Mar 2016 Financial News

GraceKennedy Finalising Arizona Manufacturing Deal

Mar 09, 2016

GraceKennedy is finalising a deal that will see the conglomerate producing Arizona beverages for the Caribbean.

Don Wehby said it is too early to say how sizeable the business being negotiated is, but the group CEO added that the arrangement is "not necessarily for the English-speaking Caribbean", while speaking at an investors briefing on Monday.

The maker of the Grace brand of food products already has an arrangement with the iced tea maker in the north-east of the United States, where Arizona distributes Tropical Rhythms and coconut water on behalf of the Jamaican company.

But the push into the North American market had a major setback last year.

The acquisition of La Fe Foods in July 2014 tacked on an US$80 million business to GraceKennedy's US operations, which was already generating just shy of US$50 million in revenue a year. But the conglomerate reported $15 billion (US$128 million) in revenue from its US business in 2015, despite pronouncements that sales in that market should have climbed by some 20 per cent.

"There were logistics challenges in delivering products to the final consumer as we tried to integrate the brands," said Wehby. "A lot was happening in terms of the logistics, and the service level was not yet where we wanted it to be."

"The La Fe brand is now outperforming expectations in the north-east, Florida, and we opened operations in Atlanta."

It also doesn't appear that the recently acquired operations, which contributed net loss of $177 million to the Jamaican conglomerate's bottom line in 2014, hit break even as was targeted for last year.

GraceKennedy's food division saw its pre-tax profit fall from $875 million in 2014 to $585 million in 2015.

AFRICAN MARKET

Africa did not fare so well as a market either. Revenue from the continent, where the Jamaican conglomerate currently has operations in Ghana so far, declined by near half to $96 million last year, without accounting for exchange rate movements.

"Grace Malta, which is the leading GraceKennedy product imported out of the United Kingdom into Ghana, had some challenges," said Wehby. "Government imposed

17.5 per cent tax on (the drink). Since then, we have been more aggressive in terms of cost from our supplier."

He added that the company was also looking at producing Malta in the African country as a means of becoming more competitive again.

Still, with Africa representing just 0.1 per cent of revenue - North America now contributes 25 per cent of all sales, and Europe 17.9 per cent - it is going to be a challenge for Wehby's company to achieve its global consumer group goal within five years. The conglomerate will need to see 15 per cent or more of its revenue from each of those three regions by 2020 to achieve the target set out for the group.

"There is a possibility we could look at acquisitions," Wehby said. "We could also acquire a brand."

Any acquisition would have to pass due diligence and other stress tests, he added.

On the other hand, purchases like La Fe aside, depreciation of the Jamaican dollar has helped accelerate GraceKennedy's revenue growth outside of Jamaica. For example, over the past five years, currency depreciation was responsible for a third of sales growth in Canada; 57 per cent of the growth in the UK; and 76 per cent of the growth in the Caribbean.

Canada and the Caribbean now contribute six and 6.6 per cent of GraceKennedy's revenue, respectively.

 

Source:
camilo.thame@gleanerjm.com
Camilo Thame
Jamaica Gleaner
Wednesday March 9, 2016

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