Nov 2006 Financial News

GraceKennedy Releases Nine Months Results

Nov 16, 2006

All figures are quoted in Jamaican Dollars unless otherwise stated

For the Nine Months ended September 30, 2006, GraceKennedy Limited (GK) reported Earnings Per Share (EPS) of $3.97, a fall of $0.34 or 7.89 per cent on the corresponding period in 2005. Q3 2006 on Q3 2005, the EPS fell $0.16 or 11.43 per cent to $1.24.

Revenue for the period amounted to $26.44 billion and represented an increase of $1.59 billion or 6.39 per cent on the comparable period in 2005. However, the Company’s Expenses were just as high and stood at $25.15 billion after increasing by 7.72 per cent or $1.8 billion. As a result, Nine Months on Nine Months, the Operating Income fell by 14.27 per cent or $214.56 million to $1.29 billion. For the three months ended September 30, 2006, this figure stood at $385 million, down by 24.69 per cent on the corresponding period in 2005.

Other Income totaled $572.62 million for the Nine Months, up 22.33 per cent or $104.54 million on the Nine Months ended September 30, 2005. While the figure for the three months was up $47.64 million or 33.48 per cent to $189.92 million. Unfortunately, this was not enough to offset the higher expenses, as a consequence the Profit from Operations fell by 5.58 per cent to $1.86 billion.

Finance Income for the period under review was $320.39 million, down 8.37 per cent on the same period in 2005, while Finance Expenses totaled $335.03, up by 27.22 per cent. Share of results from Associated Companies was also down, falling by a significant 62.27 per cent or $32.02 million to $19.41 million.

Profit Before Taxation ended the period at $1.87 billion compared to $2.11 billion in the corresponding Nine Months in 2005. The Effective Tax Rate for the period under review was 28.5 per cent, while the Rate stood at 29.97 per cent for the period ended September 30, 2005. Thus, Profit After Taxation amounted to $1.33 billion a drop of 9.67 per cent on the figure for the corresponding period in 2005.

In the Chairman’s Statement, he highlighted the fact that the Food Trading Division performed below expectations due mainly to the soft market place which resulted in low consumer demand and consequent pressure on margins. The Information Services Division also saw a reduction in profits when compared to the same period last year. However, this was due to a provision of $185 million for outstanding receivables, in respect of which collection efforts are continuing. While the Financial Services Division saw mixed results for the quarter, due primarily to the challenging macro-economic environment, which resulted in slow growth of the overall banking and investment industry. The Retail & Trading Division was the only division with improved results and the Chairman expects this to continue into the future.

The Group is currently in the process of restructuring and effective December 1, 2006 the new structure will comprise of two entities: GK Foods and GK Investments, instead of the four current divisions. The restructuring will give greater autonomy to the two new divisions and their related subsidiaries and it is expected that this will enable them to compete more effectively in their respective industries. The Group is also reducing the size of its corporate offices as part of its bid to lower the high costs associated with running the organization. The Chairman is confident that these changes will allow the Group to be more vibrant and profitable and expects significant savings during 2007 in the Group’s overhead costs.

The shares of GK are trading at a price of TT$5.75 on the local market. In light of the current results and the anticipated costs associated with the restructuring of the Group we have revised our Forecasted EPS down to TT$0.53. At the current price and our revised Forecasted EPS, this share is trading at a multiple of 10.85 times. The shares of GK usually trade in the band of 8 to 13 times. Given these fundamentals we currently recommend a HOLD on this share.


Gia Singh
WISE Research Team

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