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GraceKennedy Q1 sales surge nullified by big spending

Published:Saturday | May 16, 2015 | 11:45 AM

GraceKennedy’s sales strengthened in the first quarter, but the gains failed to reach the conglomerate’s bottom line, which shrank by close to a third.

The March quarter results were impacted by one-off costs, said Group CEO Don Wehby, linked to spending on the company’s new food business in the United States, and, in its home market, refurbishing costs for its supermarket business, as well as the asset tax payable by GK’s financial and insurance subsidiaries.

The company’s expenses were more than $3 billion higher as a result relative to the March 2014 quarter. It’s total spend of $20.5 billion in the 2015 period included the opening of a new office in Atlanta through which subsidiary GraceKennedy Foods USA LLC – formerly La Fe Foods – will handle distribution for some of its American markets.

The asset tax accounted for under $100 million of added expenses, Wehby said.

With the acquisition of La Fe Foods, GraceKennedy Limited’s sales grew by about 13 per cent to $20.1 billion this quarter. Food trading revenue by itself grew by 16 per cent. But profit fell by 29 per cent from $941 million or $2.52 per share to $703 million or $1.78 per share.

Wehby said that while the results were below the previous year “we are significantly ahead of where we were planning to be for the first quarter of  2015”.

“With the acquisition of La Fe which was subsequently renamed Grace Foods USA LLC, we recognised that there were going to  be significant one-off costs, significant investments, in terms of getting the company to the standard that we would like,” he said.

“But I want to make the point that the company is expected  and we are pretty confident that it will make a profit in its first full year of operation. In the past we used a third-party distributor to distribute the Grace brand in the United States. The brand is now being distributed by us,” said the GK chief executive. He is predicting that the GK Foods USA will be the largest contributor to the GraceKennedy group in the next four to five years.
The new office in Atlanta, he said, is part of the build out of what the company sees as “a huge market” for the Grace and La Fe brands. “We wanted to control the route to market,” Wehby told Gleaner Business.

As for the company’s reduced cash position - $6.58 billion compared to $9.4 billion last year - Wehby said it was linked primarily to the diversion of capital to the commercial banking operation for lending.

“You will see that we put more capital into First Global Bank in December of last year and we will continue to invest in commercial banking in a significant way because we believe can certainly provide a great service to our customers and clients and give our shareholders a good return,” he said.