May 2013 Financial News

Clico declares $2.5 billion in comprehensive income

May 30, 2013

In one of the most remarkable business recoveries in local corporate history, beleaguered insurance company, Clico, which was at death’s door in January 2009, has declared after-tax profits of $701.9 million in its 2011 financial year, reversing a loss of $910.9 million in 2010.

The insurance company reported total comprehensive income, which includes the revaluation of its available-for-sale financial assets, of $2.49 billion in 2011, which was a turnaround from its $295.13 million loss in 2010.

Clico’s 2011 audit was published on its Web site on Monday without comment from the insurance company, just over a month after chartered accountants KPMG signed off on the audit on April 24. KPMG issued the Clico audit 15 months and 24 days after the period under review. KPMG signed off on the 2010 audit on July 25, 2012, which was nearly 19 months after that period under review. Neither the 2010 nor the 2011 audits provide any explanation for the delay in submission.

In January 2009, Clico was insolvent, declaring an after-tax loss of $4.7 billion, which followed on from a restated loss of $9.5 billion in 2008.

The fact that the insurance company did not have the cash to pay insurance policies as they matured caused Clico’s executive chairman, Lawrence Duprey, to approach the Government in January 2009 for liquidity assistance. That request turned into a full-fledged bailout with the Government investing more than $5 billion in the company and offering to buy out the holders of the insurer’s Executive Flexible Premium Annuities and the CORE series mutual fund.

2011 P&L

Clico’s profit and loss accounts for 2011 show a profit from operating activities of $1.07 billion—a reversal of the loss of $517.12 million in 2010. The operating profit in its most recent accounting period is due to the 243 per cent increase in its income from investing activities, which jumped to $1.73 billion in 2011 from $503 million in 2010.

The improvement in Clico’s investment income resulted from a 71 per cent increase in dividend income, which jumped to $977.8 million in 2011 from $571.53 million in 2010. Clico received $406 million more in dividend income in 2011 than it did in 2010, according to the company’s most recent audit. Most of that increased dividend flow would have flowed from Methanol Holdings (Trinidad) Ltd, the privately-held methanol producer based at the Point Lisas Industrial Estate, which is majority owned (56.53 per cent) by Clico, with a minority stake held by some German investors.

The sharp increase in the insurance company’s investment income more than compensated for the $837.44 million loss that Clico reported on its insurance activities, which was mainly attributed to a loss of $708.9 million, resulting from a change in the value of insurance contracts.

Balance sheet

For 2011, Clico’s balance sheet shows significant improvement with the insurance company’s total assets increasing by 13.3 per cent to $19.68 billion in 2011 from $17.37 billion in 2010. Clico’s liabilities declined by less than one per cent to $26.95 billion in 2011 from $27.16 billion the previous year.

On the asset side of Clico’s balance sheet, the value of its investment in associate companies increased by 20.4 per cent to $5.81 billion in 2011 from $4.82 billion in 2010. The company has three significant, publicly-listed associate companies:

• The 66,971,877 shares held in Angostura Holdings (32 per cent) were worth $519 million in 2011, 12.3 per cent higher than the value of the shares in 2010. Those shares are worth $602 million today;

• The 15,285,917 shares held in One Caribbean Media (23 per cent) were worth $175.78 million in 2011. Those shares are worth $260 million today;

• Clico owned 51,858,299 Republic Bank shares in 2011, which were worth $4.99 billion in 2011, an increase of 26 per cent over the $3.95 billion that those shares were worth at the end of 2010.

Clico swapped 40 million of its Republic Bank shares for government bonds worth $4.39 billion in November 2012. The Government bought the Republic Bank shares to capitalise the Clico Investment Fund (CIF), the investment vehicle that was created by the Government to allow holders of short-term investments issued by Clico and British American (Trinidad) to swap their 11- to 20-year zero-coupon bonds for investments in CIF units. Clico’s remaining 11.85 million Republic Bank shares are worth $1.3 billion.

The insurance company’s 42,830,350 shares in CL World Brands, the Scotland-based company that is chaired by Lawrence Duprey’s attorney, Andrew Mitchell, is listed on the 2011 accounts as being worth $365.88 million, down slightly from the value of $366.17 million ascribed to them in 2010.

CL World Brands is worth considerably more today, given the fact that in April this year, it sold its 71 per cent stake in Scottish whiskey distiller, Burn Stewart, to a South African concern for US$146 million ($921.43 million). The value of CL World Brands has also escalated because its 44.9 per cent (92.5 million shares) stake in Angostura was worth $716.87 million in 2011 and those shares are worth $832.5 million today.

The value of Clico’s investments in its subsidiary companies increased by 17.5 per cent to $6.53 billion in 2011 from $5.55 billion in 2010. This is mostly due to the fact that Clico’s methanol companies (MHTL and Oman-based Methanol Holdings International Ltd) were valued at $6.15 billion in 2011, which is an increase of 14 per cent over the $5.38 billion that those methanol producers were valued at in 2010.

The changes in the company’s assets and liabilities resulted in a 25 per cent decline in Clico’s net deficit to $7.27 billion in 2011 from $9.79 billion in 2010.

No accounting for preference

Chairman of the Clico Policyholders’ Group Peter Permell argues that the insurance company’s deficit should be significantly lower than reported in the audit, which was conducted by chartered accountants KPMG.

In a statement issued on Tuesday night, Permell said in 2009 the Government invested $4.9 billion in Clico in exchange for 4.9 billion preference shares. The $4.9 billion is being treated as a liability on Clico’s balance sheet when it should be treated as equity.

Permell said: “We are advised that the proper accounting treatment is for this amount to be recognised as equity and included as part of the capital of the company. That is to say, if the accounting treatment were different, then the net deficit of $7.2 billion would be reduced to $2.4 billion as at December 2011.

“Moreover, as one drills down into the numbers, it becomes patently obvious that when the carrying values of assets such as the 66.9 million AHL shares, the 15.2 million OCM shares, the 11 million RBL shares, the 42.8 million CL World Brands shares, the 188.8 million MHTL shares and the 5.6 million MHIL shares are revalued in line with their current fair market prices, there is, in fact, NO DEFICIT.

“It should be noted that this ‘reality check’ does not take into account the assets that CL Financial still has ownership of and which are still available for sale pursuant to the MOU and June 2009 shareholders agreement (in order to make policyholders whole).”

Permell said the Government already owns a 49 per cent shareholding in Clico and, as such, could quite easily recover the major portion of the debt owed to CL.

Financial and still have enough of the conglomerate’s assets available to sell in order to “top up” payments to holders of the short-term investments who have accepted the Government’s offer. He estimated an additional $1.5 billion is due to those policyholders and investors.

Clico by the numbers

​Profit 2011 2010
Before tax $719.99m ($904.60m)
After tax $701.94m ($910.94m)
Investment $1.73b $503.93m

Assets $19.68b $17.37 b
Liabilities $26.95b $27.16b


Source:
Trinidad Guardian
Thursday May 30, 2013

http://www.guardian.co.tt/business-guardian/2013-05-29/clico-declares-25-billion-comprehensive-income