July 1, 2020
K.L.E. Group Limited (KLE), for the first three months ended March 31, 2020 reported Total Revenue of $72.67 million, a 46% increase when compared with the $49.72 million reported for the corresponding period of 2019. KLE noted, “Revenues for the first quarter fell short of target. This is directly attributable to the affects Covid-19 has had on the business. We experienced strong performance in January and February but saw a sharp decline in March as the virus spread to the Caribbean and then Jamaica. Daily revenues dropped by over 90 percent below the budget.” However, the increase in revenues was, “directly related to the revenues of the Montego Bay Location. KLE took over the Usain Bolt’s Tracks and Records Montego Bay Franchise on January 07, 2020.”
Cost of sales of $22.10 million recorded year to date relative to $13.99 million for first three months of 2019. Management highlighted, “ KLE will continue to employ cost savings strategies and monitor our Key Performance Indicators to improve efficiencies and achieve profitability.” Furthermore, the Company stated that the increase in Cost of Sales occurred, “as a result of the Montego Bay acquisition. The companies cost of operating is in line with the latest cost strategies and budgets. Cost of sales percentage for the current period was 30% which is in line with budget.”
Gross Profit totalled $50.57 million, up 42% relative to the $35.73 million reported in the prior comparable period of 2019.
Other Operating Income for the quarter totalled $3.60 million (2019: $6.41 million), this was as a result of, “timing sponsorship revenues are paid in. The company is currently renegotiating expiring sponsorship contracts with our partners for the 2020 financial year. Uncertainty from the effects of the pandemic have delayed this process and are challenging our ability to close these deals,” as per Management.
Administrative and other expenses rose by 84% from $36.43 million in 2019 to $66.99 million which was “related to the acquisition of the Montego Bay Tracks and Records,” according to KLE. Notably, Management stated that, “The addition of this business unit offered the KLE economies of scale specifically within marketing, purchasing, accounting, supply chain and other general overheads. These expenses are now being split between both locations. Included in administrative expense is a bad debt write of $12.7 million. The company, on the approval of the audit committee, wrote of the receivables balance carrying on the books for funds outstanding from the discontinued Famous Nightclub operation. These receivables have been deemed uncollectable and are written off in accordance with acceptable accounting practices.”
As such, there was a loss from operations which totalled $12.81 million relative to a profit of $5.71 million booked for the corresponding period of 2019. Finance and depreciation costs rose by 20%, moving from $5.24 million last year to $6.26 million for the first quarter of 2020.
Consequently, loss before tax for the quarter amounted to $19.07 million relative to a profit before tax of $473,000 in 2019.
There was no taxation for the period (2019: $275,000), therefore, KLE reported net loss of $19.07 million relative to a net profit of $198,000 reported in 2019. KLE highlighted that, “The company is reporting a loss from operations as a direct result of the bad debt write off and the drastic decline in revenues in the month of March due to the corona virus. The company ended the quarter in an overall net loss position after the inclusion of finance and depreciation charges and other comprehensive loss of $1 million as a result of losses in the revaluation of quoted investments.”
Total comprehensive loss amounted to $20.13 million compared to $332,000 reported for the first quarter of 2019.
Loss per share (LPS) for the three-month ended March 31, 2020 amounted to $0.191, while for the corresponding quarter of 2019, an earnings per share of $0.002 was recorded. The twelve-month trailing LPS is $0.36. The number of shares used in our calculations is 100,000,000. KLE’s stock price closed on June 30, 2020 at $1.80.
KLE stated that, “In the first half of January the company successfully acquired the Tracks and Records Montego Bay location. The purchase includes all the operational assets of the location and was financed by a loan from a related party.”
Management highlighted that, “for the better part of 2019 KLE had focused efforts on raising capital and growing the business following the strategy established by the board and management. This strategy included;
Growth of the corporate footprint for Tracks and Records in Jamaica specifically. This was targeted to include 5 locations in Jamaica by 2021. The acquisition of the Ocho Rios and Montego Bay assets was the first step towards this.
A major renovation of the Kingston location to include upgraded technology and a fresh look and feel had been planned.
Significant reduction in debt would have repositioned the balance sheet and prepared the company for the second phase of growth which included further international expansion through the franchising model.”
However, Management stated that, “the government’s actions taken to protect the population from the Covid-19 pandemic has had an extreme impact on our ability to conduct business. In fact, our industry is among the first to have felt the impact and is likely of the hardest hit.” Moreover, “Fortunately, the brand is strong locally and has outlived many others in the casual dining space over the years while boasting some of the highest volumes over and above the competition. Unfortunately, the fine and casual dining segments in the restaurant industry have been challenged significantly by the pandemic due to their “full-service” nature and higher price point than the fast food segment.”
KLE further added that, “Fortunately, the brand is strong locally and has outlived many others in the casual dining space over the years while boasting some of the highest volumes over and above the competition. Unfortunately, the fine and casual dining segments in the restaurant industry have been challenged significantly by the pandemic due to their “full-service” nature and higher price point than the fast food segment.”
Besides, according to Management, “the real estate investment in Oracabessa is progressing nicely. The construction, although slowed a bit in the second quarter of the year, has been working throughout. The approvals from parish council have all been attained and we await the real estate board to allow us to begin taking deposits on the units. Demand for the Bessa units remains very strong.”
Balance Sheet at a Glance:-
As March 31, 2020, the company reported total assets of $291.97 million (2019: $221.92 million). The main contributors to this increase was ‘Property, Plant & Equipment’ which amounted to $108.95 million (2019: $27.56 million), which is as a result of” the Montego Bay purchase,” according to Management. ‘Related Parties’ also moved up by $10.65 million to end the period at $71.47 million (2019: $60.82 million). However, ‘Cash & Cash Equivalent’ tempered this movement decreasing 77% from $19.28 million in 2019 to $4.47 million in 2020.
Shareholder’s Equity closed at $79.21 million (2019: $114.51 million) resulting in a book value per share of $0.79 (2019: $1.15).
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