Sagicor Financial Company has reported a US$36.2 million (TT$245.26) loss for the six months period ended June 30, 2020.
This represented a 161.9 per cent decline when compared to the US$58.4 million (TT$395.67 million) profit the company made in the same period last year.
While the company’s assets rose by 0.06 per cent from US$8.734 billion (TT$59.18 billion) to US$8.729 billion (TT$59.14), Sagicor’s Balance Sheet line item called “Associates and joint ventures” declined by nine per cent when compared to the same period in 2019.
The company gave an explanation for the movement from US $231 million (TT$1.565 billion) to $210 million (TT$1.423 billion). It said that, among other interests in associates, the Group holds an investment in Playa Hotels and Resorts (Playa).
The company noted that a recoverable value for the investment was determined using the value-in-use method, which is a discounted cash flow technique that utilises a significant amount of judgment in estimating key variables such as earnings before interest, taxes, depreciation and amortisation and a discount factor.
Sagicor’s notes highlighted that “value-in-use calculations are very sensitive to changes in these estimates.” As a result of this exercise, Sagicor wrote down its investment by US3.4 million as at March 31, 2020.
Moreover, On June 12, 2020, in addition to entering into certain financing transactions to support its ongoing operations, Playa sold 4,878,049 ordinary shares for US $20 million. Sagicor explained that this resulted in a 0.6 per cent dilution of Sagicor Group Jamaica Ltd’s (SGJ) 15.4 per cent shareholding, and ultimately the Sagicor Group’s ownership of interest of 15.4 per cent, in Playa.
The company continued that on June 15, 2020, Sagicor Financial Corporation Ltd, the intermediate parent company of SGJ, acquired a further 1,500,000 shares of Playa by a series of purchases, at a weighted average price of US $3.9676 per share, for a total of US $5.966 million including commissions paid.
This represented an increase of 1.1 per cent in the Group’s shareholding, bringing the Group’s total shareholding in Playa to 16 per cent.
With regard to the additional purchase of shares, negative goodwill of US$1.499 million arose as Sagicor indicated that Playa’s shares have been trading below the company’s book value per share in response to depressed share prices (this occurred as the hotel industry has been severely impacted by the effects of the COVID-19 pandemic on tour and hotel bookings, given widespread travel restrictions and cancellations).
As at June 30, 2020 the book value of Playa was US $168,134,000. At this date, the proportionate share of market value of Playa based on quoted prices by the National Association of Securities Dealers Automated Quotation (NASDAQ), was US$72,400,000. This approximately represented a 57 per cent gap between the book value and marker value of Playa.
Furthermore, an impairment assessment of the investment in Playa was performed at the period end and as a result, Sagicor noted that the investment was further written down by US $13 million as at June 30, 2020.
However, Sagicor contended: “Management has determined that significant influence still exists given the Group’s participation in policy-making decisions, significant involvement in, and influence over the decision making of Playa. Therefore, Playa will continue to be treated as an investment in associate and accounted for on an equity basis.”