Quarterly Report
AS AT DECEMBER 31, 2019 Sygnus Credit Investments Limited Unaudited Results for the 6 Months Ended December 31, 2019
Castries, St Lucia | Thursday, February 13, 20202019
The Board of Directors of Sygnus Credit Investments Ltd (“SCI” or ‘the Company”) is pleased to report its unaudited financial results for the six months ended December 31, 2019, along with the Management Discussion and Analysis. The Management Discussion and Analysis should be read in conjunction with the unaudited financial statements for the 6 Months Ended December 31, 2019.
MANAGEMENT DISCUSSION AND ANALYSIS Results of Operations Sygnus Credit Investments Limited reported record six-month net profit, core revenues and core earnings for the period ended December 31, 2019. These results were driven by a near doubling of private credit investments (“PCI”) in Portfolio Companies across the Caribbean region to a record US$54.3 million. This rapid growth in PCI was in keeping with SCI’s 2X Growth Strategy: to be the leading source of private credit financing for Caribbean middle-market companies. This strategy was outlined at SCI’s annual general meeting in November 2019.
SCI’s core revenues, or total investment income, grew by 58.2% or US$869.5 thousand to a record US$2.36 million, in the six months ending December 31, 2019 (“6 Month 2019”). This compares with US$1.49 million for the six months ended December 31, 2018 (“6 Month 2018”). For the second quarter ended December 31, 2019 (“Q2 2019”), total investment income grew by 45.6% or US$397.4 thousand to a record US$1.27 million. This compares with US$872.2 thousand reported for the second quarter ended December 31, 2018 (“Q2 2018”).
SCI’s core earnings, or net investment income, grew by 69.8% or US$720.4 thousand to a record US$1.75 million for 6 Month 2019, vs US$1.03 million for 6 Month 2018. For Q2 2019, net investment income grew by 49.9% or US$315.0 thousand to a record US$945.9 thousand, vs US$630.9 SCI Total Investment Income (US$) thousand for Q2 2018. 2,500,000 2,362,327 Net profit attributable to shareholders 2,000,000 increased by 70.8% or US$676.4 thousand to a 1,492,830 1,500,000 record US$1.63 million for 6 Month 2019, vs 1,269,602 US$955.6 thousand for 6 Month 2018. For Q2 1,000,000 872,155 2019, net profit fell by 15.5% or US$202.1 500,567 thousand to US$1.10 million vs US$1.31 million 500,000 328,237 in Q2 Dec 2018. A substantially larger net
- foreign exchange gain of US$683.1K in Q2 2018 2017 2018 2019 vs US$201.2K in Q2 2019 was the main driver of Q2 Dec 6 Mth Dec the higher Q2 Dec 2018 net profit.
Earnings per share (EPS) was a record 0.47 US cents for 6 Month 2019 vs 0.27 US cents for 6 Month 2018, and 0.32 US cents for Q2 2019 vs 0.37 US cents for Q2 2018. Net investment income per share (NIIPS) was a record 0.50 US cents for 6 Month 2019 vs 0.29 US cents for 6 Month 2018, and a record 0.27 US cents for Q2 2019 vs 0.18 US cents for Q2 2018.
Q2 Dec 2019 Q2 Dec 2018 6 Mth Dec 2019 6 Mth Dec 2018 FY Jun 2019 Summary Results of Operations US$ US$ US$ US$ US$ Total Investment Income 1,269,602 872,155 2,362,327 1,492,828 3,218,991 Total Operating Expenses 323,676 241,278 609,223 460,144 1,010,133 Net Investment Income 945,926 630,877 1,753,104 1,032,684 2,208,858 Fair Value Gains 107,185 19,034 305,191 33,904 135,429 Net Foreign Exchange Gain (Loss) 201,249 683,088 (303,865) (60,509) (219,011) Provision for Expected Credit Losses (150,309) (26,885) (122,456) (50,495) (74,645) Profit Attributable to Shareholders 1,104,051 1,306,114 1,631,974 955,584 2,050,631 Earnings Per Share 0.32¢ 0.37¢ 0.47¢ 0.27¢ 0.59¢ Net Investment Income Per Share 0.27¢ 0.18¢ 0.50¢ 0.29¢ 0.63¢
Page 1 Sygnus Credit Investments Limited Unaudited Results for the 6 Months Ended December 31, 2019 Total Operating Expenses Total operating expenses increased to US$609.2 thousand for 6 Month 2019 vs US$460.1 thousand for 6 Month 2018, and US$323.7 thousand for Q2 2019 vs US$241.3 thousand for Q2 2018. The 6 Month 2019 and Q2 2019 reported numbers were 32.4% and 34.2% higher than 6 Month 2018 and Q2 2018 respectively, driven primarily by higher management fees from a near doubling of assets under management. Management fees were 71.3% and 72.2% of 6 Month 2019 and Q2 2019 operating expenses respectively. Excluding management fees, SCI’s 6 Month 2019 operating expenses were US$174.9 thousand, an increase of 57.8% or US$64.0 thousand over 6 Month 2018. Q2 2019 was US$90.0 thousand, an increase of 37.2% or US$24.4 thousand over Q2 2018. These increases were primarily driven by one-off commitment fees relating to the establishment of bank credit lines and higher accounting fees from reorganization of accounting functions.
Fair Value Gains Fair value gains of US$305.2 thousand for 6 Month 2019 was higher than the US$33.9 thousand for 6 Month 2018, driven by the addition of 1 new Portfolio Company with a profit-sharing component, along with movement in local and international interest rates. Similarly, Q2 2019 reported fair value gains of US$107.2 thousand vs US$19.0 thousand for Q2 2018.
Net Foreign Exchange Gain / Loss Net foreign exchange losses of US$303.9 thousand for 6 Month 2019 was higher than the losses of US$60.5 thousand reported for 6 Month 2018. For Q2 2019, SCI reported gains of US$201.2 thousand vs gains of US$683.1 thousand for Q2 2018. The movement in foreign exchange gains and losses reflected SCI’s exposure to Jamaican dollar assets, which fluctuate based on movements in the JMD/USD exchange rate. SCI does not have a foreign currency trading business.
Provision for Expected Credit Losses (ECL) / Impairment Allowance on Financial Assets The ECL for 6 Month 2019 was US$122.5 thousand vs US$50.5 thousand for 6 Month 2018, and US$150.3 thousand for Q2 2019 vs US$26.9 for Q2 2018. The higher ECL for 6 Month 2019 and Q2 2019 respectively, were driven by the record increase in new private credit investments made during Q2 2019. There were no impaired or non-performing private credit investments.
Total Revenues and Total Expenses SCI’s total revenues are comprised of core revenues, or total investment income (interest income plus participation fees), plus the non-core revenue items of fair value gains and net foreign exchange gains. Total revenues were US$2.67 million and US$1.58 million for 6 Month 2019 and Q2 2019 respectively, vs US$1.53 million and US$1.57 million for 6 Month 2018 and Q2 2018 respectively.
Similarly, SCI’s total expenses were comprised of core operating expenses, plus the non-core items of net foreign exchange losses and ECL. Total expenses were US$1.04 million and US$474.0 thousand for 6 Month 2019 and Q2 2019 respectively, vs US$571.2 thousand and US$268.2 thousand for 6 Month 2018 and Q2 2018 respectively. Non-core revenues and non-core expenses may fluctuate significantly from time to time based on market conditions.
Efficiency Ratio SCI’s core activities generated an efficiency ratio of 25.5% for Q2 2019, measured by total operating expenses to total investment income, the lowest outturn in 8 quarters.
Private Credit Investment (PCI) Activity SCI had a record quarter of investment origination activity. At the end of Q2 2019, SCI’s investment in Portfolio Companies grew by 94.5% to a record US$54.35 million vs US$27.95 million in Q2 2018. The number of Portfolio Company investments increased to a record 23 in Q2 2019 from 16 in Q2 2018, despite 3 Portfolio Company exits. Note: finance lease receivable on the balance sheet represents PCI activity in Portfolio Companies and is included in all investment origination activity.
Page 2 Sygnus Credit Investments Limited Unaudited Results for the 6 Months Ended December 31, 2019
Q2 Dec 2019 Q2 Dec 2018 Summary of Investment Activity Fair Value of Investment in Portfolio Companies 54,346,778 27,948,599 Net Portfolio Company Commitments During Period 25,679,097 8,924,429 Dry Powder to be Deployed 5,476,999 9,359,128 Number of Portfolio Company Investments (#) 23 16 Average Investment per Portfolio Company 2,362,903 1,746,787 Weighted Average Term of Portfolio Company Investments (years) 2.9 2.3 Weighted Average Fair Value Yield on Portfolio Companies (%) 12.5% 11.8% Non-performing Portfolio Company Investments Nil Nil
Portfolio Company Investment Commitments SCI made net new investment commitments valued at a record US$25.68 million during Q2 2019, which exceeded the US$8.92 million for Q2 2018, and the US$18.23 million for the entire financial year ended June 2019. Investments were mainly originated in the Infrastructure and Hospitality industries, in leading firms with strong growth prospects and free cash flow generation. There were 3 Portfolio Company exits during Q2 2019.
Average Investment per Portfolio Company The average investment per Portfolio Company was US$2.36 million in Q2 2019 up from US$1.75 million in Q2 2018.
Weighted Average Investment Tenor and Investment Yield At the end of Q2 2019, the weighted average tenor of Portfolio Company investments increased to 2.9 years vs 2.3 years at the end of Q2 2018. The increased tenor was mainly driven by a combination of new longer tenor investments originated during the quarter and shorter tenor investments that were exited. The weighted average fair value yield on Portfolio Companies increased to 12.5% in Q2 2019 vs 11.8% in Q2 2018.
Allocation by Industry and Region SCI’s Portfolio Companies were diversified across 9 major industries in Q2 Dec 2019, up from 8 the preceding quarter of Q1 September 2019. Excluding Dry Powder, the top three industry allocations were Hospitality (32%), Infrastructure (19%) and Manufacturing (15%), with the investments in Infrastructure representing SCI’s first transactions in that industry. SCI successfully exited all its investments in the Financial Services and Health & Life-style industries during the quarter.
SCI executed its first set of investments in the Dutch Caribbean islands of Sint Maarten, Saba and St. Eustatius (SSS Islands), bringing its Caribbean footprint to 5 territories in Q2 Dec 2019, up from 4 in the preceding quarter of Q1 September 2019. Portfolio Companies from Jamaica accounted for the highest allocation of SCI’s Portfolio with 44%, followed by the Cayman Islands with 27% and the SSS Islands of the Dutch Caribbean with 19%.
Liquidity and Capital Resources At the end of Q2 Dec 2019, SCI had US$5.48 million equivalent in Dry Powder to deploy into new private credit investment opportunities. SCI was successful in raising capital via the debt market for the first time in December 2019, when it issued US$15 million equivalent in medium-term notes to fund its investment activity. A quarter of this financing was undrawn as at the end of Q2 Dec 2019. SCI also established revolving credit lines with major banking institutions and utilized other short- term credit facilities to fund its growth during the quarter.
Page 3 Sygnus Credit Investments Limited Unaudited Results for the 6 Months Ended December 31, 2019
Portfolio Company Allocation by Industry Ex-Dry Powder: Dec. 31, 2019 Portfolio Company Incorporation by Region: Dec 31, 2019
Infrastructure Real Estate Cayman Islands 19% 7% SSS Islands Construction 27% 3% 19%
Entertainment 2% Distribution Mining and Quarrying 11% 5% ABC Islands 3%
Energy St. Lucia 6% 7% Manufacturing 15%
Hospitality Jamaica 32% 44%
Balance Sheet At the end of Q2 2019, SCI had a record US$61.29 million in total assets, up US$23.27 million or 61.2% over the similar period last year, mainly comprising of a record US$54.35 million in 23 Portfolio Companies, US$5.48 million in Dry Powder and US$1.31 million in interest receivable.
Shareholders’ Equity Total shareholders’ equity was US$38.35 million at the end of Q2 2019, vs US$37.10 million at the end of Q2 2018. SCI’s book value per share increased to US$0.11 at the end of Q2 2019 based on 350,087,563 shares outstanding, from US$0.1060 at the end of Q2 2018.
Outlook Private credit is one of the youngest asset classes in the alternative investment ecosystem within the Caribbean, and indeed the world. However, the asset class has grown to become an important financing channel for middle-market companies globally and is now the third largest asset class within private capital, on the path to US$1 trillion within the next few years. SCI has been a pioneer in the regional private credit market and intends to continue expanding the market by strategically building long term relationships with investors, middle-market firms and other stakeholders. SCI’s solutions are customized to align with the growth strategy of middle-market companies, and this has resulted in a robust pipeline of opportunities across various industries such as manufacturing, energy, distribution, hospitality and financial services in multiple Caribbean territories.
Page 4 Page 1 SYGNUS CREDIT INVESTMENTS LIMITED Consolidated Statement of Financial Position December 31, 2019 (Expressed in United States Dollars)
Unaudited Unaudited Audited 31-Dec-19 31-Dec-18 30-Jun-19 ASSETS Cash and cash equivalents 5,476,999 1,812,095 2,098,386 Securities purchased under resale agreements - 7,547,033 1,044,234 Interest receivable 1,308,656 650,492 897,396 Other receivables 14,477 721 22,522 Due from related companies 142,687 63,213 116,809 Finance lease receivable 1,908,787 1,739,162 1,577,971 Investments 52,437,991 26,209,437 32,388,601 Investment in subsidiary - - 76
61,289,597 38,022,153 38,145,995
LIABILITIES Accounts payable and accrued liabilities 873,462 759,495 377,384 Loans and borrowings 8,655,193 - - Deferred income 33,753 - - Due to related companies 1,514,808 163,769 60,896 Notes payable 11,393,504 - - Other liabilities 471,309 - 121,178 22,942,029 923,264 559,458 SHAREHOLDERS’ EQUITY Share capital 35,107,673 35,107,673 35,107,673 Retained earnings 3,239,895 1,991,216 2,478,864 38,347,568 37,098,889 37,586,537
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 61,289,597 38,022,153 38,145,995
Director Dr. Ike Johnson
Director Ian Williams
Page 5 (E pre ed in Uni ed S a e Dollar ) S a e Uni ed in (E pre ed Ea Ea ( ) P , b a E T a R N a 1,578,036 1,574,277 2,667,518 1,526,732 3,354,420 S M 31 D 2019 31 D S M I C L P O S C LIMITED INVESTMENTS CREDIT SYGNUS O O P N M I I D ' C B A A A 150,309 P N F F TPL - 23,280 N 7,623 3,173 53 I 233,649 I 107,185 14,795 12,376 7,830 1,793 19,104 201,249 1,269,602 - (75,799) 1,345,401 T T T S S E
17,573 175,665 26,885 - 1,505 4,145 683,088 19,034 856,155 856,155 - 16,000 - 23,166 5,912 7,623 1,939 3,750 31-D -19 U U U U A 1,104,051 473,985 268,163 1,035,544 571,148 1,303,789
0.32 41,821 3,173 434,346 122,456 289 16,748 47,349 3,618 11,638 13,933 36,308 7,000 305,191 2,355,327 - 2,472,063 303,865 (116,736) 31-D -18 1,306,114
0.37 28,503 8,311 349,307 35,264 50,495 15,246 3,350 - 8,037 3,127 8,999 30,944 - - 60,509 33,904 1,461,884 1,461,884 31-D -19 1,631,974
0.47 77,725 60,609 707,175 39,239 74,645 40,203 - 6,005 36,537 5,317 37,323 50,944 - - 219,011 135,429 3,168,047 3,168,047 31-D -18 955,584
0.27
30-J -19 Page6 2,050,631 P 2 P
0.59 Page 3 SYGNUS CREDIT INVESTMENTS LIMITED Consolidated Statement of Changes in Equity Six Months ended 31 December 2019 (Expressed in United States Dollars)
Share Fair value Retained capital reserve earnings Total
Balance as at 30 June 2018 (Audited) 35,107,673 87,503 1,423,747 36,618,923 Adjustment on initial application of IFRS 9 - (87,503) 79,672 (7,831) Restated balance as at 1 July 2018 (Audited) 35,107,673 - 1,503,419 36,611,092 Profit, being total comprehensive income for the period - - 955,584 955,584 Transaction with owners Dividends declared - - (467,787) (467,787) Balance as at 31 December 2018 35,107,673 - 1,991,216 37,098,889
Balance as at 30 June 2019 (Audited) 35,107,673 - 2,478,864 37,586,537 Profit, being total comprehensive income for the period - - 1,631,974 1,631,974 Transaction with owners Dividends declared - - (870,943) (870,943) Balance as at 31 December 2019 35,107,673 - 3,239,895 38,347,568
Page 7 P 4 SYGNUS CREDIT INVESTMENTS LIMITED C S C F S M 31 D 2019 (E pre ed in Uni ed S a e Dollar )
U U A S S Y 31-D -19 31-D -18 30-J -19
Ca f f e a ac e P 1,631,974 955,584 2,050,631 A : N (2,355,327) (1,461,884) (3,168,047) I 122,456 50,495 74,645 F (305,191) (33,904) (135,429) (906,088) (489,709) (1,178,200) C : O 8,045 787,905 766,103 D (25,878) (63,213) (116,809) C : A 463,565 36,233 175,605 D 1,453,912 (20,107) (122,980) 993,556 251,109 (476,281) I (50,470) - -
N / ( ) 943,086 251,109 (476,281)
Ca f f e ac e P (48,636,609) (11,782,082) (31,254,244) I 76 - (76) E 28,769,947 1,027,419 14,102,735 F , (330,816) (993,953) (1,079,011) P (7,002,302) (11,307,739) (12,675,881) E 8,046,543 23,643,982 31,534,748 I 2,060,803 1,040,887 2,500,145
N ( ) / (17,092,358) 1,628,514 3,128,416
Ca f f f a c ac e D (520,812) (467,787) (954,008) L , 8,655,193 - - P 11,393,504 - -
N / ( ) 19,527,885 (467,787) (954,008)
Ne c ea e ca a d ca e a e 3,378,613 1,411,836 1,698,127
Ca a d ca e a e a be f ea 2,098,386 400,259 400,259
Ca a d ca e a e a e d f ea 5,476,999 1,812,095 2,098,386
-
Page 8 P 5 S GNUS CREDIT IN ESTMENTS LIMITED N F S S D 31, 2019
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Page 9 P 6 S GN S CREDI IN ES MEN S LIMI ED N F S S D 31, 2019
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Page 10 P 7 S GN S CREDI IN ES MEN S LIMI ED N F S S D 31, 2019
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Page 11 Pa 8 SYGNUS CREDIT INVESTMENTS LIMITED N F a c a S a S D c b 31, 2019
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Page 12 Top Ten Shareholders No Shareholders Shareholdings % Holdings 1 JCSD TRUSTEE SERVICES 27,656,766 7.9% 2 ATL GROUP PENSION FUND TRUSTEES NOMINEE LTD 27,500,000 7.9% 3 MF&G TRUST & FINANCE LTD 20,139,000 5.8% 4 NATIONAL INSURANCE FUND 20,000,000 5.7% 5 JMMB FUND MANAGERS LTD - T1 EQUITIES FUND 19,460,000 5.6% 6 HEART TRUST / NTA PENSION SCHEME 8,189,300 2.3% 7 MANDALA INC. 7,765,000 2.2% 8 GASSAN AZAN 7,285,700 2.1% 9 JAMAICA MONEY MARKET BROKERS LTD FM10 6,933,400 2.0% 10 WILDELLE LIMITED 5,500,000 1.6% Subtotal 150,429,166 43.0% Total 350,087,563 100.0%
Shareholdings of Directors, Senior Managers & Connected Parties No Director Shareholdings Connected Parties % Holdings 1 Clement “Wain” Iton 95,200 N/A 0.03% 2 Ian Williams 1,000,000 Ladesa Williams 0.29% 3 Hope Fisher Nil N/A Nil 4 Damian Chin Nil N/A Nil 5 Peter Thompson Nil N/A Nil 6 Dr. Ike J. Johnson 95,300 N/A 0.03% 7 Dr. Ike J. Johnson 5,400,000 Sygnus Capital 1.54% Management Shareholdings of Directors, Senior Managers & Connected Parties No Senior Management Shareholdings Connected Parties % Holdings 1 Sygnus Capital Management 5,400,000 Dr. Ike J. Johnson 1.54% 2 McNamara Corporate Services Nil N/A Nil
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