate its opening during Q2 2025 (i.e. July 2025 – September 2025).
We are in growth mode, and during the year ended March 2024 we have made significant investments that do not yet reflect in sales or profit but will spur the Company’s future growth and profitability in the medium term. Further, the Company will continue to make investments in real assets and equipment to support expanding its service station businesses and network, its industrial client base, and LPG business.
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Barita Reporting Treasury, Trading And Brokerage And Investment Banking Business Lines As Largest Contributors FY24 Performance
Net profit after tax (“NPAT”) for Q4 FY24 increased by 200% to $999 million, bringing NPAT for FY 2024 to $3.9 billion, 14% ahead of 2023. The improvements achieved in Q4 FY24 reflected the effects of management’s strategy to influence improvements in operating revenue through a focus on active balance sheet management, revenue diversification and expense management, in particular the management of funding costs.
Revenue growth in Q4 FY24 was both robust and well-distributed, led by an exceptional performance in our Treasury, Trading and Brokerage business line, which accounted for 56% of total revenue. This improvement was supported by the continuation of the uptrend in net interest income which rose 3% to $164 million relative to the comparable quarter in financial year 2023.
Directionally, this performance aligned with expectations, buttressed by a pivotal shift in the monetary policy stance of the Bank of Jamaica and the US Federal Reserve, both of which reduced their benchmark policy rates by 25 and 50 basis points respectively, during the fourth quarter. While an additional 25 basis point cut was announced at the end of September, to come into effect at the beginning of October, the BOJ had communicated a shift in its policy posture during Q3 FY24, to which the market began to react via the downward repricing of liabilities, by extension, benefitting our Net interest income. The balance of risks points towards continued improvement in our net interest income as our interest-bearing liabilities reprice with a more frequent cadence.
The macroeconomic landscape has also evolved favourably. Domestic inflation has moderated, now averaging within the BoJ’s target range for the last 6 months, and a similar moderation has taken hold in the U.S.A., even as the Federal Reserve continues to signal a cautious, data-driven approach to future rate cuts. While these developments suggest a more stable financial environment prospectively, potential global risks remain. Slowing growth in key global markets, coupled with geopolitical uncertainties and the impending change in administration following the recent election in the US could introduce volatility; however, Barita’s diversified revenue streams and resilient business model position us well to navigate these headwinds.
Operating Performance
Barita generated net operating revenues of $10.0 billion for FY24, representing an increase of 10% or $901 million relative to FY23. The increase was broadly distributed across our various business lines, with income from the treasury, trading and brokerage and investment banking business lines being the largest contributor.
Net profit was $3.9 billion for FY24, rising 14% relative to FY23. The resulting earnings per share (“EPS”) was $3.24, up 14%.
Quarterly Performance
For the quarter ended September 30, 2024, Barita registered revenue of $3.0 billion, $1.2 billion or 72% higher than Q4 FY23, driven by a material uplift in the Treasury, Trading and Brokerage business line during the quarter. In the quarter, Barita produced NPAT of $999 million, $667 million (200%) higher than the prior year. This resulted from the aforementioned higher operating revenue, partially offset by a 26% or $346 million increase in operating expenses. Profit before taxation amounted to $1.3 billion, which was an improvement of $888 million or 207% relative to the prior year.
Shareholders’ equity closed the period at $35.5 billion, an increase of $71 million, marginally higher than the $35.4 billion outturn at the end of FY23. This was driven by an improvement of $734 million in the fair value reserve, offsetting the decline in retained earnings due to dividends declared and paid during the year. Our capital levels remain resilient, with capital adequacy of 25.45% compared to the FSC’s early warning level of 14%.
Investment Strategy & Capital Management: Our Outlook
The outlook for monetary policy continues to evolve over the course of the fourth quarter of FY24, transitioning from the tightening cycle that has dominated the past two years. Both the Bank of Jamaica (BoJ) and the Federal Reserve, along with other major Central Banks, have reduced their policy rates amidst a sustained moderation in inflation. This shift is expected to lay the groundwork for a more favourable investment environment in the coming quarters.
In the United States, recent economic indicators suggest that the cooling effect of tight monetary conditions has begun to take hold. Core PCE inflation has moderated to 2.7% from a pandemic peak of 5.7% in February 2022. Unemployment remained low at 4.1% in September but has attracted more focus from policymakers at the Federal Reserve given the upward trend since the beginning of 2024. The U.S. economy delivered solid GDP growth of 3.0% in the second quarter of 2024, exceeding expectations, but leading indicators continue to suggest potential weakness ahead. Against this backdrop, the Fed opted for a 50-basis point rate cut in September 2024, bringing the federal funds target range to 4.75%-5.00%. Markets have since priced in the expectation of further rate cuts as inflation trends towards the Fed’s 2% target.
Locally, Jamaica has seen similar progress. Annual headline inflation in Jamaica stood at 5.7% as of September 2024, back within the BoJ’s target range following the uptick in August to 6.5% due to the impact of Hurricane Beryl. Moreover, the BoJ’s recent cumulative reduction of its policy rate by 50 basis points to 6.50% during the quarter, reflects growing confidence that average inflation will remain within the target range in the near term, supported by stable domestic demand, a relatively stable exchange rate, and the continued moderation of global commodity prices. Jamaica’s economy remains resilient, albeit with moderating growth in key goods-producing and service sectors.
Looking ahead, we anticipate a further shift toward more expansionary monetary conditions, both locally and globally, which will likely enhance our ability to optimize our balance sheet and improve the net interest margin. As funding costs stabilize and earning assets continue to reprice upward, we expect to see a positive impact on our financial performance. Additionally, more favourable market conditions should provide increased opportunities for trading gains, and we foresee a gradual acceleration in deal-making activity, further boosting revenue growth.
However, we remain cognizant of the risks that persist in the global macroeconomic environment. Slowing growth in key global markets, coupled with geopolitical uncertainties and the impending election in the world’s largest economy, may introduce volatility that could impact our investment activities. Despite these headwinds, we continue to prioritize the diversification of our revenue streams, particularly through our alternative investment platform, which includes our real estate ventures that are poised to deliver significant returns in the medium to long term.
In this context, prudent capital management remains central to our strategy. We will continue to ensure strict compliance with regulatory requirements while maintaining the flexibility to capitalize on emerging opportunities. Through these efforts, we are confident in our ability to navigate the evolving economic landscape and deliver sustained value to our shareholders.
Mark Myers, Chairman Barita Investments Limited (“Barita” or “the Group”)
For More Information CLICK HERE
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First Rock Real Estate Investments Registers Net Loss For Three Months Ended September 2024, Driven Primarily By Unrealised Foreign Exchange Losses
First Rock Real Estate Investments Limited registered a net loss attributable to Ordinary Shareholders for the three months ended September 30, 2024, totalling US$674,536, which yielded an Earnings Per Share (EPS) of negative US$0.002. Net loss attributable to Ordinary Shareholders for the nine months ended September 30, 2024, totalled US$1,453,640, which yielded an Earnings Per Share (EPS) of negative US$0.005.
The results were driven primarily by unrealised foreign exchange losses on translation of foreign currency denominated liabilities, which amounted to US$72,034 for the three months ended September 30, 2024 and US$275,170 for the nine months ended September 30, 2024. Additionally, interest expense amounted to US$118,839 for the three months ended September 30, 2024 and US$524,340 for the nine months ended September 30, 2024.
The Group’s financial performance continues to reflect the impact of the ongoing high-interest rate environment in Jamaica, which exerts downward pressure on property values, resulting in lower Property Income relative to prior year. Property Income totalled US$49,056 for the three months ended September 30, 2024 and US$1,916,074 for the nine months ended September 30, 2024.
To mitigate the impact on the bottom line from reduced revenues, the Group managed to reduce its overall Administrative & General expenses by 20% to US$2,274,250 for the nine months ended September 30, 2024, compared to the same period in the prior year. This cost management effort is part of our ongoing strategy to mitigate the impact of reduced revenues on the bottom line.
Outlook
The Group’s ongoing commitment to strategic growth remains steadfast as we navigate the headwinds that obtain in today’s real estate environment. By continuing to execute on our portfolio rebalancing strategy, which focuses on acquiring high-yield, income-generating properties across Latin America and the wider Caribbean region, we have built a resilient foundation that supports sustainable growth.
During the quarter our subsidiary, FirstRock Capital Cayman, entered into an agreement to acquire a fully tenanted investment property in Grand Cayman. As the largest acquisition in our portfolio, this property is poised to notably enhance our rental income stream, reinforcing our expansion across the region. Alongside this achievement, our two KFC locations in Costa Rica continue to deliver stable rental income under longterm lease agreements, with plans underway for additional site developments.
Looking ahead, we remain optimistic about finalizing additional acquisitions across the region, with several promising opportunities in advanced stages of negotiation. The Group remains committed to unlocking value through strategic investments, which we believe will yield substantial long-term benefits to our stakeholders.
Norman Reid J.P. Chairman First Rock Real Estate Investments Limited
For More Information CLICK HERE
Edward Alexander Executive Chairman of tTech Limited announced that Simply Secure Limited increased its shareholding in tTech to 69.1%, representing 73,229,223 shares. The increased shareholding includes the purchase of 20,719,366 shares from Norman Chen and G. Christopher Reckord. The acquiring entity, Simply Secure Limited, is owned by Kevin Gordon and Rob Mayo-Smith. Messrs. Gordon and Mayo-Smith are also the owners of Simply Secure LLC, a Managed Security Services Provider based in Ft. Lauderdale, Florida.
The increased shareholding puts Simply Secure Limited over the 50% ownership threshold of the issued and outstanding ordinary shares of the company, requiring Simply Secure to extend an offer to all remaining tTech shareholders to purchase their shares subject to approval from the regulators. The tTech board will also provide an opinion on their view of the fairness of the offer price.
Norman Chen,
G. Christopher Reckord.
Following the sale of their shares, Messrs. Chen and Reckord will be resigning as Directors of tTech.
Chairman of the tTech Board, Edward Alexander, stated, “I would like to thank Norman and Chris for their service to tTech. Their contribution as executives and directors has enabled much of the success that tTech has enjoyed to date. We now look forward to the continued growth that is expected through the increased ownership in the company by Simply Secure.”
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