Jamaica Broilers Group Limited's base in Content, McCook's Pen, St Catherine (Photo: David Rose)
Repair job
JBG cleans up USA business after $1-billion loss
Jamaica Broilers Group Limited (JBG) shares tumbled 10 per cent on Thursday, wiping out $3.95 billion (US$25.02 million) in market value as investors reacted to the company’s third quarter report which revealed a $1.15-billion consolidated net loss and issues related to expense management and operational controls in its USA setup.
In response, the group revealed at a private briefing to brokers and media on Thursday that it had changed out its entire management team in the USA in a swift move to restore confidence with vendors and stakeholders.
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The third quarter loss came as a surprise to many investors as the company has historically reported profitability in every quarter. However, signs had emerged in prior weeks that things were not all too well at the poultry company based in Content, McCook’s Pen, St Catherine.
The company, which had always reported its quarterly numbers on time, published a notice that its quarterly numbers, which were due on March 11, had been delayed and would be out by March 19. However, another delay notice was filed with March 28 set as the new publication date.
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While investors may have smiled at the five per cent rise in top line (revenue) growth to $24.65 billion for the third quarter (October to December), they were quickly greeted with a surprise as JBG swung from a $2.26-billion operating profit to a $351.64-million operating loss. After accounting for finance income and finance costs, JBG reported a loss before tax of $1.06 billion, a sharp contrast to the $1.61-billion profit before tax it reported in the prior period. JBG had a $1.30-billion consolidated net profit in Q3 2024.
A quick glance at the company’s statement to shareholders by Chairman Robert Levy and group president and Chief Executive Officer (CEO) Christopher Levy revealed that there were issues related to the USA operation. That required external advisors to review operational controls and any implications to the USA operations.
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When asked by an analyst what was the catalyst for JBG to review its USA operations, the group CEO stated, “I think where we started to get concerned was what we were seeing when the profit being generated wasn’t matching the cash. When we put our foot down, we brought in external third-party auditors and a team from Jamaica, lead by Lennox [Channer] and we honestly just started tearing through the business. As we kind of got deeper into the business, we said this isn’t adding up and we started to get even deeper. What we realised is that a lot of what you’re seeing here is just stuff [that] was not being posted into the system when it should have been.”
During Thursday’s discussion at the company’s headquarters, CEO Levy noted that the USA business had a US$13-million loss ($2.05 billion) during Q3, which was related to the group now recording a lot of invoices that weren’t previously accounted for in previous periods. That is what resulted in the group’s operational expenses (distribution costs, administration and other expenses) jumping from $3.75 billion to $5.20 billion in Q3. On a normalised basis, the group’s operational expenses would have fallen around $3.25 billion to $3.50 billion. The nine months operational expenses increased from $11.03 billion to $12.50 billion.
Apart from these unaccounted expenses, there was a dip in USA chicken prices, which went from US$1.80/lb to as low as US$1.15/lb. There were also significant weather events in the USA which affected the broilers and breeders’ business lines. This was also compounded by a lack of focus by the USA management team on cost control.
As a result of these developments, the USA operations’ segment result dipped by 69 per cent from $2.98 billion to $922.37 million. The segment result is effectively the operating profit of each segment before unallocated corporate expenses are accounted for to get the group’s consolidated operating profit.
Due to all these developments, the company has separated/removed its entire USA management team from January 2025. That included Stephen Levy, who was promoted to president of the USA operations since 2016. He will be officially departing as a director and employee of JBG effective May 3. Stephen Levy is the brother of Group CEO Christopher Levy and son of Chairman Robert Levy. Robert Levy is the son of JBG co-founder Sydney Levy, who formed the company in May 1958 with Byron Coombs and Larry Udell.
With the departure of the younger Levy, the Group CEO has assumed leadership of the USA operations, which is now rebuilding its management and administrative team following the recent separation event.
Ian Parsard, group senior vice-president – finance and corporate planning, and Lennox Channer, group vice-president – accounting and administration, are currently supporting Levy. Also, Tommy Waters, vice-president of Jamaica’s poultry operations, has been reassigned to Best Dressed Chicken USA.
“Jamaica Broilers prides itself on treating vendors correctly. What we saw more and more was that the vendor relationship in the US was impacting us here [Jamaica]. It raised concerns, in addition to the cash and movements of the profits, that just kind of wasn’t in line,” Channer added in relation to one of the events that triggered the review by JBG’s Jamaican team.
As part of the transformation process taking place at the USA business, Jamaica Broilers will be establishing an internal audit department which will somewhat mirror what takes place in Jamaica with KPMG Jamaica. Also, the USA systems and processes will be streamlined with a platform called Dynamic 365 which will be swiftly implemented through an engagement with IBM.
JBG has also communicated with its auditing and financial partners on the development and is working closely with its vendors to improve the relationship after recent events. JBG is externally audited by PricewaterhouseCoopers (PwC), which will review the group whose financial year ends on May 3 and should be published by July 2 as per Jamaica Stock Exchange (JSE) rules.
On Thursday, Christopher Levy declined to give additional comment on possible restatements to its prior audited numbers.
JBG’s overall nine months revenue grew to $71.65 billion, but the operating profit was cut in nearly half from $6.72 billion to $3.70 billion. The consolidated net profit also declined 72 per cent from $3.83 billion to $1.06 billion with the trailing 12 months earnings per share (EPS) at $3.33.
Although JBG had $91.21 billion in total assets, the characteristic of its balance sheet has shifted. The group’s cash balance is down from $2.80 billion to $1.74 billion over the nine months, with the bank overdraft jumping from $1.03 million to $404.94 million. The group’s short-term borrowing also moved from $19.61 billion to $25.14 billion as it reported a cash outflow from operations of $1.01 billion.
JBG will be shortly tapping the capital markets to access additional capital for its operations.
JBG’s stock price closed at $30.71 on Thursday, which included the stock halting down to $30.01 during the day. This left the stock down 15 per cent year-to-date with a $36.84 billion market cap. There were only eight buy orders left, versus 57 sell orders on Thursday.
Despite the difficulty the company is facing in its current financial year, Levy is optimistic about the future as he looks forward to the four business units of Best Dressed Chicken Jamaica and USA, Hi-Pro and Wincorp to deliver significant growth. He noted that the upcoming financial year would be a consolidation year as they focus on cost reductions, but he’s looking towards more opportunities in the USA, which is their growth engine.
“We’re looking at the opportunity of consolidating into a true complex in South Carolina. The numbers there can increase the profitability of the USA by a third. It’s significant, but before we get to that step, we’re going to form the foundation and then we’re going to make a move,” Parsard said about further centralising the US operations in a similar fashion like Jamaica.
