GK pays down repos, diverts cash to investments
Published:Wednesday | November 13, 2013 | 12:00 AM
Avia Collinder, Business Reporter
GraceKennedy Limited's cash holdings have been falling over the past year and are currently at half their 2012 levels - funds that group CEO Don Wehby says were mostly used to pay down repo liabilities.
The conglomerate now holds more than J$5 billion in cash, down from J$10 billion.
"This resulted from movement of cash into longer-dated investments and a reduction in securities sold under repurchase agreements," said Wehby.
GraceKennedy is a diversified conglomerate whose main operations straddle the financial and food sectors.
Financial houses have been reducing their repo portfolios in line with a regulatory push for securities dealers to reduce balance sheet risk. GraceKennedy operates in the securities market through subsidiary FGFS.
The group's exposure to repos has fallen by more than J$4 billion in a year to J$23.6 billion at the close of the September third quarter. The adjustments have reduced repos to 33 per cent of group liabilities from 38 per cent a year ago.
Wehby said the 'longer-dated' investments referred to instruments extending beyond 90-day maturity.
"While the majority of our cash was used to pay down repurchase agreements, we did purchase some corporate bonds over the period," he told Wednesday Business.
GK subsidiary FGFS last week disclosed that it had structured financing for group entities.
Asked whether it meant that the group would favour debt for the financing of its plans and programmes over cash, Wehby signalled that it was a consideration.
"While our cash position is strong, our debt-to-equity ratio remains low and allows good scope for us to raise debt in order to finance future growth opportunities," he said.
GraceKennedy's revised strategy comes in the wake of losses from the Government of Jamaica's debt swaps in February and March.
He said in its third-quarter earnings report that it wrote off J$290 million as a result of the debt exchange, NDX, which swapped out GOJ bonds with lower coupons and longer maturities.
GK group profit for the quarter dipped to J$695 million, from J$729 million the previous year, but the year-to-date results were more sturdy.
The conglomerate delivered J$2.28 billion of profit for the nine-month period, up from J$2 billion, on the back of a J$3.7-billion improvement in turnover.
Revenues were just shy of J$50 billion, up from J$46 billion.
Wehby said the group's performance was driven by added markets in Europe and sales in Africa.
Here in Jamaica, retailer Hardware & Lumber Limited delivered a seven per cent improvement in sales to J$5 billion, and 381 per cent growth in profit from J$45 million to J$218 million.
"Our household, hardware and building segments, as well as our agricultural products and equipment segments, all saw increases in revenue," said Wehby of the retail segment.
POSITIVE RECEPTION
The re-imaging of H&L True Value stores - in Mandeville, Montego Bay, and at Lane Plaza, Sovereign Centre and Manor Park in Kingston - "have all been positively received by our customers, resulting in increased traffic in store," he said.
Most of GK's nine-month revenue, 66 per cent, came from food sales, but the segment contributed 26 per cent to pretax profit.
The majority of profit resides in money. From J$4 billion of sales, money services delivered $1.35 billion, or 40 per cent, of pretax profit.
Turnover in the food segment amounted to J$33 billion.
"While the food segment grew by 9.2 per cent in revenue overall, we experienced double-digit growth outside of Jamaica. Our UK business continues to do exceptionally large multiples and expanded to European markets such as Holland, Germany, France and Romania," said the GraceKennedy CEO.
"The execution of these initiatives has gone extremely well."
GK's leading products in Africa are canned fish, and beverages Mighty Malt, Ginger Beer and Tropical Rhythms.
In the United States, GK's products are channelled through large chains such as Wal-Mart, Publix and Shop Rite.
"Growth in coconut water has been exceptional," Wehby said.