The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Two BISX-listed companies have blamed surging inflation for a margin squeeze that resulted in first-half and second quarter 2023 profits slipping against prior year comparatives.

J. S. Johnson, the insurance broker and agent, blamed a 16.53 percent cost increase at Insurance Company of The Bahamas (ICB), its property and casualty underwriting affiliate, for a near-$400,000 decline in net income for the year to end-June 30, 2023.

And Commonwealth Brewery, the vertically-integrated Kalik manufacturer, noted that “continued cost pressure” across its business resulted in second quarter profits falling by 7.7 percent to $4.551m as opposed to $4.907m in the same period last year.

Alister McKellar, J. S. Johnson’s managing director, told shareholders: “The cost of goods and services across the globe has skyrocketed over the past few years - from the grocery store to the gas pump - and our business has not been immune to the effects.

“Despite an overall 11.75 percent increase in total income for the period ending June 30, an even larger increase in overall expenses (13.75 percent) dragged consolidated net income down from $4.463m to $4.27m.” That represented a 4.31 percent year-over-year decline, with Mr McKellar adding that ICB’s woes were compounded by increased reinsurance costs as a result of rates “hardening” worldwide.

“Our underwriting segment was affected most by the perfect storm of inflation and the hardening of the global reinsurance market over the period,” he explained. “As mentioned in previous reviews, the risk exposure of the entire Caribbean (and Florida) remains under intense scrutiny by global reinsurers. Some have decided to pull out of the region altogether, while those who remain have substantially increased their rates across the board, raising costs for everyone.

“As a result, expenses in this segment increased from $28.095m to $32.74m or 16.53 percent compared to the same period last year, which drove down overall net income from $611,744 to $512,137 (-16.28 percent). While some of the decline in income this period is the result of a non-recurring gain in 2022 that boosted income by nearly $600,000 last period, the overall negative effect of inflation on our financials over the period is clear.

“Our agency segment fared relatively better over the period, with only a slight decline in net income for the period from $3.851m to $3.758m (-2.42 percent). Results were buoyed by a modest increase of nearly 1 percent in net revenue from contracts with customers.”

Bahamian property and casualty underwriters such as Insurance Company of The Bahamas must acquire huge amounts of reinsurance annually because their relatively thin capital bases mean they cannot cover the multi-billion dollar assets at risk in this nation, thus making them dependent on global support.

ICB, in its recent 2022 annual report, said the drop in reinsurance availability for this country and the wider Caribbean has already pushed property insurance costs for Bahamian homeowners and businesses to the highest levels it has seen in its 26-year history.

As for Commonwealth Brewery, it told investors it had managed to shrug-off the second quarter’s modest profits decline as net income was “marginally” ahead for the 2023 half-year at $6.5m compared to $6.2m for the 2022 comparative. Operating costs for the first six months were up 11 percent year-over-year at $57m.

“In the second quarter, Commonwealth Brewery recorded a net profit of $4.6m, which is a slight decline versus the comparative period in 2022 (net profit of $4.9m),” the company said.

“This was mainly driven by increased selling and marketing expenses, continued cost pressure on raw and packing materials, personnel expenses and increased finance expenses mainly related to foreign exchange. As a result of this second quarter performance, comprehensive income for the first half of 2023, at $6.5m, was up marginally versus the $6.2m earned in the comparative period of 2022.

“Management will continue to execute its Evergreen strategy to drive sustainable, balanced growth by identifying specific cost mitigations as we navigate the ongoing market volatility whilst building for the future.”

Turning to the first six months, Commonwealth Brewery said: “Operating expenses increased to $57m for the period (+11 percent), primarily driven by increased production and logistics, selling and marketing as well as payroll expenses. Certain of these increases reflect the ongoing pressure from inflation. Commonwealth Brewery will continue to implement cost productivity programmes and other measures to mitigate any profit margin dilution.

“Commonwealth Brewery continued to experience strong growth in net revenue during the period ending June 2023 (+11 percent) when compared to the same period of 2022. Key drivers were the continued economic recovery, the market alignment of excise tax and the ongoing growth of tourism. Revenue growth was delivered through a combination of margin per hectolitre – to offset ongoing inflation – and volume growth in key categories such as beer, malts, and spirits.”