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Benchmark 'Comforts' Alliance In $2.5m Loss

By NEIL HARTNELL

Tribune Business Editor

Benchmark (Bahamas) chief executive yesterday said the 'comfort letter' it provided last year to its Alliance Insurance Management subsidiary to affirm it was a going concern was not "a cause for worry", as the BISX-listed investment manager unveiled a $2.5 million net loss for 2011.

Julian Brown, who is also Benchmark's president, described 2011 as the worst year since the 2008 global crash for the company's investment portfolio, which incurred a $1.957 million fall in the 'unrealised' value of the securities it held - the main driver of Benchmark's net loss.

The company's 2011 financial statements, which have been obtained by Tribune Business, disclose several items that should be of concern to Benchmark's Bahamian shareholders, namely the 'comfort letter' the company was required to provide to its wholly-owned international broker/dealer subsidiary, Alliance.

The letter was required to confirm that Alliance will be able to continue as a 'going concern' due to financial support it will receive from its Benchmark parent, something Mr Brown confirmed when contacted by Tribune Business last night.

Benchmark's 2011 financial statements said: "The company [Benchmark] issued a letter of comfort during the year 2011 to Alliance, confirming its commitment to ensuring that the subsidiary is funded for the foreseeable future."

Effectively, this is an admission that Alliance - in its current state - will be unable to continue as a going concern without financial support from the parent, having itself suffered a $2.236 million net loss for 2011. That figure is 89.4 per cent of Benchmark's total losses for 2011.

Mr Brown, though, said the situation was no reason for shareholders to panic. "When things recover, Alliance's portfolio will recover as well," he told Tribune Business. "I don't think it's a cause for concern ay this point in time."

Benchmark's financial statements also disclosed that Alliance, in 2011, issued a further $3 million in non-voting preference shares bearing a 3 per cent per annum interest rate, "in lieu of", or instead of, "funds due to a customer".

With this issue and any dividends left totally to Alliance's discretion, the financial statements said the $3 million worth of preference shares were being recognised as equity.

This appears to have been an attempt to recapitalise Alliance and, by extension, Benchmark, in the wake of the repeated - and heavy - financial losses they have incurred.

This again was confirmed by Mr Brown, who told Tribune Business: "It [the preference share issue] was a need to raise the capital. We used some of what was due to us to do so. We raised funds in lieu of funds due to our customer. We raised $3 million in preference shares. The injection came as a result of that."

The equity injection, Mr Brown said, ensured that the $2.5 million net loss for 2011 did not appear on Benchmark (Bahamas) balance sheet as an accumulated deficit. For 2011, the company suffered a $630,418 net operating loss, and its only profitable subsidiaries were Benchmark Advisors, 'in the black' to the tune of $15,164, and Benchmark Properties with $79,722.

The latter subsidiary owns Benchmark's $3.764 million commercial office/retail complex at the Carmichael/Fire Trail Road junctions, a project the BISX-listed company is pinning its hopes on to provide an alternative source of revenue that will mitigate the markets' impact on its investment portfolio.

Noting that the property's rental earnings had almost tripled year-over-year, rising by 194 per cent from $81,920 to $241,149 in 2011, Mr Brown said the Carmichael development was about 70 per cent leased.

"It is where we anticipated we would be," he added, with the anchor tenant, Bank of the Bahamas International, expected to have its branch operational before the 2012 year-end.

Noting that five units remained to be leased, Mr Brown told Tribune Business: "Inquiries are very strong. We're getting inquiries every day. There's not a day that goes by without someone calling and asking what's available there."

Acknowledging that the economy remained weak and companies were "taking time" to decide on any growth initiatives, Mr Brown said Benchmark had adopted "a very conservative approach" in projecting rentals.

"We've budgeted for two units this year, that being on the aggressive side. If we do one unit there, we will be fine," he said. "It all depends in terms of the economy and how people feel about the way forward.

"When the economy recovers, we think we will get the property fully leased. When that happens, we expect free cash flow will be $450,000-$500,000 annually depending on the rates we get. What we did this year compared to last was a marked improvement."

Elsewhere, Benchmark in its 2011 financial accounts wrote-off the $300,000 owed to it by Bahamian retailer, John S George. This originated from Benchmark's 20 per cent equity investment in the failed Ken Hutton-led buyout group that acquired the retailer in July 2004, only to sell it five years later to retail entrepreneur, Andrew Wilson.

The latter's payment was a $300,000 long-term note, secured by a property mortgage, and is repayable in full by December 31, 2012. "We're still very confident that something can evolve, but to be conservative we had to make provisions for it," Mr Brown said of the John S George note.

"Given the economy, we don't really know if he'll [Mr Wilson] be in a position to do so, but we're constantly in conversation with him, and are sure that if he's in a position to pay it off, he will. We have to, in terms of our books, take the conservative approach. There's no indication he would not pay."

Elsewhere, Benchmark has made a $75,000 investment in Celepay, the Bahamian mobile payments provider start-up. Its financial statements state that when this investment reaches $106,000, it will have acquired a 25 per cent stake in Celepay, and will then treat it as an associate.

"It's the way of the future," Mr Brown told Tribune Business, explaining the rationale for the investment. "I think it has quite significant potential. Mobile payment is one of the fastest, aggressive growth areas in that space. It seems to me that your handheld phone or mobile device is going to act as the computer of the future. This could be a very good business."

Addressing Benchmark's shareholders, Mr Brown said the company was dependent on economic recovery for its own rebound.

"The worst of the storm, I think, is behind us," he told Tribune Business. "Benchmark is part of the global financial system, and we're not performing worse than any other institution of the same calibre. We're working aggressively to ensure that once things recover, we'll recover as well.

"The answer is you have to stick this period out and wait for the recovery to come. Those who remain will be rewarded. You have a lot of other stocks on BISX where you see the same performance. We're doing what we can to improve the performance of the company and its earnings."

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