May 2007 Financial News

GKC Releases First Quarter Results

May 16, 2007

Results for the First Quarter Ended March 31, 2007
All figures are quoted in Jamaica Dollars unless otherwise stated

For the First Quarter Ended March 31, 2007, Grace Kennedy Limited (GKC) reported Earnings Per Share (EPS) of $1.81. This represented an increase of $0.37 or 25.69 per cent on the comparable quarter of 2006 and an 11.04 per cent increase or $0.18 on the previous quarter (Q406).

The Group reported Revenues of $10.569 billion for Q107, up 20.42 per cent or $1.792 billion compared to the corresponding period in fiscal 2006. The two new business entities created from the reorganized corporate structure in December 2006, namely GK Foods and GK Investments, both showed positive results for the first quarter of 2007.

According to the Directors, while all companies in GK Foods generated positive results, the domestic companies performed particularly well, with the sale of new products representing 14 per cent of total sales. Additionally, in the GK Investments division, Hardware & Lumber Ltd. showed healthy sales, up a considerable 26 per cent from $1.269 million in Q106 to $1.599 million in Q107.

Expenses also saw an increase, up 19.40 per cent or $1.603 billion to $9.863 billion. Thus, Operating Income increased $189.733 million or 36.78 per cent, from $515.859 million reported in Q106. Comparing Q107 to the preceding quarter (Q406), Operating Income saw an even larger increase, up 56.61 per cent or $255.049 million, moving from $450.543 million to $705.592 million.

For the quarter under review, Other Income fell 9.73 per cent or $14.510 million to $134.553 million on the comparable quarter in FY2006. Profit from Operations stood at $840.145 million and was up a significant 26.35 per cent on the previous year’s figure of $664.922 million.

Interest Income was up by 12.90 per cent or $11.802 million to end the three month period at $103.317 million. Interest Expense also saw an outstanding increase of 51.65 per cent or $53.493 million on the prior year’s total of $103.563 million. Also seeing a substantial increase was Share of Results of Associated Companies, which ended the quarter at $57.386 million, up 50.45 per cent or $19.242 million on Q106.

Profit Before Taxation was $843.792 million, an increase of $152.774 million or 22.11 per cent on the corresponding quarter in 2006. The Effective Tax Rate for the period was 30 per cent which was the same Tax Rate for FY2006. Thus, Profit After Taxation amounted to $590.654 million, up 22.11 per cent or $106.942 million on the previous financial year.

In keeping with the Group’s strategy to grow internationally, GKC acquired a leading U.K. ethnic and specialty food supplier, WT (Holdings) Limited (“WT Foods”) on February 28, 2007 thereby further expanding their GK Foods division. In the GK Investments division, First Global Bank Limited will be opening its fourth branch by the end of the second quarter. Furthermore, the GKRS Group showed a turnaround for the period under review, with Profit Before Tax exceeding the prior year by 43 per cent. This was after the GKRS Group had provisions amounting to $461 million arising from doubtful receivables, of which $281 million was booked in Q406. Also, on April 24, 2007 GKC acquired a 30 per cent stake in Trident Insurance Company Limited, a general insurance company located in Barbados.

The Board of Directors has approved an interim dividend of 45 cents per share to be paid on May 28, 2007.

GKC is currently trading at a price of TT$5.60. Given the Group’s positive results and our forecasted EPS of TT$0.60 for FY2007, this share is trading at a price to earnings multiple of 9.33 times. Additionally, using a multiple of 12 times and the forecasted EPS of TT$0.60, this share has an expected return of approximately 29 per cent on the current price or a target price of TT$7.20. Thus, we continue to recommend a BUY on this share.

Nancy Chen
WISE Equity Research Team