GK reports 18% increase in year end net profit

Date: March 04, 2019

GraceKennedy Limited (GK) recorded revenue of $97.54 billion for the period (2017: $92.48 billion, a year over year increase of 5%. Revenue for the quarter of 2018 improved by 2% to $23.72 billion (2017: $23.18 billion).

Segment report is as follows:

The Food Trading Business reported revenue of $77.1 billion.

“The performance was primarily driven by the Group’s Jamaican distribution businesses. The growth in the Foods business in Jamaica was supported by growth in sales of key products such as Corned Beef, Vienna Sausages and Tropical Rhythms beverages all of which experienced double-digit growth. The commencement of the distribution of Catherine’s Peak pure spring water in July 2018 and the continued good performance of the Procter & Gamble portfolio also contributed significantly to the growth.”

The company also noted that “The international foods companies also recorded growth over 2017. GraceKennedy Foods (USA) LLC, the United States distribution company, experienced growth in revenue for the Grace and La Fe brands. New products also contributed significantly to this growth led primarily by Grace Patties and Grace Jerk wings, During the last quarter of 2018, Grace Kennedy announced that it would be acquiring a 49% stake in the United States based patty company, Majesty Foods LLC. Grace Foods Canada Inc. continued its expansion drive with revenue from Western Canada delivering double-digit growth for 2018.”

Banking & Investments booked revenue of $5.77 billion (2017: $5.98 billion), Insurance revenue closed at $6.98 billion (2017: $6.04 billion), while Money Services amounted to $7.68 billion (2017: $7.85 billion).

According to management, “The Group’s newest initiative, GKONE, was launched in six locations island wide during 2018. GKOnline, the digital insurance offering, is a key contributor to the motor vehicle portfolio growth and continues to reflect increase in business from existing and new customers, with quotations and sales being significantly higher than 2017.”

The Banking and Investments segment: “First Global Bank (FGB) experienced a decline in its loan portfolio when compared to 2017, which, combined with lower interest rates impacted the segment’s performance. The Bank is poised for growth as it executes strategies to increase its loan and deposit portfolios by leveraging technology, introducing innovative new products and delivering on financial inclusion strategy. GK Capital Management and GK Investments generated strong results in 2018 with the main drivers of growth coming from equity brokerage, securities trading, net interest income and portfolio management for clients.”

The Money Services segment, “reported a decline in both revenue and profit. This was mainly due to a reduction in transaction volumes in remittance business in Jamaica and Trinidad. The performance of both the remittance and currency trading operations of the Trinidad subsidiary was negatively impacted by challenges in the foreign exchange market. During the year, the segment had strong growth from remittance operations in Guyana and foreign currency trading generations in Jamaica. Following a review of the viability of the Antigua and Barbuda operations, the decision was taken to withdraw services in this territory in September 2018.”

Total expenses amounted to $94.40 billion relative to $88.94 billion booked in 2017, indicating a 6% growth compared to twelve months earlier. Expenses for the quarter amounted to $22.79 billion, up from $22.68 billion for the same quarter in 2017. As such, gross profit for the year end amounted to $3.14 billion relative to $3.53 billion booked for the comparative period of 2017. Gross profit for the quarter closed at $928.04 million compared to $494.17 million reported for the quarter of 2017.

Other income for the year-end period grew by 67% to total $3.49 billion (2017: $2.09 billion). While for the quarter, other income closed at $1.22 billion relative to $394.83 million in the prior corresponding period.

Interest income from non-financial services rose 13% to total $427.50 million compared to $378.21 million reported in the prior year’s corresponding period. Interest expenses from non-financial services amounted to $581.87 million versus $662.86 million a year earlier, a 12% reduction.

Share of results of associated companies totaled $490.87 million, compared to $484.97 million reported for December 2017. For the quarter, share of results of associated companies amounted to $169.43 million (2017: $67.27 million).

Pretax profits increased by 20% to approximately $6.96 billion compared to pretax profit of $5.82 billion documented for the year ended December 2017. Additionally, GK incurred taxation expenses amounting to $1.32 billion compared to $1.05 billion in the prior corresponding quarter.

Consequently, net profit increased by 18% to $5.64 billion from $4.77 billion booked for the corresponding period of 2017. For the quarter, net profit closed at $1.93 billion (2017: $1.02 billion).

Net Profits attributable to shareholders amounted to $5.01 billion compared to $4.12 billion in the previous year’s corresponding period. Net profit attributable to shareholders for the quarter amounted to $1.79 billion, up from $801.12 million booked for the same quarter of 2017.

GK indicated that, “in 2018, the Group had further non-recurring gains of J$1.06 billion from the dissolution of a non-operating subsidiary, as we continue to improve efficiency. We realized additional non-recurring gains of J$74.7 million on the successful acquisition of Globe Finance Inc. by our associated company in Barbados, CSGK Finance Holdings Limited, through its subsidiary Signia Financial Group Inc.”

Earnings per share for the period amounted to $5.03 (2017: $4.14), while for the quarter, GK booked an EPS of $0.81 (2017: $0.70). The number of shares used in our calculations is 994,886,892 units. GK’s stock price closed the trading period on March 01, 2019 at $59.96.

The Group highlighted that, “the results were also impacted by 1) the recognition of tax credits of J$427.7 million under Jamaica Urban Renewal (Tax Relief) Act coming from the construction of GraceKennedy’s new headquarters; and 2) separation costs of approximately J$150 million and related expenses of J$86 million associated with the Group’s restructuring exercise.”

Additionally, GK stated that, “the construction of GraceKennedy’s new corporate headquarters has progressed well with plans in place for occupancy in the first quarter of 2019 signalling the Group’s commitment to the redevelopment of Downtown Kingston with an investment of over J$3.25 billion.”

Balance Sheet Highlights:

As at December 31, 2018, the company’s assets totalled $135.24 billion, 4% or $5.25 billion more than its value a year ago.  The improvement resulted from growth in ‘Pledged Assets’ and ‘Cash & Deposits’ which closed at $9.93 billion (2017: $4.93 billion) and $14.82 billion (2017: $12.08 billion), respectively.

Total Shareholders’ equity amounted to $44.61 billion which compares to equity of $45.22 billion as at December 2017.  As a result, book value per share amounted to $44.84 (2017: $45.46).

Analyst Certification -The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer (s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation (s) or view (s) expressed by that research analyst in this research report.

Company Disclosure -The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.

2019-03-04T20:19:10+00:00