GraceKennedy revenues flat
Published:Sunday | May 29, 2011 | 12:00 AM
McPherse Thompson, Assistant Editor - Business
The GraceKennedy Group has experienced a marginal decline in revenues for the year ended December 2010 as well as a drop in this year's first-quarter profit, primarily attributable to weakened consumer demand on the back of the global economic crisis, a sluggish domestic economy and the impact of the Jamaica Debt Exchange (JDX) on its financial services division.
The company said that with the continued decline in interest rates, there is also the likelihood that lower interest income and narrower spreads will have a more adverse effect on its financial services companies during the course of this year.
GraceKennedy recorded revenues of $55.3 billion for the year 2010, a 3.6 per cent decline over the $57.4 billion earned in 2009 as a consequence of the sale of the company's 51 per cent stake in Versair In-Flite Services to Goddard Catering Jamaica Limited.
19 per cent decline
For the first quarter of 2011, profit of $611 million reflected a decline of 19 per cent when compared with the $754 million earned in the first quarter of 2010. This reduction was primarily driven by the company's performance in the financial services division due to its participation in the JDX.
Don Wehby, GraceKennedy Group's chief operating officer, told shareholders at the company's annual general meeting in downtown Kingston last Thursday that "as executives we are not happy with the profit performance," but they have embarked on strategies to improve the group's financial strength.
"We have devised the necessary strategies to recover throughout the year by growing our revenue through the introduction of new products and services and improving our operational efficiencies and cost reduction measures going forward," Wehby said. "So we believe that as a group we will recover from this position."
GraceKennedy's share price increased by 25.9 per cent year on year from $40.50 to $51, while the group achieved a return on equity of 8.9 per cent, a two per cent decline over the previous year.
Group results were mixed, but continued to reflect the company's brand strength and the successful maintenance of customer relationships during the year, according to the financial report.
The combined segments of the GraceKennedy Group, made up of its foods and financial services divisions, earned pre-tax profits totaling $2.57 billion, a decrease of $56.9 million when compared with 2009.
The retail and trading segment showed improvement, achieving pre-tax profits on $103.6 million in 2010 compared to losses of $82.8 million incurred the previous year, and was attributable to a turnaround programme implemented at its subsidiary, Hardware and Lumber.
Money services generated the majority of segment profits, accounting for 46.5 per cent or $1.19 billion compared to 53.6 per cent or $1.41 billion the previous year. Fay McIntosh, GraceKennedy's chief financial officer, said that segment was particularly affected by the appreciation of the Jamaican dollar.
Banking and investments contributed $545.3 million or 21.2 per cent compared to $104.9 million in 2009, reflecting a recovery from bond trading losses incurred at First Global Bank in 2009, the result of irregular trading activities.
Referring to the irregular trading activities, Wehby, who takes up the position of group chief executive officer of GraceKennedy on July 1, this year, said, "we are determined it should and will never happen again."
The insurance segment contributed $236.8 million for 2010 compared to $471.7 million the previous year, the lower revenues the result of significant reduction in investment income primarily stemming from participation in the JDX programme implemented in February last year.
The financial report noted that 2011 will be the first full year that participants in the JDX will be impacted by the reduction in interest rates, which continued to decline in late 2010 and early 2011.
Improving efficiency
Given the projection that low interest income might continue to affect the financial services division during the year, GraceKennedy said companies in that segment would increase their focus on improving operational efficiency, while enhancing customer service through the use of robust customer-friendly technology.
Conversely, lower interest rates are likely to benefit companies in the food and retailing segments because they are net borrowers, said the financial report.
GraceKennedy said the more stable foreign exchange rate environment in Jamaica has contributed to a more positive business outlook, but they are concerned about recent upward movements in commodity prices, particularly raw materials, food and oil on its food and retailing businesses.
Current chairman and chief executive officer, Douglas Orane, told shareholders what was already known, that he will be retiring as an employee of GraceKennedy on June 30, this year. However, Orane will continue on contract as executive chairman for one year. In that role, he will be providing leadership to the board, further developing corporate governance best practices, monitoring and strengthening relationships with shareholders, business partners and other stakeholders and guiding the new chief executive officer and his team.