GK reports 43% increase in three months net profit

May 15, 2020

GraceKennedy Limited (GK) recorded revenues of $28.85 billion for the period under review (2019: $25.93 billion), a year over year increase of 11%. Of this, revenue from products and services amounted to $27.77 billion (2019: $24.93 billion) and interest revenue totalled $1.08 billion (2019: $1 billion).

Segment report is as follows:

  • The Food Trading Business reported revenue of $23.50 billion (2019: $21 billion).
  • The Group highlighted that, “Our food businesses both in Jamaica and internationally have seen improved sales as more individuals are buying our products to prepare meals at home. Our Jamaican foods distribution business experienced growth in both revenue and pre-tax profits coupled with improved margins. Catherine’s Peak spring water reflected a significant growth in sales volumes. Hi-Lo Foods Stores, our chain of Jamaican supermarkets, showed improved performance when compared to the corresponding period of 2019. In manufacturing, Grace Agro Processors continued to broaden and strengthen its supplier base for raw materials. Given the difficulties many of our local farmers are facing in finding markets for their produce as a result of the closure or slowdown in major industries, GraceKennedy Limited committed to the Ministry of Agriculture in Jamaica that we would purchase hot peppers from farmers with whom we do not have a contractual arrangement. Increased purchases from small farmers have also been supported by growth in demand from our Hilo Foods Stores for fresh produce.
  • “GraceKennedy Foods (USA) LLC continues to show significantly improved performance for the three month period when compared to the corresponding period of 2019. For the month of March, sales for Grace Frozen Patties showed triple digit growth closing the first quarter of 2020 with a 68% increase in volumes compared to the corresponding period of 2019. Grace Foods UK and Grace Foods Canada also reported increased revenue for the three month period when compared to the corresponding period of 2019.”
  • Banking and Investments booked revenue of $1.55 billion (2019: $1.50 billion), while Insurance revenue closed at $1.86 billion (2019: $1.76 billion). Money Services amounted to $2.02 billion (2019: $1.74 billion).
  • Notably GK mentioned, “The GraceKennedy Financial Group (GKFG) reported growth in revenues but a decline in pretax profit for the three month period compared to the corresponding period in 2019. In keeping with GKFG’s financial inclusion strategy the Division will be enabling the opening of bank accounts using a simplified process.”
  • According to Management, “First Global Bank (FGB) experienced strong growth in its loan and deposit portfolios. FGB was recognized by International Banker during the quarter, and awarded the Best Innovation in Retail Banking, Jamaica 2020, for the second consecutive year. The award comes in recognition of FGB’s financial inclusion strategy focused on Agency Banking and Digital Transformation.”
  • Insurance segment: “GraceKennedy completed its acquisition of 65% of the issued shares of Key Insurance Company Limited in March 2020. A new General Manager and Board have since been appointed and plans are underway to strategically grow this business. The acquisition of Key Insurance is part of the Group’s plans to further strengthen and expand its financial services Division and forms part of the company’s focus on mergers and acquisitions as a strategic driver for growth. With the elevated level of credit risk due to the uncertainties surrounding Covid-19, the Group recognised additional impairment provisions in relation to loans receivable under IFRS 9. The fall in the market prices of equity instruments classified at fair value through profit or loss also negatively impacted the results of the Banking & Investments and Insurance segments.”
  • Money Services segment: “The business has seen an increase of over 100% in the use of our digital remittance channels. To further expand our digital capabilities, GraceKennedy Money Services (GKMS) began the implementation of an Electronic Registration System for Jamaica, Guyana and Trinidad and significantly advanced the implementation of the Bill Express Online service for Trinidad. Both initiatives will be launched early in the second quarter of 2020. During the month of March, four of our GKMS markets experienced limited operations due to a range of lockdown measures implemented by the Governments of those territories. Full operation of these markets resumed in April.”

Total direct and operating expenses amounted to $27.33 billion relative to $24.98 billion booked in 2019, indicating a 9% growth compared to twelve months earlier. In addition, Net impairment losses on financial assets amounted to $247.51 million for the three months ended March 31, 2020 relative to $59.17 million for the corresponding period last year. As such, profit before other income for the three months ended March 31, 2020 amounted to $1.28 billion versus $885.09 million booked for the comparative period of 2019.

Other income for the period rose by 104% to total $641.21 million (2019: $314.25 million).

Moreover, profit from operations amounted to $1.92 billion for the three months ended March 31, 2020 relative to $1.20 billion for the comparable period last year.

Interest income from non-financial services rose by 20% to total $117.62 million compared to $97.61 million reported in the prior corresponding period. Interest expenses from non-financial services closed at $283.37 million versus $230.58 million a twelve months earlier, a 23% increase.

Share of results of associated companies totalled $233.63 million compared to $254.57 million reported for the three months ended March 2019.

Pretax profits rose by 51% to approximately $1.99 billion compared to pretax profit of $1.32 billion documented for the period ended March 2019. Additionally, GK incurred taxation expenses amounting to $537.27 million compared to $303.82 million in the prior corresponding period.

Consequently, net profit increased by 43% to $1.45 billion from $1.02 billion booked for the corresponding period of 2019. Net profits attributable to shareholders for the first quarter ended March 31, 2020 amounted to $1.32 billion compared to $897.05 million in the previous corresponding period in 2019. Total comprehensive income closed the three months at $387.37 million (2019: $1.23 billion).

Earnings per share for the period amounted to $1.32 (2019: $0.90). GK’s trailing EPS amounted to $4.93.  The number of shares used in our calculations is 994,916,483 units. GK’s stock price closed the trading period on May 14, 2020 at $57.95.

Notably, GK stated that, “It is important to note that the 2020 outlook for GraceKennedy, and indeed many companies globally, will be heavily influenced by the impact of the Covid-19 pandemic. In this uncertain environment, GraceKennedy’s status as a provider of essential services (manufacturing, distribution, and retailing of food products, and remittance, banking and other financial services) has enabled the Group to keep its operations open. For the foreseeable future, the Group is mindful that the unpredictable length of time and effect of measures including trade restrictions, trade border closures and mandatory quarantines and how this will continue to influence the level of business activity in the countries in which we operate.”

Management also noted, “Our businesses have been impacted by the spread of this disease in a variety of ways. The Group has implemented its Business Continuity Plan, specifically as it relates to the GK Pandemic Business Guidelines segment, a Supply Chain Risk Assessment Action Plan, stringent inventory management and the adoption of a comprehensive Covid-19 action plan addressing group-wide manufacturing. The Financial Division is focused on ensuring that all business units increase accessibility of products and services outside of the traditional channels, while identifying opportunities for cost containment, revenue enhancement and improved management of liquidity and cash flows.”

Balance Sheet Highlights:

As at March 31, 2020, the Group’s total assets totalled $159.07 billion, 13% more than its value of $140.94 billion a year ago. The improvement resulted from growth in ‘Loans receivable’ and ‘Pension Plan Assets’ which closed at $30.28 billion (2019: $26.60 billion) and $6.92 billion (2019: $2.84 billion), respectively. In addition, ‘Fixed Assets’ and ‘Receivables’ also contributed to this increase amounting to $24.06 billion (2019: $20.92 billion) and $20.05 billion (2019: $17.82 billion), respectively.

Total Shareholders’ equity amounted to $52.51 billion which compares to equity of $45.75 billion as at March 2019. As a result, book value per share amounted to $52.77 (2019: $45.98).

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