Tue | Feb 18, 2020

Record profit at GK as acquisitions, group clean-up pay off

Published:Friday | March 8, 2019 | 12:20 AMAvia Collinder - Business Reporter
Don Wehby, Group CEO of GraceKennedy Limited.
Don Wehby, Group CEO of GraceKennedy Limited.

Don Wehby is closing in on the anticipated $100 billion in revenues for GraceKennedy Limited, and based on the trend lines, could hit the target by 2020.

But in the meantime, the Group CEO has racked up a different record – the food and financial services conglomerate made more than $5 billion of net profit for its last financial year, as acquisitions and group consolidation efforts pay off.

Last year, Wehby called in the London Consulting Group to guide the company towards its 100th anniversary in year 2022 as a lean and efficient machine. The consultants, who are based in Mexico, wrapped up the efficiency study in the third quarter of last year, and GraceKennedy has been restructuring the group to accelerate growth.

“For the financial year 2018, we grew revenue by $5.07 billion over 2017, which means that based on our current trajectory, we expect to meet this target by the specified period,” Wehby said of the $100b revenue target, which is one of the group’s centenary goals.

Group sales last year grew three per cent to $97.4 billion, while net profit spiked 18 per cent, from $4.77 billion, or $4.15 per share, to a new record of $5.64 billion, or $5.05 per share.

That performance seems to have led to a more generous spirit at the conglomerate, whose board has approved a new dividend policy, under which GK will now distribute one-fifth of its profits annually to shareholders, up from 15 per cent, “subject to cash flows” and other considerations. The distributions will also increase from three to four times per year.

The first interim dividend for this year will be paid in April at 35 cents per share, totalling $348 million.

Of the total revenue generated last year, Wehby said slightly less than 50 per cent was earned by the conglomerate’s international businesses. It’s a tangible outcome for the company which is focused on greater geographic diversification of its revenue lines, but at 47 per cent contribution, the outcome for international sales was a slight reversal from the previous year’s near 48.4 per cent.

GraceKennedy makes the most of its profits from its financial division, but food trading dominates the sales category and was the main contributor to revenue growth for 2018.

“This performance was led by our Jamaican distribution business with key products seeing double-digit growth in sales. Our international markets also recorded growth over 2017 with our US distribution company adding significantly to the top line through our Grace and La Fe brands,” said the GK boss.

“Notably, sales growth in our major international companies were bolstered by new Grace products, such as Grace Patties, Grace Jerk Wings and Grace Chips,” he told the Financial Gleaner.

Food trading accounted for 79 per cent of total sales, but 23 per cent of pre-tax profit. The Jamaican market accounted for 53 per cent of revenues.

The GK financial group also achieved revenue growth as a block, but experienced declines in the banking and money services segments.

In a disappointing outcome for the group, “First Global Bank experienced a decline in its loan portfolio over 2017, however, we are focused on our growth strategy to leverage leading technologies and deliver innovative new products to increase its loan and deposit portfolios,” Wehby said.

One of the upsides for First Global, FGB, which is the third-smallest of Jamaica’s eight commercial bank, is its deposit base grew in the period.

GK itself does not disclose the individual finances of its subsidiaries, but the most recent central bank data on the commercial banking sector show an increase of more than $4 billion in deposits at First Global over nine months ending September 2018, but a $1.03-billion compression of the bank’s loan book at the same date.

The money services segment, meanwhile, was weighed down by reduced transaction volumes for remittances in the Trinidad & Tobago and Jamaican markets.

GraceKennedy’s record profit for 2018 was buttressed by $1.1 billion of gains from the liquidation of non-operating subsidiaries and acquisitions.

The company’s most recent investment was a 49 per cent stake in Florida-based patty-maker Majesty Foods LLC. Three months before that, one of GK’s associated companies in Barbados, Signia Financial Group, acquired the Globe merchant bank for BDS$11.8 million.

Wehby said the strategic acquisitions have also boosted top-line growth, and that GK continues to seek out other targets, both inside and outside Jamaica, to add to its stables.

That search is occurring with a larger hoard of cash built by the conglomerate last year, from $9.4 billion to $12.28 billion.

“The increase in our cash balance was driven by several factors, however, mainly by an increase in customer deposits with FGB. We are happy to see continued growth in our deposit portfolio and remain optimistic that this will improve as we execute on our FGB network expansion plans,” he said.

The group has a capex budget of $3.7 billion for 2019, mostly designated for software upgrades and computer equipment.

Among the other projects to be tackled, Wehby said, is investment in the Grace brand, introduction of more products, improvements to warehousing and logistics, deployment of new digital products, and continued regional expansion of financial services, with a special focus on the insurance market.

“Significant investments of over $900 million are also planned for the category of plant and machinery, such as the relocation of our warehouse in New Jersey, which will dramatically reduce storage and logistic costs,” he said.