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Heritage Cannabis Reports Q4 2023 and Year-End Financial Results


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Achieved over 50% Growth in Gross Margin for the Year, and 628% in Gross Margin Growth for the Fourth Quarter

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TORONTO — Heritage Cannabis Holdings Corp. (CSE: CANN) (OTCQB: HERTF) (“Heritage or the “Company”), today announced its financial results as at and for the three- and twelve-month periods ended October 31, 2023. All figures are in Canadian dollars unless otherwise noted.

“Remaining true to our vision of sustainable growth, Heritage continued to optimize our products in 2023 while maintaining a close focus on production efficiencies, operational spending, and high gross margin sales, all of which were key in achieving growth in gross margin of over 50% for the year and 628% for the quarter compared to last year, showing a very promising trend for the start of this year,” said David Schwede, CEO of Heritage. “Our products continue to see significant demand, specifically for our newly launched RAD vape products and Adults Only brand (#9 vape brand in Canada), which contributed to our concentrate revenues growing by 6% in the fourth quarter. In the U.S., we have six SKUs in New York – our newest state – and our more established business in Missouri and West Virgina saw strong growth with over $3.5 million in sales for the year. With Q1 revenues and gross margins expected to continue this trend and SG&A expected to be down, we are keen to build on these successful ventures throughout 2024 and continue to explore additional revenue channels both in the U.S and internationally.”

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Selected Financial Highlights

Selected financial highlights for the three- and twelve-month periods ended October 31, 2023 and 2022 include the following:

Three months ended

Years ended

(in $CDN)

Oct 31, 2023

Oct 31, 2022

Oct 31, 2023

Oct 31, 2022

Gross revenue





Net revenue (net of excise tax)





Cost of sales





Gross margin





General and administrative expenses





Other Income (Expenses)





Comprehensive Income (Loss)





2023 Financial Highlights

  • The Company reported gross revenue of $11,409,434 for the three months ended October 31, 2023, an increase of $261,373 compared to the gross revenue of $11,148,059 for the three months ended October 31, 2022. The increase in gross revenue was primarily due to the continued success of the Adults Only brand vapes and concentrates, with vapes and concentrates seeing sales of $8,229,739 in the three month’s ending October 31, 2023, an increase of $489,033, compared to $7,740,706 for the three month’s ending October 31, 2022. This was offset by flower revenues of $1,745,387, a decrease of $659,263 as compared to $2,404,650 in the three month’s ending October 31, 2022.
  • The Company reported gross revenue of $42,054,936 for the year ended October 31, 2023, an increase of $58,639 compared to gross revenue of $41,996,297 for year ended October 31, 2022. The increase in gross revenue was primarily driven by other revenues of $1,617,593 in the current year, an increase of $1,111,250 as compared to $506,343 in the previous year. This was offset by flower revenues of $6,700,210 in the current year, a decrease of $582,009 as compared to $7,282,219 in the previous year, as well as tincture revenues of $2,227,355 in the current year, a decrease of $350,152 as compared to $2,577,507 in the previous year and vape and concentrate revenues of $30,116,466 in the current year, a decrease of $136,221 as compared to $30,252,687 in the year ending October 31, 2022.
  • Cost of sales for the three months ended October 31, 2023 was $4,875,162, a decrease of $2,736,831 compared to $7,611,993 for the three months ended October 31, 2022. The decrease represented a 24% improvement, as a percentage of sales, in the current period. As stated in previous quarters, the Company is continuously reviewing its processes for optimization either on the manufacturing side or through material costing which continued to positively impact the results in the current quarter.

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  • Cost of sales for the year ended October 31, 2023 was $17,709,500, a decrease of $3,890,367, compared to $21,599,867 for the year ended October 31, 2022. The decrease represented a 9% improvement, as a percentage of sales, in the current period. The improvement was a result of continued production refinements to enable more efficient production and improved inventory management strategies.
  • Gross margin for the three months ended October 31, 2023 was $3,102,677 (27%) compared to gross margin of $426,112 (4%) for the three months ended October 31, 2022. The increase in gross margin of $2,676,565 (+23%) was primarily a result of continually improving production efficiencies and maintaining an overall excise duty rate of under 30% of gross revenues.
  • Gross margin for the year ended October 31, 2023 was $12,084,789 compared to gross margin of $7,966,518 for the year ended October 31, 2022. The increase in gross margin of $4,118,271 was a result of improved production efficiencies over the course of the year, maintaining a lower excise rate in the period and an improved inventory control system resulting in a decrease of inventory adjustments of $1,752,837 from $2,471,371 for the year ended October 31, 2022, to $718,534 for the year ended October 31 2023.
  • For the three months ended October 31, 2023, the Company recorded a comprehensive loss of $14,123,548 or $0.01 loss per share compared to a comprehensive loss of $26,895,045 or $0.03 loss per share for the three months ended October 31, 2022. The decrease in comprehensive loss of $12,771,497 during this period was attributable to increased non-excisable sales, decreased inventory costs and production efficiencies in the period.
  • For the year ended October 31, 2023, the Company recorded a comprehensive loss of $19,906,411 or $0.02 loss per share compared to a comprehensive loss of $23,937,773 or $0.03 loss per share for the year ended October 31, 2022. The decrease in comprehensive loss of $4,031,362 during the period was due to the gross margin gains noted above and the cost management in general and administrative expenses which was partially offset by the intangible asset and goodwill impairment in the period.

Q4 2023 Growth, Operational, and Corporate Highlights

  • On August 15, 2023, the Company announced the appointment of Jasmine Paige as Interim Chief Financial Officer (“CFO”), replacing Dan Phaure as he pursues new opportunities.
  • On September 6, 2023, the Company announced that products from its Pura Vida brand were approved for listing by Société québécoise du cannabis for retail and online distribution in the province of Québec. This is a noteworthy achievement for Heritage as it continues to expand its product offerings and increase distribution across Canada, now actively selling products in every province in the country. Québec is the fourth-largest market in Canada and while the Company’s products have been available online through partner medical platforms in the province, Heritage looks forward to directly building a strong portfolio of offerings for Québec consumers.
  • On October 11, 2023, the Company announced the procurement of an EU GMP certified extraction machine to be added to the existing fleet of extractors which is anticipated to double the Company’s hydrocarbon processing capacity. The extractor has the capacity to add 3,600,000 grams of cannabis processing and is EU GMP certified – a global standard for manufacturing practices – allowing for increased international sales of Heritage’s cannabis derivative products to countries such as Germany, the United Kingdom, Australia, and others as cannabis legalization continues to expand across the globe.

    Heritage has been experiencing an increased demand for its products both across Canada, and the United States where the Company has already launched products in New York, Missouri, and West Virginia. This new extractor is expected to help to boost production in order to meet the growing Canadian retail demand, as well as create supply to enter global markets as demand for EU GMP certified extracts grows internationally. Additionally, Heritage has been actively pursuing and participating in the vibrant B2B market and amping up production of extracts will support this important and growing sector of the market.

  • On October 23, 2023, the Company announced that it had officially commenced recreational product sales in the state of New York. Manufacturing of Heritage’s RAD branded vape and concentrate products began in the state during the summer of 2023, and the Company achieved its first commercial sale in New York – Heritage’s third state where its brands are now available.

    Heritage continues to target the legal markets in the US with an asset light model, and in New York has a manufacturing and distribution agreement with a local partner that produces and sells products using Heritage’s innovative formulations and flavours that the RAD brand is known for. Heritage plans to introduce additional RAD products including live resin, rosin, and infused pre-rolls, and is expanding product offerings with additional Heritage brands.

  • On October 30, 2023, the Company announced its intention to sell the Company’s real estate properties in Ontario (the “Ontario Property”) and British Columbia (the “BC Property”) to BJK Developments Ltd. (the “BJK Purchaser”) for a net purchase price of $9,714,475 (the “Purchase Price”) and lease the Ontario and BC properties back from the BJK Purchaser (the “Sale and Leaseback Transaction”). Pursuant to the Sale Leaseback Transaction, Heritage entered into ten (10) year lease agreements with the Purchaser, for its Health Canada licensed Ontario Property and BC Property, where the Company will continue to operate its best-in-class manufacturing and processing capabilities for its domestic and international business segments. Further, the lease terms include a 12-month free rent period, representing approximately $1,389,000 of savings during the period, which commences at closing; and, that the Company also retains an option to repurchase the Ontario Property and BC Property for a period of two years, from the BJK Purchaser, pursuant to option agreements.

    The Purchase Price was used to set-off the amount owing by the Company to its lender, BJK Holdings Ltd. (“BJK”), a related entity of the BJK Purchaser, reducing the Company’s remaining term debt by approximately 57% to $7,303,640. The remaining term financing, as amended within a Third Amending Agreement has been extended through to January 31, 2025, with interest calculated at the Royal Bank of Canada prime lending rate (“RBC Prime”) minus 1.75%. In addition, the Company retains its revolving line of credit of up to $5,000,000 (the “LOC”) with BJK, which has also been extended until January 31, 2025.

    In connection with the Third Amending Agreement, Heritage agreed to amend existing warrant certificates held by BJK dated October 8, 2021 which entitled BJK to subscribe for and purchase up to 10,000,000 common shares in the capital of Heritage at an exercise price of $0.25 per common share, and dated September 29, 2022 which entitled BJK to subscribe for and purchase up to 50,000,000 common shares in the capital of Heritage at an exercise price of $0.10 per common share (the “Existing Warrants”). Effective, October 31, 2023, the Company amended the Existing Warrants so that the expiry date for BJK to exercise the Existing Warrants is extended from February 28, 2025, to February 28, 2026, and so that the exercise price of the Existing Warrants shall be repriced to $0.07 per Common Share.

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Financial Statements

The consolidated financial statements of the Company as at and for the three- and twelve-month periods ended October 31, 2023, and accompanying management’s discussion and analysis have been filed with the securities regulators and are available on SEDAR+ at www.sedarplus.ca under the Company’s issuer profile.

About Heritage Cannabis Holdings Corp.

Heritage is a leading cannabis company offering innovative products to both the medical and recreational legal cannabis markets in Canada and the U.S., operating two licensed manufacturing facilities in Canada. The company has an extensive portfolio of high-quality cannabis products under the brands Purefarma, Pura Vida, RAD, Adults Only, Juicy Hoots, Premium 5, Thrifty, feelgood., the CB4 suite of medical products in Canada and ArthroCBD in the U.S.


“David Schwede”
David Schwede

The Canadian Securities Exchange does not accept responsibility for the adequacy or accuracy of this release.

Forward-Looking Statements

This press release contains certain “forward-looking information” within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or may contain statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “will continue”, “will occur” or “will be achieved”. The forward-looking information contained herein may include, but is not limited to, assumptions related to cash flow and capital resources, and expectations related to the supply and manufacturing agreements, the intended expansion of the Company, and partnerships and Joint Venture Partnerships.

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By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements.

An investment in securities of the Company is speculative and subject to several risks including, without limitation, the risks discussed under the heading “Risks and Uncertainties” in the Company’s annual management discussion and analysis for the year ended October 31, 2023, and dated February 26, 2024. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.

In connection with the forward-looking information and forward-looking statements contained in this press release, the Company has made certain assumptions. Although the Company believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. The forward-looking information and forward-looking statements contained in this press release are made as of the date of this press release, and the Company does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward-looking information and statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this notice.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240226605087/en/



Kelly Castledine
Tel: 647-660-2560


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Gauteng still plans to come after e-toll defaulters


The Gauteng Provincial Government still plans to collect the e-toll debt from motorists.

Mampho Modise, deputy director-general of public finance at National Treasury, confirmed this in an interview with Moneyweb last week, saying that the treasury had to look at the existing e-toll debt, and “Gauteng has agreed that that debt should and will be collected”.



Read: E-tolls to be ‘switched off’ from 31 March – Lesufi

Modise confirmed that she was specifically talking about the e-toll debt of motorists and not the Sanral debt for bonds issued to pay for the Gauteng Freeway Improvement Project (GFIP).

Modise said this is not a new agreement between National Treasury and the Gauteng Provincial Government but an agreement reached “in the past”.

“It took long because we had to understand the numbers, the implications and the timelines, but, for now, those agreements remain in place,” she said.

Asked how this debt will be collected from motorists, Modise said: “That would be between Gauteng and Sanral [SA National Roads Agency], and they are working on a process on how to do that.”

More confusion

Modise’s comments will add to the widespread confusion that already exists over the scrapping of e-tolls on the GFIP.

Organisation Undoing Tax Abuse (Outa) CEO Wayne Duvenage said any thoughts National Treasury has of Gauteng chasing motorists for their e-toll debt will be “quickly squashed, and there’s no ways it will happen because of the elections”.

Gauteng Premier Panyaza Lesufi said in his State of the Province Address last week that the formal process to switch off and delink e-tolls on the GFIP will begin on 31 March 2024.

Lesufi confirmed that meetings were held with all affected parties, including Minister of Finance Enoch Godongwana and Transport Minister Sindisiwe Chikunga, and “all of us have now reached an agreement that by 31 March 2024 the formal process to switch off and delink e-tolls will begin and e-tolls will be history in our province”.

However, Godongwana reportedly said in response to questions on the budget from MPs in parliament’s joint finance committees last week that Gauteng had not yet met the preconditions that would allow the e-tolls to be scrapped.

E-toll refunds

Modise said last week, in response to the possibility of motorists being refunded for their e-toll payments, that the key to the agreements with Gauteng is that National Treasury “has a policy that users must pay for the economic infrastructure and Gauteng will then make a decision on how this will be funded”.

“If Gauteng has the R6 billion, and they make a decision that they won’t collect, it’s their decision,” she said.

“If they want to collect and would like Sanral to collect the debt, that is also their decision.

“The way in which we are looking at this agreement is to have some flexibility for the province to make a decision depending on the funding pressures that they have.

“So for now, the agreement is that those debts will be collected, and we will use the existing infrastructure that is there from Sanral to do the collections,” she said.

The possibility of a refund surfaced when 702 Eyewitness News reported in January 2023 that Lesufi had confirmed that almost R6.9 billion would be refunded to motorists who had been paying for e-tolls on the GFIP.

However, Lesufi backtracked on this statement in an exclusive interview with Moneyweb in October last year, claiming he did not say that and that it is one of the issues that need to be discussed.

Sanral yet to receive any ‘firm instruction’ on e-toll refunds [Jan 2023]
Lesufi backtracks on e-tolls refund plans [Oct 2023]

Modise said what National Treasury is waiting for in terms of the e-toll gantries is the final Memorandum of Agreement between the province and National Treasury and “the province ensuring it do good in terms of the 30% of the debt that they need to pay”.

This is a reference to Godongwana’s statement in his Medium-Term Budget Policy Statement (MTBPS) speech in October 2022 that the Gauteng Provincial Government had agreed to contribute 30% to settling Sanral’s GFIP debt and interest obligations, while national government covers 70%.

The total amount to be paid by the provincial government is R12.9 billion, 30% of Sanral’s R43 billion debt.

Government passes the e-toll’ hot potato’ to Gauteng government
Confusion over how much Gauteng must pay Sanral to settle e-toll debt
Outa wants clarity on Sanral’s debt before bailout is finalised

Godongwana said Gauteng would also cover the costs of maintaining the 201km and associated interchanges of the GFIP roads, while any additional investment in the roads would be funded through either the existing electronic toll infrastructure or new toll plazas or any other revenue source within their area of responsibility.

In the MTBPS, R23.7 billion was allocated to Sanral to pay off government-guaranteed debt, but this allocation was conditional on a solution being found for Phase 1 of the GFIP.



Funding gap

Modise explained last Wednesday that there were different dispensations related to e-tolls, which created a funding gap for the maintenance of the roads and also a Sanral loan redemption gap.

“We had to deal with two of these things when we were negotiating with Gauteng,” she said.

Godongwana was quoted by News24 last week as stating: “We had an agreement to split Sanral’s e-toll debt at 70:30. We made our commitment and gave money to Sanral last year. Now, the province is supposed to give us money.

“The province also has to answer the question: Who will do the maintenance? That is a discussion they are having with the Department of Transport.

“Unless that agreement is tied down, we can’t commit to when the gantries can go.”

Attempts by Moneyweb to clear up the confusion about the scrapping of e-tolls with the Gauteng Provincial Government were unsuccessful.

Lesufi’s spokesperson, Sizwe Pamla, referred Moneyweb to Joshua Ntimane, spokesperson for Gauteng MEC for Treasury Jacob Mamabolo, who in turn referred Moneyweb to Gauteng Provincial Treasury head of communications and spokesperson John Sukazi.

Sukazi said Mamabolo will present his budget on 5 March, and this matter will be clarified at that time.

‘Same old indecision’ 

Outa’s Duvenage described the situation as “just the same old confusion and indecision”.

Duvenage said the minister of finance’s statement on e-tolls indicates that “nothing has been finalised yet” and that the 31 March 2024 date to start switching off the e-toll gantries “is not cast in stone”.

He said Outa’s message to the remaining 10% of people “keeping the e-toll scheme on life support is that you have the power to switch it off”.

“You have the power to make government introduce its decision earlier.

“If everyone stops paying, then they don’t have the money to cover the administration costs, the post … and that then makes them sit up, as far as we are concerned, to say ‘let’s just implement’ [the switch-off],” he said.

“But while there’s R40 million a month still going into this hole, there is no compelling reason to stop it [e-tolls].

“I think somebody is making money out of that. It’s crazy. It’s confusing, but we are not surprised at all. It’s a joke,” he said.

Duvenage added that for many people who have not even received their e-toll accounts, the debt has been prescribed because summonses have to be issued in a certain period of time.

He said Outa also still has an open legal test case on the legality of the e-toll scheme.

Read: E-tolls: Calls for business and society to stop paying

Duvenage questioned why Gauteng had been roped in to pay 30% of Sanral’s debt and to maintain GFIP roads when these are Sanral assets.

“If there is a change in government in Gauteng, the new government is going to challenge this whole thing,” he said.

Read: Sanral considers new tolls

Leeds Building Society Trials Ban on New Holiday Let Mortgages in Tourist Hotspots


Leeds Building Society, a prominent UK lender, has embarked on a trial initiative to suspend new holiday-let mortgages in select popular tourist destinations, aiming to address concerns raised by campaigners regarding housing availability in affected areas.

The move comes in response to mounting pressure regarding the proliferation of short-term holiday lets, which critics argue have contributed to local residents being priced out of their communities. The surge in properties converted into holiday rentals, facilitated by platforms like Airbnb, has exacerbated housing affordability challenges, particularly in regions such as Norfolk and Yorkshire.

This development coincides with the recent unveiling of new government regulations targeting short-term holiday lets in England, signaling a broader effort to regulate a sector perceived by some as “out of control.” Under the proposed rules, future short-term lets will require planning permission, and a mandatory national register will be established to provide local authorities with comprehensive data on short-term rental properties.

Leeds Building Society, in collaboration with North Norfolk District Council and North Yorkshire Council, will implement a 12-month trial starting from the end of March. This trial will entail a temporary cessation of new holiday let mortgage lending in designated areas, aimed at curbing further expansion of the holiday rental market.

The affected regions include popular coastal towns such as Cromer, Wells-next-the-Sea, and Sheringham in North Norfolk, as well as Scarborough, Whitby, Filey, Saltburn, Leyburn, and Richmond in North Yorkshire. Postcodes corresponding to these areas will be flagged within the building society’s systems to prevent the approval of any new holiday let mortgage applications during the trial period, while existing borrowers remain unaffected.

Holiday let mortgages, distinct from traditional buy-to-let arrangements, cater to properties intended for short-term rental purposes rather than long-term occupancy. While Leeds Building Society estimates its position among the top 10 lenders offering such mortgages, it is noteworthy that some lenders include holiday let mortgages within their buy-to-let loan portfolios.

Ben Twomey, Chief Executive of Generation Rent, lauded Leeds Building Society’s initiative, emphasizing the prioritisation of housing needs over leisure pursuits. The move underscores a growing recognition of the imperative to balance the demands of the holiday rental market with the preservation of local housing affordability and community integrity.

Electricity tariffs raise returns Kenya Power into profits



Electricity tariffs raise returns Kenya Power into profits

KPLC Managing Director Joseph Siror addressing journalists. FILE PHOTO | BONFACE BOGITA | NMG

Kenya Power has posted a Sh319 million net profit for the six months ended December 2023 on increased electricity sales and an upward review of tariff, lifting it from a loss position.

The utility firm’s unaudited results released Friday showed it had emerged from the Sh1.15 billion net loss it posted in the preceding similar period.

Revenue from electricity sales increased by 31.3 percent from Sh86.67 billion to Sh113.55 billion, coming in the period the Nairobi Securities Exchange-listed firm said it connected 225,000 new customers to the grid surpassing its target by 13.87 percent.

“The improved profitability is attributed to increased revenue resulting from increased electricity sales. Additionally, the adoption of a more cost-reflective tariff review in April 2023 as well as the growth in unit sales by 129GWh,” said Kenya Power.

Read: Kenya Power to recover Sh6.5bn tariff gift from consumers

Kenya Power in April last year increased the base consumption charge to Sh12.22 per unit from Sh10 for lifeline consumers whose usage stands at no more than 30 units a month, even as it revised the lifeline threshold from 100 units previously.

Households and consumers whose monthly consumption ranges between 31kWh and 100kWh saw their tariffs increase by 19 percent to Sh26.10 and Sh26.22 respectively.

The increased revenue helped Kenya Power’s operating profit rise 2.6 times to Sh14.45 billion from Sh5.65 billion despite the operating costs rising 9.4 percent to Sh19.7 billion.

Kenya Power said the Sh1.72 billion rise in operating costs was due to higher wheeling charges and increased staff costs as a result of hiring additional staff to reinforce field operations, enhance overall operational efficiency, and improve service to customers.

However, the doubling of finance costs from Sh7.39 billion to Sh15 billion slowed the rise in earnings. Kenya Power attributed the increased finance costs to the rise in unrealised foreign exchange losses on loan revaluations as the shilling shed value against major foreign currencies.

About 90 percent of Kenya Power’s loans are in foreign currency, making it susceptible to movements in local currency. The devaluation of the shilling also increased non-fuel power purchase costs by Sh9.79 billion since about 60 percent of power purchase agreements are denominated in foreign currencies.

Kenya Power managing director Joseph Siror hopes the recent strengthening of the shilling from the lows of 161 against the dollar to under 145 will be sustained to cut the forex losses and also reduce spending on thermal power purchases.

“We are happy to note that the shilling is gaining against the dollar and other major currencies in the current period. We hope that this positive trend continues in the remaining part of the year to ease our forex exposure and enable us to finish the year in a stronger financial position,” said Mr Siror.

Read: Kenya Power recovers Sh548m Uhuru tariff cut deficit from February bills

Kenya Power remained in a negative working capital position, with the current liabilities of Sh134.1 billion being more than the Sh91.6 billion current assets.

The utility firm has been undergoing restructuring. National Treasury expects the restructuring, supported by the upward review of tariffs, will eventually cut the utility firm’s dependence on exchequer support.

Kenya Power says it is exploring various ways to mitigate the forex exposure impact including restructuring the balance sheet where proceeds from the transfer of part of the transmission line assets to Kenya Electricity Transmission Company will be applied to offset on-lent loans which are entirely denominated in foreign currency.

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BSP still prepared to adjust policy


THE BANGKO SENTRAL ng Pilipinas (BSP) is still prepared to adjust interest rates as necessary amid persistent upside risks to the inflation outlook, a central bank official said.

In a BusinessWorld Insights webinar on Thursday, BSP Deputy Governor Francisco G. Dakila, Jr. said risks remain despite inflation easing to a three-year low in January.

“Given the prevailing upside risks to the inflation outlook, the BSP is prepared to adjust its monetary policy settings as necessary in keeping with its primary mandate of safeguarding price stability,” he said.

Nonmonetary measures also remain crucial to sustain the disinflation process and address lingering supply-side pressures, he said.

After emerging as the most aggressive central bank in the region, the BSP kept the key rate at 6.5% — the highest in nearly 17 years — for a third straight meeting in February.

The Monetary Board hiked borrowing costs by 450 bps from May 2022 to October 2023 to tame inflation and help support the peso against the dollar.

Price pressures have receded in the past months as inflation has been within the 2-4% target since December 2023, Mr. Dakila said.

“Inflationary pressures for most key food and nonfood items have steadily eased, supported by government supply-side measures alongside negative base effects,” he said.

Inflation eased to the lowest in three years to 2.8% in January from 3.9% in December and 8.7% a year ago. It was the second straight month that inflation was within the BSP’s 2-4% target.

Mr. Dakila also noted that core inflation continued to fall in January, after staying above 2-4% for 17 consecutive months.

Core inflation, which excludes volatile prices of food and fuel, slowed to 3.8% in January from 4.4% in December, the slowest since 3.1% in June 2022.

Last week, the BSP trimmed its baseline inflation forecast for this year to 3.6% from 3.7% but kept its projection for 2025 at 3.2%.

“The forecast path is driven by the lower-than-expected inflation outturn in December and January, by the appreciation of the peso, and by lower global crude oil prices,” Mr. Dakila said.

The BSP also lowered its risk-adjusted inflation forecast for this year to 3.9% from 4.2% but raised its outlook for 2025 to 3.5% from 3.4%.

The downgrade in the BSP’s risk-adjusted inflation forecast was due to the lower baseline forecast and the decline in the estimated risks for the year, Mr. Dakila said.

“However, it should be noted that the risk-adjusted forecast is still near the upper end of the target range at 3.9% in 2024,” he added.

The central bank is closely monitoring the developments in the agriculture sector, especially as rice prices continue to rise due to export bans abroad and worries over the impact of El Niño.

Rice inflation accelerated to 22.6% from 19.6% in December, the highest since March 2009. It was also the most significant contributor to January inflation, adding 1.3 percentage points. The commodity had the biggest weight in the overall inflation basket at 8.87%.

Other risks to the inflation outlook include higher assumptions for global nonoil prices, a stronger domestic growth outlook, the impact of El Niño weather conditions and minimum wage adjustments in areas outside Metro Manila, Mr. Dakila said.

“While inflation is likely to settle within the target range in the first quarter of this year, inflation could rise temporarily above the target for the April-to-July period due to possible price pressures from lower domestic supply of rice and corn as well as positive base effects,” he added.

Meanwhile, Mr. Dakila said the gross domestic product (GDP) growth trajectory remains intact over the medium term.

“The projected GDP growth path will be supported by improved global GDP amid a projected decline in global crude oil prices, tempered in part by the lagged impact of policy interest rate adjustments,” he said.

In the fourth quarter, GDP expanded by 5.6%, slower than 6% in the third quarter and 7.1% in the fourth quarter of 2022.

This brought full-year GDP growth to 5.6% in 2023, much slower than 7.6% in 2022.

“This may be attributed to the waning of pent-up demand amid still elevated — though decelerating — inflation, the lagged effects of monetary tightening, as well as lower government spending in line with fiscal consolidation,” Mr. Dakila said.

Still, he noted that at 5.6%, the Philippines was among the fastest-growing emerging markets in the region last year, ahead of China (5.2%), Indonesia (5%), Vietnam (5%) and Malaysia (3.8%).

Meanwhile, Sun Life Investment Management and Trust Corp. (SLIMTC) expects the BSP to likely reduce policy rates by 100 basis points (bps) this year.

SLIMTC Chief Investment Officer Ritchie Ryan G. Teo said at a briefing on Thursday that the central bank is expected to begin policy easing with a 25-bp cut in the latter part of the second quarter.

“We don’t expect more than that given cost volatility,” he added. “More on the latter part (of the second quarter). It’s probably good to say they will only cut when the Fed cuts.”

Mr. Teo said the US Federal Reserve will likely cut rates by 75 bps to 100 bps to bring down the Fed funds rate to 4.5-4.75% this year.

The US central bank had raised its policy rate by 525 bps to 5.25-5.5% from March 2022 to July 2023.

The BSP now has room to begin policy easing given the recent downtrend of inflation, Mr. Teo said.

“Policy rates are higher than the inflation rates. We’ve seen inflation coming down and with that, we are already seeing that gap, that real positive rate means there’s room to cut rates,” he added.

SLIMTC sees inflation averaging 3.8% this year.

Mr. Teo also noted he is not ruling out a rate hike but the probability of that happening is “very low.”

“With lower rates, that will provide better corporate earnings and with lower rates also that will provide GDP to go back up to 6% from 5.6% last year, driven by better consumption and private investments,” he said.

SLIMTC’s forecast for GDP growth is at 6% this year, falling short of the government’s 6.5-7.5% target but better than the 5.6% expansion in 2023.

Finance Secretary Ralph G. Recto earlier said there may be a need to revise the government’s macroeconomic targets and assumptions to be “more realistic.”

Meanwhile, Mr. Teo flagged risks that could stoke inflation and dampen growth, such as the El Niño weather phenomenon.

“If the (El Niño) doesn’t improve, it may impact soft commodity prices. We’ve seen rice inflation go up by 22%, so hopefully that’s mainly because of the low base effect last year,” he said. “With the harvest season and El Niño going away, hopefully inflation will be controlled.”

The latest data from the state weather bureau showed that El Niño is expected to persist until May.

Another factor that could derail growth is delayed infrastructure spending, Mr. Teo said.

The administration’s ‘Build Better More’ infrastructure program is allocated P1.5 trillion under the budget this year, equivalent to 5.5% of gross domestic product (GDP).

The government is targeting to sustain infrastructure spending of up to 5-6% of GDP annually.

Infrastructure spending in the January-November period rose by 18.5% to P1.02 trillion.

“We expect that (underspending) is something that should be resolved sooner mainly because there’s been efforts by the government, they already called out the underspending but unfortunately it seems like the disbursements aren’t there yet. But once they are released, we expect that to improve also,” Mr. Teo added. — Keisha B. Ta-asan and Luisa Maria Jacinta C. Jocson

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Morgan Stanley’s Jim Caron on Treasury yields and impact on stocks


Viva Las Vegas: commercial casinos revealed record-setting revenues of $66.5 billion


America’s commercial casinos won $66.5 billion from gamblers in 2023, the industry’s best year ever, according to figures released by its national trade association Tuesday.

The American Gaming Association said that total was 10% higher than in 2022, which itself was a record-setting year.

When revenue figures from tribal-owned casinos are released separately later this year, they are expected to show that overall casino gambling brought in close to $110 billion to U.S. casino operators in 2023.

That all happened in a year in which inflation, while receding, still kept things like grocery and energy costs higher than they had been.

“From the traditional casino experience to online options, American adults’ demand for gaming is at an all-time high,” said Bill Miller, the association’s president and CEO.

Early last year, when the group gave its annual statistical assessment, “inflation was high, uncertainty was in the air. Forecasters couldn’t agree what these challenges might do to discretionary income,” Miller said.

As they year went on, “inflation began to cool, consumers began to spend and the (Federal Reserve) held rates steady,” he added. “The result was a record-breaking year for our industry.”

Not even the pre-holiday shopping crunch discouraged gamblers from laying their money down: casinos won $6.2 billion in December and $17.4 billion in the fourth quarter of 2023, both of which set records.

Jane Bokunewicz, director of the Lloyd Levenson Institute at New Jersey’s Stockton University, which studies the gambling industry, said sports betting is still new enough that it may prove attractive even to those watching their budgets.

“As a form of entertainment, legal sports betting might be a new and novel experience for many patrons, and with its relatively low cost of entry, may be attractive to them even if their discretionary spending budget is limited,” she said.

In-person gambling remains the bread and butter of the industry. Slot machines brought in $35.51 billion in 2023, an increase of 3.8% from the previous year. Table games brought in $10.31 billion, up 3.5%.
Sports betting generated $10.92 billion in revenue, up 44.5%. Americans legally wagered $119.84 billion on sports, up 27.8% from the previous year.

Five new sports betting markets that became operational in 2023 — Kentucky, Maine, Massachusetts, Nebraska and Ohio — contributed to that and generated a combined $1.49 billion in revenue.

By the end of the year, Massachusetts and Ohio established themselves among the country’s top 10 sports betting states by revenue, New Jersey and Illinois exceeded $1 billion in annual sports betting revenue for the first time, and New York topped all states with $1.69 billion.

Internet gambling generated $6.17 billion, up 22.9%. While Michigan and New Jersey each generated $1.92 billion in annual internet gambling revenue, Michigan outperformed New Jersey by just $115,500 to become the largest internet gambling market in the country. Pennsylvania was third with $1.74 billion in annual revenue.

Other states offering internet gambling are Connecticut, West Virginia and Delaware; Nevada offers online poker only.

Casinos paid an estimated $14.42 billion in gambling taxes last year, up 9.7% from the previous year.
Nevada remains the nation’s top gambling market, with $15.5 billion in revenue. Pennsylvania is second at $5.86 billion, followed closely by Atlantic City at $5.77 billion.

New York is fourth at $4.71 billion, followed by Michigan at $3.58 billion; Ohio at $3.31 billion; Indiana at $2.82 billion; Louisiana at $2.69 billion and Illinois at $2.52 billion.

New York’s Resorts World casino reclaimed the title as the top-performing U.S. casino outside Nevada. It was followed by MGM National Harbor near Washington, D.C., Encore Boston Harbor and Atlantic City’s Borgata.

Of the 35 states that have commercial casinos, 31 saw revenue increase last year.
Jurisdictions where revenue declined were Florida (-0.4%); Indiana (-2.3%) and Mississippi (-3.5%). The sports betting-only market of Washington, D.C., had a more significant decline, with revenue trailing 2022 by 17.6%, the largest drop in the country.

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China cuts mortgage reference rate more than expected to revive property market By Reuters


© Reuters. Mainland Chinese tourists walk in front of the skyline of buildings at Tsim Sha Tsui, in Hong Kong, China May 2, 2023. REUTERS/Tyrone Siu

SHANGHAI/SINGAPORE (Reuters) -China cut the benchmark reference rate for mortgages at a monthly fixing on Tuesday by more than expected, as authorities ramped up efforts to stimulate credit demand and revive the property market.

Commercial banks’ improving net interest margins following recent deposit rate cuts and the reduction to bank reserves earlier this month has paved the way for lenders to reduce borrowing costs to support the economy.

The five-year loan prime rate (LPR) was lowered by 25 basis points to 3.90% from 4.20% previously, while the one-year LPR was left unchanged at 3.45%.

In a Reuters poll of 27 market watchers conducted this week, 25 expected a reduction to the five-year LPR. They projected a cut of five to 15 basis points.

It was the largest cut to the LPR since China revamped its loan pricing mechanism in 2019.

“It is a significant cut, showing policymakers are serious in providing stimulus support to the economy,” said Christopher Wong, currency strategist at OCBC in Singapore. “This should provide some support to risk-proxy currencies, including AUD but it remains to be seen if it is sufficient to keep momentum sustained.”

fell to its lowest since Nov. 20 while property stocks shot up.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.

China last trimmed the five-year LPR in June 2023 by 10 basis points.

Market watchers said the rate cut was well expected, but the size of the reduction exceeded their expectations. The central bank-backed Financial News had reported on Sunday that the benchmark LPR could fall in coming days, with the five-year tenor more likely to be reduced.

“Lowering five-year LPR will help stabilise confidence, promote investment and consumption, and also help support the stable and healthy development of the real estate market,” the newspaper said on its official WeChat account.

While the new mortgage reference rate comes into effect immediately, existing mortgage holders will not benefit from any reduction in loan repayments until next year, as mortgage rate repricing is on a yearly basis.

China has stepped up efforts to rescue the ailing property sector. Government-backed media last week reported that state banks have boosted lending to residential projects under the “white list” mechanism aimed at injecting liquidity into the crisis-hit sector.

The LPR, which banks normally charge their best clients, is set by 20 designated commercial banks who submit proposed rates to the central bank every month.

Nintendo shares drop amid report of Switch delay until next year


rvlsoft/iStock Editorial via Getty Images

Nintendo (OTCPK:NTDOY) shares fell as much as 8.5% in Japan on Monday amid reports that it’s delaying the release of its Switch successor until after the holiday season.

The Japanese videogame console maker told its game publishing partners that the release