Jun 2016 Financial News

GraceKennedy makes contingency plans for Brexit

Jun 29, 2016

The GraceKennedy Group of companies, which in the last decade has been pursuing a strategy of securing increased revenues from three continents —Europe, Africa and North America — is bracing for any fallout which the coming exit of the United Kingdom from the European Union might have on the company.

On Thursday June 23, Britons voted to leave the union, causing a sell-off of the pound sterling with its value plunging more than 10 per cent versus the US dollar, and major loss of share value for many firms on the global Exchanges.

The response by GK includes broad-based contingency planning, said group CEO Don Wehby on Monday, noting that the company already has currency contracts in place which are providing a hedge.

The GraceKennedy group, although based in Jamaica, has far-flung operations globally, with management committed to earning 15 per cent returns each from North America, Europe and Africa under a global consumer group strategy.

Up to year end 2015, Jamaica accounted for around 60 per cent of group revenue, with half of group profit of $3.25 billion issuing from external markets.

The greatest increase in revenue came from the US, up by a half-year over year, or $5.43 billion, followed by Jamaica, up 7.2 per cent, or $2.7 billion.

The group earned $40.2 billion in 2015 from Jamaica, $14.98 billion from the US, $13.05 billion from the UK, $4.76 billion from Canada, $1.23 billion from other European countries, and around $210 million from other nations.

While profit shrank somewhat in 2015 ($3.25 billion in net profit – 14 per cent less than 2014) the year’s first quarter – ending March – saw profit from continuing operations increasing by $958.1 million or 150.4 per cent compared with the corresponding period of 2015, moving from $637.1 million to $1.6 billion.

Wehby told the Jamaica Observer on Monday ,“Brexit will cause uncertainty in both the UK and EU market in the immediate future, both around exchange rates and future trading arrangements. However, GraceKennedy is fully committed to the three-continent strategy.”

He said the management team in the UK had already been monitoring the possibility of Brexit and have strategies in place to address what the post-Brexit environment might be.

“At present, the situation is unclear as to when, and even if, the UK will invoke Article 50 to leave the EU. The management team is having a retreat next week to do a number of “what if scenarios” on the way forward. It is fair to say that it is early days and we are being proactive in strategising the way forward,” Wehby stated.

On the European continent, the group has seen revenue growth of 20 per cent over the last two years, the CEO noted.

“GK now sells into every European country, even as far as Russia. We have also gained significant distribution in the large wholesalers and supermarket chains in the key markets of Germany, Holland and France.”

Key products on the continent are Grace Coconut Water, Grace Aloe Water, and Encona sauces (made with Jamaican pepper mash).

GK products, since the start of 2016, are now in Albert Heijn, which Wehby describes as one of the largest retailers in Holland, noting, “We are currently in 275 stores of that chain. We also made a breakthrough in Germany with listings in Metro Stores and Tedi where we are in 300 Metro Stores and 400 Tedi stores.”

Wehby said that under Brexit conditions, “While the currency depreciation will be a challenge for the management team, this has been ongoing for a number of months and this is monitored on a daily basis and decisions taken accordingly.”

So far, he said, there has been minimal impact on the performance of GK because of this to date. The same, he said, is expected in the coming months.

He disclosed that the company also has forward currency contracts in place to minimise the impact of the devaluation on the performance of GK UK in the coming months.

Share price on the Jamaica Stock Exchange closed at $123.21 or one per cent down on Monday. The stock has appreciated by 51 per cent in the last year.

 

Source:
BY AVIA COLLINDER
collindera@jamaicaobserver.com
Business reporter 
Jamaica Observer
Wednesday June 29, 2016

http://www.jamaicaobserver.com/business/GraceKennedy-makes-contingency-plans-for-Brexit_65396