Road fix, mismatched expenses derail KLE
It was a bad year for KLE Group, some of which the entertainment company blamed on ongoing roadworks along Constant Spring corridor, where its prime money earner is based.
KLE Group also faced administrative costs to get its franchise programme rolling, which sapped some of the company’s cash at a time when revenues were underperforming.
The upshot was that the company ended financial year 2018 with a net loss of $25.6 million, which totally erased the $9.6 million profit made the previous year.
Revenue for the year fell three per cent to $220 million, an outturn that missed the company’s budgeted sales by 15 per cent.
And KLE also found itself with rising payables and is looking to refinance the debt that it racked up on credit.
With 90 per cent of KLE’s revenue coming from the Usain Bolt’s Tracks and Records, restaurant at Market Place, the road improvement project hit hard.
“The fall-off in sales [came] from Market Place, which was directly related to the impeded access from Constant Spring Road,” said KLE Group CEO Gary Matalon.
It also did not help that increases in the National Minimum Wage were implemented last year, KLE said.
Administrative and other expenses climbed from $152 million to $181 million, including larger staff costs linked to the minimum wage increase.
KLE also said it absorbed a $12-million loss from associate company T&R Restaurant Systems Limited, which trades as Franchise Jamaica, which was a significant contributor to its net-loss position.
The franchise operations in Ocho Rios and, for a half-year, in Montego Bay contributed total revenue of $19 million for year ending December 2018. However, most of the expenses associated with finalising the Montego Bay and London franchising arrangements were booked in the year, while the full impact of the revenues won’t be felt until this period.
“Revenue will continue to improve in the 2019 year where all franchises will have one full year of operation. Any new franchises opened in the year would be in addition to what was already established,” Matalon told the Financial Gleaner while predicting better times ahead.
“The outlook for 2019 is that you will have 12 months of revenue from the franchises opened in 2018. The losses are as a result of the timing of expenses versus the revenues that will be ongoing,” he said.
As for its payables, the KLE Group is looking to convert $68.73 million to long-term debt. The liabilities include trade payables of $16.4 million, credit card debt of $14.5 million, unpaid GCT of $13.8 million and statutory payments of $8.8 million.
The payables increased from $48.8 million in 2017. The outstanding GCT then was only $2 million.
Now the unpaid consumption tax will attract interest and penalties to the tune of $12 million, which was not booked “as the company is in discussion with Tax Administration Jamaica regarding a payment arrangement for the outstanding amount and a waiver for interest and penalties,” KLE said in disclosures in its audited financial report.
Matalon says KLE is now seeking a long-term loan to cover its obligations. Asked whether there was any thought of raising equity in the form of a rights issue to cover the debt, Matalon said it was not on the cards right now. But “I wouldn’t rule it out completely,” he added.
Meanwhile, KLE is getting ready to “mobilise and break ground in the coming weeks” for the next phase of the Bessa real estate project in St Mary, on which the company is partnering with Sagicor Group.
As for the current phase: “So far, we have complete some basic infrastructure, completed two 2-bedroom units that have been fully decorated and furnished, built the main swimming pool, boundary wall, front gate and guard house, and some hard and soft landscaping,” Matalon said.
The full project cost of the 88 luxury seaside and riverside villas is put at US$22 million. KLE’s holds a 25 per cent stake in the project, with Sagicor Life holding the remaining 75 per cent. Matalon is estimating completion in July 2020.
KLE Group’s cash contribution to the project amounts to US$350,007, a portion of which it has farmed out to a group of unnamed investors.