By NEIL HARTNELL
Tribune Business Editor
Several BISX-listed companies have warned shareholders against “undue optimism” that dividend payments will continue given the need to preserve cash and liquidity during the COVID-19 pandemic.
Both JS Johnson and Family Guardian cautioned investors in their recent 2020 first quarter results filings that the regular capital returns many Bahamian investors have come to regard as routine may be paused due to the ongoing uncertainty over how long and severe any downturn will be.
Alister McKellar, JS Johnson’s managing director, disclosed that profits at its agency/brokerage business were down 21 percent year-over-year for the three months to end-March 2020 due to a combination of Hurricane Dorian payouts and COVID-19.
“It’s doubtful anyone could have predicted the level of disruption that COVID-19 would cause around the globe,” he wrote. “The pandemic has cost many Bahamians their livelihoods, as closed businesses have had to lay-off employees to cut costs. We were also initially ordered to close, until the government re-classified insurance companies as ‘essential’ and we were allowed to re-open on a limited basis under strict protocols...
“On the business front, our agency division experienced a 21 percent decline in profits for the quarter, from $749,646 to $589,038, as a result of lower-than-expected premiums and a loss of dividend income. We’re still recovering from Dorian and the first quarter was actually shaping up to be positive until the pandemic arrived.”
As for Insurance Company of The Bahamas (ICB), the underwriter through which JS Johnson places much of its property and casualty business, net income rose eight percent as a $422,570 increase in contracts with customers offset a $379,909 paper or “unrealised” loss on the value of its investments portfolio.
“Overall, net income fell by just over six percent from $1.574m to $1.476m year-on-year,” Mr McKellar added. “This provided the board with enough confidence to declare a dividend of 14 cents per share this quarter.”
However, he was quick to warn that such payouts may not continue. “To be prudent, we’d like to caution against undue optimism regarding future dividend levels given the longer-term effect that COVID-19 will likely have on the economy,” the JS Johnson chief wrote. “Times are extremely uncertain at the moment, and all businesses face serious threats to their profitability, with hurricane season also just around the corner.”
Mr McKellar’s warning was echoed by Norbert Boissiere, Family Guardian’s chairman, in his 2020 first quarter update to shareholders. “The financial performance of the group will undoubtedly be tested as we continue to weather the storm as a result of the COVID-19 pandemic,” he acknowledged.
“Early predictions indicate that the domestic economy is expected to experience a negative downturn in 2020 as tourism output is anticipated to be moderate, while the unemployment rate is projected to increase over the near-term. The outbreak of COVID-19 has changed our livelihood and the way we conduct business, resulting in travel and border restrictions, quarantines and general market uncertainty.
“The COVID-19 pandemic led to considerable global market reactions in March, which resulted in fluctuations in market prices. As a result, the group was negatively impacted by unrealised losses on investment assets from its holdings in mutual funds with investments in international securities. Management also took steps to preserve liquidity by limiting subscriptions in investment assets as a part of our Business Continuity cash management strategy.”
While Family Guardian had declared declared a $0.08 per share first quarter dividend for shareholders of record as at May 25, 2020, which will be payable on June2, Mr Boissiere said further capital returns could be impacted by the COVID-19 fall-out.
“The Board of Directors will continue to actively monitor the developments surrounding COVID-19, and wish to advise shareholders that it may be required to adjust or possibly defer future dividends,” he wrote.