Douglas Orane, chairman of GraceKennedy says H&L needs tighter control of its products. - File
On the face of it, Grace-Kennedy Limited's profits have fallen by more than a billion dollars, from $3.5 billion to $2.3 billion at year end, December 31, 2008, a 31 per cent drop.
But ignoring the $1.4 billion one-off gain that boosted the company's 2007 earnings when it sold 25 per cent of its money services business to partner Western Union, then the results were relatively flat.
GK's failure to shine was also adversely affected by its subsidiary Hardware and Lumber Limited, operator of the Rapid TrueValue chain of stores, which is struggling to build sales in an economy where construction activity is depressed - down 11 per cent according to the latest PIOJ assessment released Monday.
"The performance of H&L is reflecting industry-wide phenomena in construction and the building material sector that supports it," said Douglas Orane, chairman and chief executive officer of GK.
Suffer
"Not all participants are experiencing similar effects of a downturn in sales and increased price, but with the Jamaican dollar losing value ... then an import-dependent company like H&L will suffer."
Most of the company's materials are sourced from overseas, laying it open to foreign exchange risk in a market where the local currency has fallen in a year from $71 to $88 against the US dollar, the main currency in which such bills are paid.
But GraceKennedy is not giving up on the chain, which in January announced another round of restructuring costing $28 million, even after the company spent $80 million on a new inventory system that was supposed to track customer demand and satisfy them under a 'just in time' arrangement to turn around its fortunes.
Long before its financial results were released, GraceKennedy announced in early January that the company was cutting 80 employees and restructuring to save on costs.
The plan included the merger of some Rapid TrueValue and Agro Grace outlets.
Even with the subsidiary making a loss, Orane said there is no plan to exit the business but rather to work towards turning the operation around through tighter management control.
"To ensure recovery first (we) have to make sure H&L is as efficient as it can be in the current market environment and focus on carrying products that continue to be needed in the construction and household industry - what consumers want to buy," he said.
"If H&L manages more effectively its category of products this will help to stabilise the company in 2009."
H&L reported annual losses of $286 million, eliminating the minor gain made in the third quarter.
The slide of construction and thebroader economy was most telling on the hardware chain in the December period when sales plunged by $200 million, relative to the same period a year ago.
Losses for the quarter topped $290 million, crowning a poor year for the hardware operation, in a period when the company would normally have counted on the high shopping season to put the operation squarely in the black.
H&L closed the year with sales of $6.8 billion compared to $6.45 billion in 2007.
Indeed, GK's entire retail business, which includes its Agro Grace operation, choked up last year, pushing pretax losses to $440 million off revenues of $7.8 billion - taking on the dubious distinction of being the only GK business segment to post a loss.
A year ago, retail/trading was in the black, making profits of $316 million from sales of $7.7 billion.
Banking and investments was the only other segment to underperform, reporting $58 million lower pre-tax profits than in 2007. Contributions from that segment dropped from $1.11 billion to $951.7 million.
It paved the way for money services to take the spotlight, moving from $913 million of profit last year to $1.15 billion in the current period.
Food trading also got a small $13 million bump in pre-tax profit to $613 million. But Orane was more impressed with the dynamic turnover.
"Grace food sales are up both locally and internationally," he said.
Future returns not clear
In 2007, food trading reported sales of $28 billion, or 58 per cent of the $48.7 billion in total revenue; this year, the turnover is $32 billion or 60 per cent of the $53.5 billion in total sales.
For the year, the company also made $378 million of dividend payment to shareholders on record compared to $375 million in 2007.
Its not clear what returns shareholders can expect in 2009, but the company is bracing for a tough year.
Challenging year
"I believe that this is going to be a challenging year with signs of all economies moved into recession," said Orane.
"The thing is to make the necessary contingent plan to make sure our business gets through ... which means reduce waste, be as frugal as possible in terms of expense, and listen to consumers who now have to stretch his/her dollar."
sabrina.gordon@gleanerjm.com