Reverses losses to post modest profit

Durrant Pate/Contributor

Sterling Investments’ second quarter performance was saved by foreign exchange gains, resulting in its revenues surging by 400 per cent for the March to June 2023 period.

Revenues went up from J$12.8 million for the three months ended June 30, 2022 to J$71.4 million for the second quarter in review. This was the result of foreign exchange gains, which totalled J$35 million in the second quarter of 2023 versus a loss of J$24.6 million in the same period of 2022. 

Similarly, total expenses for the second quarter of 2023 totalled J$4.1 million versus J$41.5 million in 2022. This was the result of a reversal of losses on the company’s structured note portfolio. The unrealized fair value gain/loss on equity investments at Fair Value Through Profit & Loss (FVTPL) recorded a loss of J$24.6 million in Q2 of 2022 but a gain of J$14.9 million in Q2 of 2023. 

This was a result of the improvement in the U.S equity markets. Net profit moved from a loss of J$29 million in Q2 of 2022 to a profit of J$67.3 million in the second quarter of 2023. This was the result of lower expenses and higher revenue driven by increases in the market value of the assets in the portfolio.

Total assets went flat 

Sterling’s total assets as at June 30, 2023 amounted to J$1.8 billion, roughly the same as the total asset base as at June 30, 2022. At the same time, total liabilities declined by 7% to J$500 million as at June 30, 2023, largely the result of declines in margin loans and other payables. 

Total equity amounted to J$1.3 billion, roughly the same as the June 2022 outturn. The fair value reserve moved from negative J$227.5 million as at June 30, 2022 to negative J$264.9 million as at June 30, 2023. This reflects a worsening in some bond prices over the period which was expected given the continued increase in interest rates by the world’s largest central banks. 

Half-year performance

Total revenue for the half-year surged by 105% moving from J$49.4 million in the first half of 2022 to J$101.3 million in the same period of 2023. The primary driver was a J$29 million foreign exchange gain in 2023 compared to a J$32.6 million foreign exchange loss recorded in the first half of 2022. 

This reflected the movement in the Jamaican / United States dollar exchange rate from J$152.05/US$1 as at December 31, 2022 to J$154.62/ US$1 as at June 30, 2023. Total expenses declined from J$42.4 million in the first half of 2022 to J$18.7 million in the first half of 2023. 

This was the result of an improvement in the value of the structured notes in the company’s portfolio. As at June 30, 2022 – these notes had generated a fair value loss of J$11.4 million compared to a gain of J$18.7 million recorded in the same period to June 30, 2023. 

Interest expense increased from J$6.9 million to J$13.4 million, reflecting the significant increase in margin rates on the company’s notes payable. Higher revenue and lower expenses resulted in an increase in net profit which increased from J$7.1 million for the first half of 2022 to J$83 million for the first half of 2023.