Home' Trinidad and Tobago Guardian : March 23rd 2017 Contents MARCH 23 • 2017 guardian.co.tt BUSINESS GUARDIAN
STOCKS | BG15
Buoyed by the continued im-
provements in the Jamaican
economy and its relentless
focus on its food and money
services businesses, GraceK-
ennedy Ltd (GKC) delivered a
strong performance in 2016, albeit helped by
some one-off restructuring transactions in the
early part of its fiscal period.
Let us now review GKC's performance for the
year ended December 2016.
Changes in financial position
Total assets grew by 16.4 per cent to J$126.5
billion (about US$985 million) from J$108.7
The loans portfolio expanded by 14.7 per
cent to J$25.9 billion from J$22.6 billion. Of
this total, J$19.97 billion or 77 per cent of
the total loans outstanding extend beyond
one year. Among its largest gross exposures,
which include trade and premium receivables,
are personal (J$8.7 billion), professional and
similar services (J$4.6 billion) and distribution
(J$4.1 billion) sectors.
Receivables increased to J$13.7 billion from
J$11.6 billion. The largest components were
net trade receivables of J$8.75 billion (2015:
J$7.2 billion) and net insurance receivables of
J$1.81 billion (2015: J$1.33 billion).
Inventories rose from J$10 billion to J$11.5
billion. Here, the most prominent increase
was shown under goods-in-transit, which
advanced to J$2.2 billion from J$1.4 billion.
Investment securities climbed by 19.6 per
cent to J$39.3 billion from J$32.9 billion. Of
this total, J$15.4 billion is described as pledged
assets (2015: J$11.1 billion).
The two largest components were Govern-
ment of Jamaica securities and Bank of Jamaica
securities; the former advanced to J$17.9 billion
from J$14.3 billion, while the latter increased to
J$10.6 billion from J$7.6 billion. Included in the
latter's current balance is J$4.1 billion, which
represents a required banking reserve that is
not available for any investment purpose.
Fixed assets rose to J$10.1 billion from J$8.5
billion. The largest net increase was shown un-
der plant, equipment, fixtures and vehicles,
which advanced by J$671.4 million to J$2.82
In addition, freehold land and buildings,
which benefitted from a revaluation adjust-
ment, closed at J$5.84 billion from J$5.27
Investment in associates advanced to J$1.74
billion from J$1.49 billion; this reflected the
greater profitability of its two main associates,
Dairy Industries (Jamaica) Ltd (DIJL) and CSGK
Finance Holdings Ltd.
Pension plan assets increased to J$6.14 bil-
lion from J$5.36 billion. This represented the
excess of the plan's assets over the present val-
ue of its future obligations. The plan benefitted
from its greater exposure to equities (34 per
cent versus 23 per cent) while its allocation
to government securities fell to 36 per cent
from 45 per cent.
Cash and deposits rose to J$12.3 billion from
J$9.9 billion. The cash component advanced
to J$9.7 billion from J$8.3 billion while the
deposit element closed at J$2.6 billion from
J$1.6 billion. The main contributor to this im-
provement was the increased cash generated
from its operating activities.
Total liabilities rose by 19.6 per cent to J$82.9
billion from J$69.3 billion.
Customers' deposits climbed by 26.4 per
cent from J$24.3 billion to J$30.7 billion. Of
this total, almost 83 per cent (J$25.3 billion)
matures in less than three months.
Bank and other loans declined to J$13.2 bil-
lion from J$13.9 billion. The bank overdraft
component fell to J$1.97 billion from J$2.83
billion. However, bank loans rose from J$7.1
billion to J$8.44 billion, a large portion of which
matures within 12 months. No details of any
loans were given.
Payables rose from J$17.2 billion to J$20.3
billion. Trade payables rose to J$8.4 billion
from J$7 billion while accruals advanced to
J$3.6 billion from J$2.9 billion and outstanding
claims closed at J$3 billion from J$2.6 billion.
Other post-employment obligations in-
creased to J$4.41 billion from J$3.85 billion. The
combined insured group health and self-in-
sured health plans increased to J$2.5 billion
from J$2.1 billion.
Total equity advanced from J$39.4 billion
to J$43.5 billion. Excluding minority interests
of J$1.5 billion, shareholders' equity ended at
J$42.1 billion from J$38.1 billion.
Retained earnings rose to J$29.33 billion from
J$25.97 billion. The brought forward figure
was increased by the current period's profit
of J$4 billion and by J$660 million in other
comprehensive income. Thereafter, dividends
to shareholders consumed J$1.01 billion and
net transfers to other accounts of J$293 million
reduced the closing balance.
Although the number of issued shares in-
creased by 459,000, price differences helped
reduce the share capital to J$534.2 million from
Capital and fair value reserves rose to J$5.81
billion from J$5.13 billion. This improvement
was mainly helped by other comprehensive
income of J$769.8 million, later reduced by
a J$125 million transfer to retained earnings.
Having 992,379,000 shares outstanding,
each share had a book value of J$42.39 ver-
Revenues and profit
Total revenues rose by 10.7 per cent to J$88.3
billion (about US$688 million) from J$79.7
The bulk of this, J$68.8 billion or almost 78
per cent of the total, was generated from the
sale of products. The sale of services account-
ed for J$7.8 billion while the sale of financial
services contributed J$7.5 billion. Interest on
investments and loans totalled J$4.1 billion and
made up the remainder. All categories regis-
tered improvements over the previous year.
Expenses increased by slightly more than 10
per cent to J$84.7 billion from J$76.9 billion.
The largest component, inventory, rose to
J$47.6 billion from J$43.4 billion while staff
costs advanced by 8.1 per cent to J$13.5 billion
from J$12.5 billion. Interest and other financial
services expenses climbed by 13.8 per cent to
almost J$5 billion from J$4.4 billion.
These changes resulted in a gross profit of
J$3.58 billion, which was 28.3 per cent greater
than the J$2.79 billion earned in 2015.
Other income climbed by 51.7 per cent to
J$2.38 billion from J$1.57 billion. The most
prominent component was gain on the dispos-
al of investments, which contributed J$610.6
million and was recorded in the first quarter. In
addition, net foreign exchange gains registered
at J$785.4 million.
These contributions helped profit from op-
erations to close at J$5.97 billion from 2015's
The net interest expense from non-financial
services registered at J$304.6 million, which
was an improvement from 2015's J$376.6 mil-
lion. In addition, the share of results from its
associates rose to J$441.2 million from J$316.2
These movements saw pre-tax profit close
at J$6.1 billion from J$4.3 billion.
Helped by higher income not subject to tax
and lower income not deductible for tax pur-
poses, the effective tax rate fell to 25.7 per cent
from 29.5 per cent. The current year's charge
was J$1.57 billion (2015: J$1.27 billion).
The after-tax profit closed at J$4.53 billion
versus J$3.25 billion; in the latter's case, the
result was helped by the inclusion of J$221.5
million from its discontinued operations
(mainly, the sale of Hardware & Lumber Ltd)
After allowing for minority interests, the
profit attributable to shareholders registered
at J$4.0 billion versus J$2.76 billion. These re-
sults reflect diluted EPS of J$4.03 compared
with J$2.78 for 2015.
Although accounting for less than nine per
cent of revenues, the money services division
contributed 50.3 per cent to GKC's pre-tax
profit. This division enjoys the largest mar-
ket share in the English- speaking Caribbean
and opened its eleventh market in the Turks
& Caicos Islands.
After receiving approval in December 2016,
it launched its GK MPAY service in February
2017. This service allows customers to use
their mobile phone to make payments and
The food trading segment continues to ex-
pand its presence in both the UK and North
American markets with new offerings and al-
liances, eg with Walmart store. Locally, Hi-Lo
stores continues with its branch expansion and
the refurbishment of existing outlets.
Although banking and investments revenues
were higher, pre-tax profit declined. This fall
was attributed to higher provisions for loan
losses along with additional expenditures on
network and technology improvements.
Under the insurance sector, Allied Insur-
ance Brokers Ltd's boosted this sector's profit
growth. Its St Lucian based underwriter, EC
Global Insurance Company Ltd, obtained
approval to operate in Grenada, Antigua and
Barbuda and St Vincent and The Grenadines.
The large improvement in profit under the
consolidation column reflects net positive
finance income of more than J$200 million
along with J$299 million in unallocated in-
come, which includes most of the profit from
its discontinued operations.
Currently, Jamaica accounts for 51.4 per
cent of its revenues (J$45.3 billion) while
North American markets (USA and Canada)
represent 25.2 per cent or J$22.2 billion and
UK and European markets J$14.06 billion or
15.9 per cent.
This leaves the Caribbean and other mar-
kets, including Africa, with J$6.65 billion in
revenues (7.5 per cent). It is likely that in 2017
the Jamaican market will fall below the 50 per
cent level, which is one of the group's targets.
Share price and dividends
GKC's share price ended 2015 at J$81.25. An-
ticipation concerning the share split drove its
price up to a high of J$124.99 on June 17, 2016.
After the 3-for-1 stock split became effective,
the price adjusted down to J$43.67 on August
9, 2016. It continued to drift lower and closed
2016 at J$40.29. In 2017, the share has mostly
traded in a narrow range between J$39.00 and
For calendar 2016, after adjusting for the
stock split, dividends totalled J$1.02 per share
compared with an adjusted J$0.83 for calendar
2015. At a recent price of J$41.00, the yield is
2.49 per cent. That price also reflects a P/E
multiple of 10.2 and a price to book value of
On the TTSE, the recent price of TT$2.66
is equivalent to J$50.54. That price probably
reflects local investors' willingness to pay a
twenty per cent plus premium for the US dol-
lar dividend. Does that suggest that the "true
value" of the TT dollar is about TT$8.10 to
US$1.00? ($6.75 x 1.20)
GKC will pay its first interim dividend of
J$0.30 on May 18, 2017.
In the next article, we will review Jamaica Stock
Exchange Ltd 2016 results.
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