GK reports 7% decline in six months net profit

Date: August 02, 2019

Grace Kennedy Limited (GK), for the six months ended June 30, 2019, recorded revenue of $51.49 billion for period (2018: $48.37 billion), a year over year increase of 6%. Revenue for the second quarter of 2019 improved 9% to $25.56 billion (2018: $23.46 million). The biggest contributor to the group’s overall revenue for the six month period came from the ‘Food Trading’ segment which contributed a total of $40.93 billion (2018: $38.37 billion), an increase of 7% relative to the prior year’s corresponding period. The other segments contributing to revenue are as follows:

o    ‘Banking & Investments’ climbed 4% year over year to total $3.02 billion (2018: $2.90 billion). The Group mentioned that, “The GraceKennedy Financial Group (GKFG) reported marginal growth in revenues and increased profitability over the corresponding prior year period, with Banking and Investments reporting an increase in pre-tax profit compared to the corresponding period of 2018. First Global Bank recorded increased revenue, profitability and continued improvement in efficiency, while GK Capital Management Limited (GKCM) reported strong performance for the period.”

o    “Revenue from ‘Insurance’ amounted to $3.81 billion, a year over year increase of 14% over last year’s corresponding period of $3.33 billion. Management highlighted that, “The Insurance segment continued to perform well with existing operations achieving growth and new initiatives forming a base for future growth. GK General Insurance Company Limited (GKGI) reported strong growth in revenues.”

o    ‘Money Services’ brought in $3.73 billion, 1% less than the $3.76 billion reported in June 2018. GK noted that, “GraceKennedy Money Services (GKMS) successfully launched a new money transfer service, allowing for direct to bank settlement of incoming funds, which has seen strong consumer adoption. The segment was however impacted by volatility in the foreign exchange market, and a decline in remittance transaction volumes, due to the ongoing implementation of enhanced compliance measures.”

GK indicated that, “The Group’s Jamaican foods business experienced growth in most of its key products, with Hi-Lo Foods Stores showing improved performance when compared to the corresponding 2018 period, and opening its Hi-Lo Express, a convenience-sized store at GK’s new Headquarters in downtown Kingston. The Company’s investments in Catherine’s Peak and Consumer Brands Limited continue to perform well.”

In addition, Management stated, “GraceKennedy Foods (USA) LLC reported growth of 11% in the USA market, due mainly to the performance of its Grace Frozen Patties, Grace Jerk Wings and Grace Tropical Rhythms as well as improved operating performance. The equity investment in Majesty Foods LLC, manufacturer of Grace Frozen Patties and Grace Jerk Wings, also continues to perform well. The re-launch of the LaFe brand officially began in May with the brand being re-positioned around the qualities of being fresh, convenient and healthy.”

“The re-launch of the Nurishment brand with new and convenient packaging, is expected to stimulate improved performance for Grace Foods UK Limited, which reported a decline in sales. The company has however earned good distribution gains in supermarkets for the Encona and Grace branded products, with Grace Tropical Rhythms showing significant growth in sales,” GK highlighted.

Total Expenses amounted to $49.84 billion relative to $46.93 billion booked for the previous quarter, indicating a 6% growth compared to twelve months earlier.  Expenses for the second quarter amounted to $24.79 billion, up from $22.73 billion for the second quarter of 2018.  As such, gross profit for the six month amounted to $1.65 billion relative to $1.44 billion booked for the similar period of 2018. Gross profit for the second quarter went up 6% to $768.15 million compared to $724.17 million reported for the second quarter of 2018.

Other Income during the first six month ended June 30, 2019, fell 18% to total $1.19 billion (2018: $1.45 billion). While, other income for the quarter closed at $876.46 million (2018: $717.59 million).

Interest income from non-financial services slipped 1% to total $211.41 million compared to $213.32 million reported in the prior year’s corresponding period. Interest expenses from non-financial services amounted to $473.30 million versus $285.74 million a year earlier, a 66% increase.

Share of results of associated companies rose by 28% amounting to $368.26 million, versus $287.33 million reported for June 2018.

As such, pre-tax profits decreased 5% to approximately $2.95 billion, compared to pre-tax profit of $3.10 billion documented for the first six month of 2018. Additionally, GK incurred taxation expenses amounting to approximately $678.58 million compared to $651.52 million in June 2018.

Consequently, net profit fell 7% to $2.27 billion from $2.45 billion booked for the first six months of 2018. Net profit for the second quarter improved 10% to $1.25 billion (2018: $1.14 billion).

Net Profits attributable to shareholders amounted to $2.01 billion compared to $2.15 billion in the previous year’s corresponding period, showing a 7% decrease. Net profit attributable to shareholders for the second quarter amounted to $1.11 billion, up from the $959.31 million booked for the same quarter of 2018. Earnings per share for six months amounted to $2.02 (2018: $2.16), while for the second quarter, GK booked an EPS of $1.12 (2018: $0.96). GK’s tailing EPS amounted to $4.89.  The number of shares used in our calculations is 994,886,892 units. GK’s stock price close the trading period on July 31, 2019 at $71.17.

Additionally, GK noted that, “the Company’s results were negatively impacted by the new accounting standard on leases (IFRS 16) which resulted in an additional expense of J$115.0 million, as well as postemployment benefit expenses relating to IAS 19 increasing by J$189.0 million. During the first six months of 2019, the volatility in the Jamaican foreign exchange market, particularly in the US Dollar exchange rate, also had a significant negative effect on the Group’s results when compared to the corresponding period of 2018.”

Notably, “production volumes at Grace Agro Processors were affected by the delayed opening of its Denbigh facility in Clarendon, as well as a shortage in pepper supply for its Hounslow, St Elizabeth plant. The Company is currently broadening its supplier base for peppers, which is expected to reduce the pepper shortage, while expanding its network of farmers. GraceKennedy’s commitment to growing Jamaica’s agro processing landscape was extended to the development of its Agro Park project in Hounslow, St. Elizabeth in partnership with farmers,” the Group stated.

Balance Sheet Highlights:

As at June 30, 2019, the company’s assets totalled $150.25 billion, 4% or $17.73 billion more than its value a year ago.  The improvement resulted in part from a growth in ‘Loans Receivables’ and ‘Fixed Assets’ which closed at $28.70 billion (2018: $25.28 billion) and $21.33 billion (2018: $12.32 billion), respectively. Also, ‘Inventories’ and ‘Investment in associate’ contributed to the growth closing at $11.92 billion (2018: $10.75 billion) and $3.20 billion (2018: $2.01 billion), respectively.

Shareholders’ equity amounted to $50.77 billion which compares to equity of $46.36 billion as at June 30, 2019.  As a result, book value per share amounted to $51.03 (2018: $46.60).


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