JGB’s Haitian operations record robust growth

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Jamaica Broilers Group Ltd (JBG) is principally active in the poultry and allied agricultural businesses.

In the first quarter of fiscal 2017, it sold its ethanol plant (for a combination of cash and a seller’s loan) and focussed its efforts on increasing the profitability of its Haitian and Jamaican operations.

Also, in the USA, its 2016 acquisition of Welp Hatchery, which was renamed International Poultry Breeders, Iowa, enhanced its revenues in that market.

Let us now review JBG’s results to April 29, 2017.

Movements in financial position

Total assets advanced by 12.7 per cent to close at J$27.47 billion from J$24.38 billion.

Long-term assets closed at J$10.94 billion from J$11.93 billion. Within this category, property, plant and equipment contracted to J$7.06 billion from J$10.5 billion. The largest contraction was recorded under plant, machinery and equipment, which fell to J$3.46 billion from J$6.69 billion; this reduction mainly reflected the sale of the ethanol plant.

A new item, loans receivable of J$2.05 billion, represents the long-term portion of a loan which is repayable in June 2023; the current portion is J$501 million, which included interest receivable of almost J$159 million. As part of the sale agreement for the ethanol facility, this loan was granted at 8 per cent interest and annual principal repayments are set at US$2.643 million.

Post-employment benefits assets climbed to J$691.1 million from J$180.1 million. This represents the excess of the fair value of the pension plan’s assets of J$4.27 billion over the present value of its obligations of J$3.58 billion. The plan owns shares in the company’s stock valued at J$204 million.

Current assets rose to J$16.52 billion from J$12.45 billion. Within this grouping, inventory of J$5.16 billion was the largest component. At the gross level, spares and inventories for resale increased to J$3.1 billion from J$2.5 billion. In contrast, grain and feed ingredients declined to J$1.2 billion from J$1.5 billion.

Biological assets expanded to J$4.46 billion from J$2.95 billion. The entire increase was shown under poultry, which climbed to J$4.4 billion from J$2.9 billion. The cattle component was little changed at J$39 million.

Receivables advanced to J$3.57 billion from J$3.28 billion. Net trade receivables closed at J$2.44 billion from J$2.37 billion. However, prepayments climbed to J$453 million from J$322 million while sums due from contract farmers slipped to J$272 million from J$287 million.

The group’s holdings in investment funds are classified as financial assets at fair value through profit or loss; this value improved to J$761 million from J$701 million.

Cash and short-term investments expanded to J$2.0 billion from J$1.2 billion.

The largest component, cash at bank and in hand, climbed to J$1.67 billion from J$0.79 billion. Among other variables, in 2016, the acquisition of the Welp Hatchery consumed J$982.8 million.

In contrast, in 2017, the cash proceeds from the sale of the ethanol plant and ERI Services (St Lucia) contributed J$461.9 million to its coffers.

Total liabilities increased to J$13.05 billion from J$11.28 billion or by 15.7 per cent. Total borrowings climbed to J$7.70 billion from J$7.08 billion. Long-term borrowings rose marginally to J$5.2 billion from J$5.1 billion.

Current borrowings grew to J$2.50 billion from J$1.98 billion. Here, the current portion of long-term debt declined to J$554.1 million from J$632.2 million. In contrast, bank overdrafts and other short-term borrowings increased to J$1.9 billion from J$1.3 billion.

Current payables soared to J$4.41 billion from J$3.21 billion. Trade payables climbed to J$3.2 billion from J$2.0 billion. In addition, accrued charges increased to J$759 million from J$550 million. In contrast, “other” payables declined to J$281.6 million from J$410 million.

Current taxes payable fell to J$179.3 million from J$482.2 million. On the other hand, deferred income taxes increased to J$729.8 million from J$485.3 million. Contributing to the latter was the increase in the re-measurement of the retirement benefit assets.

Equity gains

Total equity improved to J$14.42 billion from J$13.10 billion. Excluding non-controlling interests of J$22.8 million, shareholders’ equity closed at J$14.44 billion from J$13.16 billion.

Retained earnings increased to J$12.5 billion from J$10.33 billion. The opening balance benefitted from the current year’s profit of J$2.23 billion along with the J$360 million of comprehensive income, which related to the re-measurement of retirement benefit assets.

The major reduction was J$420 million in dividends to stockholders. Reserves fell to J$1.17 billion from J$2.06 billion. The principal reduction of J$835 million reflected the exchange differences on translating foreign operations along with J$56 million in realised reserves.

Share capital was unmoved at J$765.1 million and the weighted average number of shares in issue was stable at 1,199,277,000; consequently, the book value of each share improved to J$12.04 from April 2016’s J$10.93.

Income, profit

Revenues improved by 15.4 per cent to J$44.44 billion from J$38.52 billion.

Meanwhile, cost of sales increased by 15.8 per cent to J$32.6 billion from J$28.2 billion. These changes resulted in gross profit rising by 14.3 per cent to J$11.85 billion from J$10.37 billion.

Contributing to the higher cost of sales was the increase in the value of inventories recognised as expense, which climbed to J$23.9 billion from J$20.9 billion, or by 14.2 per cent.

In addition, fuel costs soared by 17.8 per cent to J$567 million from J$481.4 million.

Both distribution costs and administration and other expenses increased; the former rose to J$1.58 billion from J$1.21 billion while the latter registered at J$7.37 billion from J$6.13 billion.

Influencing these increases were higher staff costs, which advanced by 20.8 per cent, moving from J$6.96 billion to J$8.42 billion. Meanwhile, other expenses climbed by 31.7 per cent to J$2.95 billion from J$2.24 billion while outlays for trucking ended at J$1.27 billion from J$1.12 billion.

These changes saw operating profit slip to J$3.23 billion from J$3.30 billion.

Finance income climbed to J$379.4 million from J$159 million. Following the granting of a loan for the sale of assets, the major contributor was interest income, which moved from zero to J$165.3 million. In addition, foreign exchange gains improved to J$214 million from J$159 million.

Finance costs fell to J$647.2 million from J$693.8 million. Helping this result was lower foreign exchange losses, which contracted to J$20 million from J$97 million. However, in line with larger debt, interest expenses rose to J$610.3 million from J$545.6 million. Other expenses and amortisation of debt financing fees declined to J$17 million from J$51 million.

These variations resulted in pre-tax profit improving to J$2.97 billion from 2016’s J$2.77 billion.

The effective tax rate declined to 23.6 per cent from 24.3 per cent; even so, the tax cost increased to J$701 million from J$672 million. This result translated to EPS of J$1.86 compared with the previous year’s J$1.45.

EPS from continuing operations improved from J$1.76 to J$1.85 while EPS from discontinued operations registered at J$0.01 compared with a loss of J$0.31 in 2016.

Country results

Revenues from its Jamaican operations increased by 12.5 per cent, however, profit contribution declined by almost 20 per cent. This adverse movement was influenced by several factors.

The oversupply of protein products in the market helped suppress margins at its Best Dressed Chicken division, which operates in both Jamaica and the Cayman Islands. The Hamilton’s Smokehouse segment also experienced sales growth.

Over the period January to August 2017, additional investments were made in Best Dressed Feed Mill so as to enable it to respond to increased consumer demand.

Following the end of a two-year drought, Hi-Pro Farm Supplies benefitted from higher sales of fertiliser, chemicals and equipment.

The USA operations registered 23 per cent revenue expansion accompanied by a 26 per cent improvement in gross profit. This result was helped by the acquisition in 2016 of Welp Hatchery.

Although Avian Influenza is a major threat to the US poultry industry, its USA operations remain free from that danger.

At the Haitian operations, revenues grew by 23.5 per cent while profit exploded by 271.5 per cent. This result was driven by increased production and sales of eggs; higher production contributes to greater efficiencies through the feed mill, hatchery and general overheads. Increased egg production will continue into the current fiscal period.

Q1 results to July 2017

Revenues for the first quarter grew by 14.7 per cent, moving from J$10 billion to J$11.5 billion. On the other hand, net profits attributable to shareholders declined to J$197.7 million from J$400 million.

Consequently, EPS contracted to J$0.165 from J$0.33.

All country segments recorded top-line growth. At the Jamaican operations, several one-off factors restrained profit growth; the rebalancing of poultry inventory and third-party storage issues contributed to higher distribution costs. In addition, production volumes were lower.

At Haiti Broilers SA, higher production and sale of table eggs saw revenues expand by 47 per cent while profit swelled by 61 per cent to J$121 million. That company now commands 30 per cent of the local market compared with 22 per cent previously.

The US operations’ main products are fertile eggs and baby chicks. Here, revenues grew by 27 per cent while gross profit improved by seven per cent.

Share price and dividends

JBG’s share price closed at J$14.36 on April 29, 2016. It subsequently fell to a low of J$14.03 on October 28, 2016, from which level it recovered and then ended at J$16.97 on April 28, 2017. That movement reflected a one-year appreciation of 18.2 per cent. The price then spiked to J$19.99 on May 17, 2017, but traded at J$16.50 on September 20, 2017.

Dividends to shareholders improved from J$0.26 for fiscal 2016 to J$0.35 for fiscal 2017. At the recent price of J$16.50, the yield is 2.1 per cent. That price also reflects a P/E multiple of 8.87 and a price to book value of 1.37.

By: Felix Pereira | September 28, 2017

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