Tuesday 12 November, 2019

Sliding dollar leads to planning challenges for GraceKennedy

Wehby expressed his frustration to shareholders during the company’s annual general meeting on Wednesday. Photo via Don Wehby's, Twitter page.

Wehby expressed his frustration to shareholders during the company’s annual general meeting on Wednesday. Photo via Don Wehby's, Twitter page.

GraceKennedy Group CEO Don Wehby has expressed disappointment in the ongoing devaluation in the US dollar, citing that the volatility increasingly makes it difficult for the company to plan for the future.  

Wehby, who expressed his frustration to shareholders during the company’s annual general meeting on Wednesday, backed his statement with the group’s bottom line performance for the first quarter ending March 2019 which plummeted 25 per cent or $297.3 million when compared to the company’s performance for the same period of 2018 despite a $25 billion improvement in revenue. 

“GraceKennedy is in a unique situation. I don’t mean to get in this debate that Howard Mitchell and the Minister of Finance is having but for the first quarter of 2019, the Jamaican dollar devalued, for the month of April alone the dollar devalued by 5.6 per cent. 

“When you have those large swings in terms of the rate of exchange, it becomes increasingly difficult to plan, whether you are in financial services or in food,” Wehby reasoned. 

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The exchange rate for the year 2019 averaged $131.62 to US$1 for the month of January and later climbed to $133.82 in February before levelling off at $126.12 for March after the Bank of Jamaica intervened in the market three times in efforts to curb the effects of daily volatility in the foreign exchange market.

For the month of April, the US dollar appreciated against the Jamaican currency at $131.94 to US$1. 

“We are in a very strong position at GraceKennedy. Why? We have net earnings in foreign exchange, we sell approximately $2 billion in foreign exchange on an annual basis and we have foreign assets. So the bankers and the investors will tell you that GK has a natural hedge against devaluation, which is true.”

“My point is that the large swings in a short space of time are not good in my opinion for business in planning the future and it did impact in the first quarter,” Wehby said. 

Notwithstanding the negative effect on the group’s overall performance, Wehby noted that the conglomerate will continue to maintain levels of improved operating performance, and expect to meet its target of $100 billion in revenue. 

Over the three month period, shareholders’ equity in GraceKennedy increased by $1.1 billion to $45.7 billion, which resulted in a book value per share of $46.06 for the first quarter of 2019. The company declared an interim dividend of $0.40 per stock unit, payable to shareholders on June 14. 

In terms of segment performance, the Food Trading Division recorded improved revenue but declined in profitability when compared to the corresponding period of 2018. 

The group’s Jamaican foods business experienced growth in most of its key products, with Hi-Lo Foods Stores continuing to experience recovery in sales and customer count. GK’s recent investment in Catherine’s Peak Bottling Company Limited also contributed positively to the profitability of the division, while Consumer Brands Limited (CBL) continued to perform well.

Internationally, there was increased revenue for GraceKennedy Foods (USA) LLC, stemming from a 6 per cent growth in both the Grace Brand and the Third Party brand portfolios. Of particular note is the performance of Grace Patties, which exceeded first quarter 2018 performance by over 200 per cent.
 

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