2013 was a remarkable year for Grace Kennedy despite reporting lower profit after tax compared to 2012. Remarkable indeed, as the 2013 net results speaks volumes about the Group’s profit potential going forward.
The Group’s profit after tax was $3.22 billion, which was slightly lower than the 2012’s $3.48 billion. The results for 2013 suffered from some restructuring cost in the insurance segment, losses picked up from the government debt exchange program and increased taxation due to a number of factors. By comparison, the 2012 prior year enjoyed a much lower tax cost from the lowering of the Jamaican tax rate to 25 percent and utilization of previous year’s tax losses. In 2013, the changes in taxation dragged down a 24 percent increase in profit before tax of $5.08 billion compared to $4.1 billion in 2012, resulting in earnings per share coming out at $9.65 versus $10.41 in 2012. On the upside, in 2013, the Group benefited from a sharp increase in gains in foreign currencies trading and holdings and from changes in pension liabilities at Hardware & Lumber.
Pretax profit was up 32 percent in the final quarter of the year, well off from the 53 percent growth in the second quarter, but well above the 14 percent in the first quarter and the flat profits in the third quarter.
Total revenues gained 11 percent for the year to $69.53 billion. The December quarter grew by 14 percent compared to 4 percent in the first quarter of the year and 11 percent in quarters two and three. Other income grew sharply by 65 percent to $1.7 billion helped by a big jump in foreign exchange gains. Expenses, on the other hand, grew by 9.85 percent to reach $63.9 billion.
Segment performance | Revenue changes varied from segment to segment with money services gaining 14.4 percent to $5.54 billion, food trading 11 percent to hit $44.6 billion, retail and trading 8.3 percent to $6.8 billion, banking only 3.6 percent to reach $5.54 billion and 2.2 percent for insurance to $4.76 billion. Segment profit saw food trading increasing 23 percent to $1.3 billion, banking was flat at $676 million, insurance fell to $109 million from $384 million but money transfer services grew by 20.6 percent to $1.88 billion and retail and trading 98 percent.
The insurance, banking and money services segments launched new products. There was some fallout in the division however, due to the debt exchange, structural changes and a claims review in the insurance segment. These negatively impacted the profitability of the segments.
Regional performance | Jamaica accounts for 64 percent of revenues with a moderate increase in 2013 of 6 percent to $43 billion. The UK enjoyed a 17 percent increase, USA 13 percent, Canada 20 percent, other European countries 57 percent and Africa 91 percent. Changes in currency rates would have played a big role in the growth in the overseas markets.
Grace should go on to earn between $12 to 13 per share in 2014 making the stock extremely cheap.
Grace Kennedy is an IC Insider Buy Rated stock.
Related posts | Grace’s profit up 41% in June quarter | Grace looking up
[…] Grace reports a 21 percent increase in profit for the six months to June, this year, but the net result obscures pressures in many of the divisions within the sprawling group and mainly a reduction in the tax rate to 25 percent from 30 percent last year beefed up the bottom-line. A 15 percent increase in second quarter revenues bettered the 12 percent increase in the first quarter this year, helping to produce pretax profit of $1.3 billion in the second quarter for an increase of 8.6 percent over 2013, down from 12 percent increase, in the first quarter. For the six months, pretax profit amounted to $2.58 billion versus $2.33 billion in 2013. Profit after tax is up 20 percent for the June quarter to $845 million compared with $703 million in 2013, and for the six months, $1.68 billion or 21 percent ahead of 2013. Earnings per share of $5.07 for the half year, seems set to end up around $11 per share for the year, from ongoing earnings. Operating profit| Operating profit margin before other income slipped in the latest quarter to 4.34 percent down from 4.97 percent in 2013, for the year to date its 4.5 percent, the same as in the previous year. The reduced margin in the second quarter may not seem like much but it helped in ensuring that operating profit before other income was only up less than 1 percent compared with the revenue increase of 12 percent. Return on equity is working out at around 11 percent, which is not high by Jamaican standards, and is indicative that management has a lot of work to do, to get it up to more acceptable levels. Revenues| For the second quarter, revenues came in at $19.7 billion, better than the $18.8 billion generated in the first quarter. For the year to date revenues are up to $38.5 billion or 14 percent over that of 2013. The bulk of the revenue increase came from the Food trading division with a 16.2 percent increase and money services of 18.7 percent, with the other divisions enjoying moderate increases at best but with most being flat. Balance sheet| Grace’s balance sheet shrunk, with the sale of the investment arm to Proven Investments, they now boast total assets of $93.5 billion, down from $108.6 billion at December last year. Subsequent to the quarter, Grace announced the acquisition of a new subsidiary in the USA, La Fe Foods with revenues of US$80 million per annum or J$900 million. The company’s stock last traded at $56.50, at around 5 times earnings, providing upside potential when the local stock market gets going, for it to deliver decent gains for patient investors. […]