May 2015 Financial News

Consortium of foreign and local investors seek to buy Hardware & Lumber

May 18, 2015

A consortium plans to buy the Hardware & Lumber (H&L) shares held by financial and food conglomerate GraceKennedy (GK).

Concurrently, GK is forecasting higher group profits in 2015 despite its first-quarter setback.

"It's a consortium which includes a lead investor and some of the [investors] are local," said GK chief executive Don Wehby in a phone interview with the Jamaica Observer on Friday about the conditional deal. "I cannot comment anything on the numbers or anything about the consortium at this time."

Grace holds 58 per cent of the shareholding, Pan Jamaica Investment Trust holds the second largest block of shares, followed by Mayberry Investments. Other institutional investors hold smaller shareholdings, with the remainder held by individual shareholders.

"The purchaser will have to bid to the Jamaica Stock Exchange to acquire the remaining shares," he said about the possibility of the consortium acquiring the remaining shareholding.

Over the years, H&L often made losses due in part to internal factors along with the flat construction sector. It made $34-million profit for its latest quarter or 14 per cent lower year on year. That profit, however, equated to a return on equity of less than 3.0 per cent or half that of government treasury bill rates.

"We are reallocating capital to get a higher return for investors," stated Wehby, adding that Grace wants to focus on its core business of food and finance. "The capital will be deployed to increase our manufacturing capacity to drive growth locally and overseas. We also will look at opportunities for acquiring food businesses in Jamaica."

GK entered into a conditional agreement for the sale of its shareholding in H&L, inclusive of the Rapid True Value and Agro Grace businesses on 22 April 2015. There are currently 10 Rapid True Value outlets across Jamaica, along with six Agro Grace Retail Centres. The company is headquartered on Spanish Town Road in Kingston.

"H&L is not a part of our core business," stated Wehby on the sale rationale.

The GK Group made $702-million net profit or about one-quarter less than a year earlier due to financing its US operations and the impact of an asset tax. Wehby argued that the lower profit was based mainly on one-off costs. He added that the group was still ahead of budget and thus remained on target for higher profits year on year.

"The performance was impacted by the transition of our new US foods operations, recognition of the total asset tax liability in the first quarter, lower foreign exchange gains and higher finance costs," stated a notice in the financials signed by Wehby and Chairman Gordon Shirley.

GK Group equity stands at $36.4 billion, which equates to a book value of $100 per share. However, the stock traded on Friday at $65.

Source:
BY STEVEN JACKSON
Business reporter
R03;jacksons@jamaicaobserver
Jamaica Observer
Sunday May 17, 2015    

http://www.jamaicaobserver.com/business/Consortium-of-foreign-and-local-investors-seek-to-buy-Hardware---Lumber_18945489