SGJ reports 31% decrease in year end net profit

December 10, 2020

For the year ended October 31 ,2019 Scotia Group Jamaica Limited’s (SGJ) net interest income marginally declined amounting to $24.86 billion, relative to $25.12 billion for the corresponding period in 2019, while interest expenses declined by 9% to total $2.37 billion (2019: $2.61 billion). Interest income for the year decreased from $27.73 billion in 2019 to $27.23 billion. Net interest income for the fourth quarter fell 4% to $6.15 billion relative to $6.43 billion for the corresponding quarter of 2019.

The company reported an expected credit loss of $5.85 billion compared to the loss of $2.60 billion for the comparable period in 2019. As such, net interest income after expected credit losses for the year fell 16% to $19.01 billion relative to the $22.52 billion recorded for the corresponding period in 2019. SGJ noted that this “was primarily attributable to the increase in expected credit losses of $3.2 billion given the revised assumptions incorporated in our impairment methodology as a result of the COVID-19 pandemic.”

Total other revenue decreased by 4% to $19.18 billion (2019: $20.06 billion). Of this:

    • Net fees and commission income amounted to $7.16 billion (2019: $8.10 billion), a decrease of 12% relative to the corresponding period in 2019. The performance was “primarily attributable to lower transaction volumes stemming from the COVID-19 pandemic in conjunction with the continued execution of the Group’s digital adoption strategy geared towards educating customers about our various electronic channels which attract lower fees,” according to the Company.
    • Insurance revenue fell by 9% and closed the period at $3.01 billion relative to $3.30 billion last year. SGJ noted the movement was, “due to the reduction in premium income which was partially offset by higher actuarial reserve releases.”
    • Net foreign currency activities decreased by 2% and amounted to $6.85 billion (2019: $6.95 billion). SGJ noted that this was, “due to lower revaluation gains and lower trading activities as a consequence of the pandemic.”
    • Net gains on financial assets fell to $940.87 million relative to the gain of $1.48 billion recorded in 2019.
    •  Other revenue increased from $220.89 million to $1.23 billion, a vast increase of 457%. This was “was attributable to gains realized on the extinguishment of debt facilities,” as per SGJ.

As such, total operating income for the year decreased 10% to total $38.20 billion versus $42.58 billion for the corresponding period in 2019.  Total operating income for the quarter amounted to $11.37 billion, 6% higher than the $10.68 billion booked for the same quarter of 2019.

Total operating expenses for the year amounted to $24.80 billion, a 3% growth from the $24.10 billion booked for the corresponding period in the prior financial year.

Under operating expenses:

    • Salaries and staff benefits decreased to close the year at $10.63 billion (2019: $11.14 billion), “due to continued expense management initiatives despite restructuring provisions recorded,” as noted by the Company.
    • Property expenses (including depreciation) amounted to $2.41 billion (2019: $2.13 billion).
    • Amortization of intangible assets decreased by 24% to close the period at $117.56 million versus $154.76 million in 2019.
    • SGJ reported $1.20 billion for asset tax, 6% more than the $1.13 million documented for the same period for 2019, “due to the increase in the Group’s assets.”
    • Other operating expenses increased by 10% and closed the period at $10.45 billion relative to $9.53 billion in 2019, “due to higher operating costs associated with the servicing and maintenance of ABM machines given increased customer usage in conjunction with higher marketing costs geared at sensitizing customers about our Customer Assistance Program, our various digital channels as well as our new mobile app in light of the pandemic,” as noted by Management. SGJ added, “other operating expenses also comprised one off expenditures totaling $247 million which were incurred directly as a result of the COVID-19 pandemic. Excluding COVID-19 expenses and restructuring provisions recorded, operating expenses would be down $309 million or 1.3% year over year.”

Profit before taxation for the period totaled $13.40 billion; this represents a decrease of 28% from the $18.48 billion recorded in 2019.

Tax charges for the period totaled $4.35 billion (2019: $5.29 billion), as such net profit for the year totaled $9.05 billion, 31% less than the $13.19 million posted for the same period in 2019. Profit for the quarter amounted to $3.49 billion, 3% more than the total of $3.40 billion a year earlier.

Profit attributable to shareholders for the period totaled $9.05 billion, a 31% decrease on the $13.19 billion recorded in 2019. Profit attributable to shareholders for the fourth quarter totaled $3.49 billion compared to $3.40 billion booked for the comparable period of 2019.

Total comprehensive loss for the year totaled $2.22 billion, relative to an income of $18.10 million posted for the same period in 2019. Total comprehensive income for the quarter amounted to $962.76 million, relative to a loss of $907.31 million a year earlier.

Earnings per share (EPS) for the year totaled $2.91 (2019: $4.24), while earnings per share for the quarter totaled $1.12 (2019: $1.09). The total number of shares employed in our calculations amounted to 3,111,572,984 units. Notably, SGJ’s stock price closed the trading period on December 9, 2020 a price of $43.30 with a corresponding P/E of 14.88 times.

Balance Sheet Highlights:

As at October 31,2020, the company’s assets totaled $556.28 billion, 1% more than its value of $549 billion last year earlier. The increase in total assets was primarily driven by increases in ‘Loans, After Allowances for Impairment Losses’ by $15.10 billion to total $220.73 billion (2019: $205.63 billion) and ‘Cash Resources’ which amounted to $141.26 billion (2019: $135 billion). This was also partly tempered by a 35% decrease in ‘Retirement Benefit Assets’ to $28.24 million ($43.70 million).

SGJ’s shareholders’ equity at the end of the period amounted to $110.76 billion relative to the $118.11 billion recorded in the prior year. Consequently, the book value per share amounted to $35.59 (2019: $37.96).



Analyst Certification -The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer (s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation (s) or view (s) expressed by that research analyst in this research report.

Company Disclosure -The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.