Date: May 10, 2019
GraceKennedy Limited (GK) recorded revenues of $25.93 billion for the period under review (2018: $24.91 billion), a year over year increase of 4%.
Segment report is as follows:
The Food Trading Business reported revenue of $21 billion (2018: $20.02 billion).
- The Group highlighted that, “the Food Trading segment recorded improved revenue but profitability declined when compared to the corresponding period of 2018. This was due, primarily to the performance of Grace Foods UK Limited (GFUK) and the delay in the start of production at our manufacturing plant at Denbigh, Clarendon in Jamaica that impacted supplies. GFUK was negatively affected by a decline in sales, compared to the same period in the prior year. GFUK will be relaunching Nourishment with new labels on our canned format and the addition of new packaging, from which we expect to see improved performance. The successful performance of the range of Grace Chips will be used as a springboard for new products designed to move the Grace brand from the “World Food” to the “Mainstream” aisle in UK supermarkets.”
- “Increased revenue for GraceKennedy Foods (USA) LLC stemmed from growth in both the Grace Brand and the Third Party brand portfolio of 6%. The expanded distribution of the range of Grace chicken wings, has contributed positively to this performance. Grace Patties continue to show exceptional growth and exceeded Q1 2018 performance by over 200%.”
- “GK’s Jamaican foods business experienced growth in most key products. The main consumer promotion for the year, “Grace Winna House” was launched in January 2019 and will run until May 2019. Brand building remains a major objective of the business as we focus on further engaging with millennials, while continuing to satisfy the needs of our current consumer base. Our Jamaican chain of supermarkets, Hi-Lo Foods Stores continued to experienced recovery in sales and customer count. Renovation of our stores will continue with focus on our Cross Roads location. World Brands Services Limited reported improved performance partly attributable to the expansion of the van sales fleet in 2018. It is expected that four additional routes will be added during 2019. Our recent investment in Catherine’s Peak Bottling Company Limited also contributed positively to the profitability of the division. Consumer Brands Limited continues to perform well.”
Banking and Investments booked revenue of $1.50 billion (2018: $1.52 billion), while Insurance revenue closed at $1.76 billion (2018: $1.61 billion). Money Services amounted to $1.74 billion (2018: $1.81 billion).
- According to Management, “the Banking and Investments segment reported an increase in pre-tax profit compared to the corresponding period in 2018. First Global Bank Limited (FGB) reported increased profitability and growth in its loan portfolio, driven in part by the automation of elements of the loan process, facilitating improved turnaround times and efficiencies. GK Capital Limited (GKCM) continued to grow, building on its strong 2018 performance. This positive growth has been buoyed by a strong Q1 market presence with GKCM climbing to second in Jamaica Stock Exchange trading volumes. GKCM’s investment banking unit continued to perform positively after raising over J$1 billion in fixed income financing for clients during the quarter.”
- Insurance segment: “The Insurance segment reported strong growth in revenue. Allied Insurance Brokers Limited (AIB) remains the leading insurance broker and celebrated its 50th anniversary in April 2019. AIB’s core revenue continues to grow year over year. GK General Insurance Company Limited ended the first quarter with strong performance in revenues against prior year period. In particular, the core business performed well with steady growth in the motor portfolio, supported by an increase in quotations and revenue on our online platform, “GKGOnline”. The commercial portfolio showed growth driven primarily by strong account retention and growth in new business.”
- Money Services segment: “Performance in the Money Services segment was impacted by a decline in remittance transaction volumes and volatility in the foreign exchange market. GraceKennedy Money Services (GKMS) has worked closely with our strategic partner, Western Union, to develop an enhanced compliance programme. The temporary reduction in transaction volumes is due to the ongoing implementation of the enhanced compliance measures, however it is anticipated that the increased oversight, for the protection of our customers, will be a competitive advantage through a stronger network of agencies. Performance was positively impacted by growth in the Bahamas markets, the most recent addition to our money services operation within the Caribbean region.”
- In addition, the Group indicated that, “the Money Services segment continued to focus on providing a wide range of innovative solutions to meet our customers’ needs across the Caribbean. In January 2019 GKMS launched the Western Union app in Jamaica. This will increase the ease with which customers can move money within Jamaica and from Jamaica to more than 200 countries and territories. The use of WU.com continues to show growth with volumes in March 2019 surpassing prior month and being the highest recorded since its launch. In keeping with GK’s strategic focus on increased customer centricity and efficiency through innovation, GKMS, in collaboration with Western Union, successfully completed the pilot of a new money transfer service allowing for direct to bank settlement of incoming funds. The Group expects that the commercial launch of this service will enhance value proposition by providing increased convenience to customers receiving monies from overseas. GraceKennedy is determined to establish and maintain strong measures, the right processes, technology and infrastructure to strengthen this business.”
Total direct and operating expenses amounted to $25.04 billion relative to $24.20 billion booked in 2018, indicating a 3% growth compared to twelve months earlier. As such, gross profit for the three months amounted to $885.09 million versus $712.01 million booked for the comparative period of 2018.
Other income for the period fell by 57% to total $314.25 million (2018: $733.81 million). According to the Group, “the decline in other income is due to foreign exchange losses resulting from the volatility of the Jamaican dollar in the first quarter, given that the Group has net foreign assets.”
Interest income from non-financial services dropped by 3% to total $97.61 million compared to $100.64 million reported in the prior corresponding period. Interest expenses from non-financial services closed at $230.58 million versus $143.83 million a year earlier, a 60% increase. GK stated that, “the increase in interest expense is as a result of the adoption a new accounting standard, IFRS 16: Leases. Under the new standard, a lease liability of approximately $6.4 billion and a corresponding right-of-use asset were recognised on the balance sheet. On the Income Statement, rental expenses for operating leases were replaced with depreciation on the right-of-use asset and interest expense for the lease liability.”
Share of results of associated companies totaled $254.57 million compared to $259.92 million reported for March 2018.
Pretax profits reduced by 21% to approximately $1.32 billion compared to pretax profit of $1.66 billion documented for the period ended March 2018. Additionally, GK incurred taxation expenses amounting to $303.82 million compared to $349.14 million in the prior corresponding period.
Consequently, net profit fell by 23% to $1.02 billion from $1.31 billion booked for the corresponding period of 2018. Net profits attributable to shareholders amounted to $897.05 million compared to $1.19 billion in the previous corresponding period in 2018.
Earnings per share for the period amounted to $0.90 (2018: $1.20). GK’s tailing EPS amounted to $4.73. The number of shares used in our calculations is 994,916,483 units. GK’s stock price closed the trading period on May 09, 2019 at $61.27.
Notably, GK stated that, “The construction of GraceKennedy Limited’s new headquarters is complete. The building’s retail center will include a HiLo Foods Express Store and a GKOne location which will provide access to affordable financial products and services including remittance, bill payment, and micro lending insurance and commercial banking. The Group remains committed to the development of Downtown Kingston and has invested over J$3 billion in this project that brings together the Group’s executive office, financial services division and money services group.”
Balance Sheet Highlights:
As at March 31, 2019, the Group’s total assets totaled $140.65 billion, 9% more than its value a year ago. The improvement resulted from growth in ‘Fixed Assets’ and ‘Investments in Associate’ which closed at $20.92 billion (2018: $12.01 billion) and $3.20 billion (2018: $2.11 billion), respectively. In addition, ‘Pledged Assets’ and ‘Deferred Tax Assets’ also contributed to this increase amounting to $8.55 billion (2018: $6.02 billion) and $1.58 billion( 2018: $1.10 billion), respectively.
Total Shareholders’ equity amounted to $45.75 billion which compares to equity of $45.39 billion as at March 2018. As a result, book value per share amounted to $45.98 (2017: $45.62).
Disclaimer: 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.