KNUTSFORD Express Services Limited is pressing ahead with expansion into Morant Bay and the completion of a commercial development in Mandeville as the transport company seeks to rebuild earnings after audited group profit fell 47.4 per cent.

Chief Executive Officer Oliver Townsend told the Jamaica Observer the company would “soon” open a location in Morant Bay, extending its network into St Thomas, while its MVL Centreplace development is scheduled for completion during the second quarter of the current financial year, which runs from September to November.

The two projects are expected to support Knutsford’s recovery from a financial year disrupted by Hurricane Melissa and restrictions imposed on services because of damaged roads, particularly in Cornwall County.

“Due to the compromised state of the roads following the hurricane, we made the conscious decision to limit our services to protect our passengers, our fleet, and our team,” Townsend told BusinessWeek.

“While this protective measure directly impacted our bottom line, we know it was the right choice,” he added.

Townsend said Knutsford had fully restored all routes by April, marking a return to normal service before the May 31 close of its financial year.

The audited consolidated accounts show that group revenue declined 4.5 per cent to $1.98 billion from $2.07 billion, while administrative and general expenses increased 2.3 per cent to $1.92 billion.

The opposing movement in revenue and expenses caused operating profit to fall 39.6 per cent to $199.43 million. Net profit declined to $124.56 million from $236.95 million, while earnings per share fell to $0.25 from $0.47.

The pressure was concentrated in Knutsford’s core transportation and courier operations, where profit before tax fell 54.8 per cent to $105.62 million from $233.71 million.

The investment-property segment provided some protection, recording profit before tax of $53.68 million, down 4.2 per cent from $56.02 million. Property consequently accounted for about one-third of group profit before tax, compared with less than one-fifth in the previous year.

Townsend, in written responses to BusinessWeek, described the year as one that “tested our resilience” and said the service restrictions were imposed despite their expected effect on revenue and profit.

The company has not disclosed the number of trips cancelled, the routes affected, the duration of individual restrictions or the value of revenue and profit lost because of the hurricane.

The figures cited by Townsend differ from those reported in Knutsford’s audited consolidated accounts. He reported revenue of $2.06 billion and net profit of $147.7 million, while the audited accounts show revenue of $1.98 billion and net profit of $124.56 million. The audited figures have been used in this report.

Mandeville project nears completion

Townsend said MVL Centreplace would provide Mandeville residents and businesses with an accessible commercial location and open a new phase in Knutsford’s development.

The project is being undertaken through wholly owned subsidiary MVL Greenvale Limited.

At May 31, Knutsford’s accounts carried $137.44 million as construction work in progress relating to the Mandeville development, up from $131.96 million a year earlier.

That figure represents work still under construction and is not the total cost of the development. The total historical cost of the group’s investment-property portfolio, including its Drax Hall and Mandeville properties, rose 20 per cent to $846.35 million.

MVL Greenvale has a $435-million loan commitment from Sagicor Bank Jamaica Limited, of which $251 million had been drawn at the end of May.

The facility carries an interest rate of 9.85 per cent and is secured by a mortgage over the Greenvale commercial property, a debenture over fixed and floating assets and a corporate guarantee from Knutsford Express.

Across the group, notes payable increased 41.9 per cent to $471.27 million from $332.09 million, reflecting additional borrowing for property development and the company’s fleet.

Knutsford nevertheless remained cash-generative. Net cash from operating activities was broadly steady at $373.84 million, compared with $369.67 million in the previous year.

Investment spending, however, reached $443.87 million, exceeding the cash generated from operations. The operating cash result was also supported by a $97.81-million increase in accounts payable and accrued charges, which ended the year at $229.90 million.

The company also invested heavily in its transport assets, spending $294.99 million on property, plant and equipment during the year, while a further $141.30 million was directed to investment properties.

Morant Bay next

The Morant Bay location will extend Knutsford’s physical presence into St Thomas, but the company has not yet disclosed the opening date, investment cost, routes to be served or expected revenue contribution.

Townsend said the company was entering the new financial year with optimism, supported by the restoration of its route network and the approaching completion of MVL Centreplace.

The expansion comes as Knutsford attempts to reverse a sharp narrowing in the profitability of its core business. The amount remaining after administrative and general expenses fell to $56.27 million from $192.08 million, a reduction of more than 70 per cent.

Other income of $143.15 million therefore provided most of the group’s operating profit during the year.