Nov 2008 Financial News

GK sales top $40b, but profit sluggish

Nov 21, 2008

Conglomerate GraceKennedy Limited reported a slight dip in earnings in the July-to- September quarter, but its nine-month result indicate signs of a company with strong sales and a slightly better profit outurn.

GraceKennedy's bottom line grew 6.7 per cent, from $1.71 billion to $1.83 billion, within the nine-month period when sales topped $40.1 billion (9M 2007: $35b). In the third quarter, however, net profit slipped from $591 million to $556 million on revenues that were basically flat - moving from $12.4 billion to $12.8 billion. "The world is in a global financial crisis and we need to prepare ourselves. In GraceKennedy we make sure that everything is done in a systematic way," said Douglas Orane, chairman and chief executive officer of GraceKennedy.

Higher sales
Markets have softened in Jamaica and worldwide because of the crisis, but GraceKennedy still tweaked 13.5 per cent higher sales from loyal customers, putting the group on track for another record year of revenue. Last year, the company averaged turnover of $12.2 billion per quarter, but is averaging $13.4 billion so far this year, with its most lucrative quarter left to come. According to the company, GK Foods which contributed 60.5 per cent to overall revenue at the end of the nine month period had increases of four per cent and 15 per cent increase in sales and profits amidst a challenging environment. Indeed, the insurance segment was the only business division recording a fall in sales, from $3.1 billion to $2.8 billion year-on-year.

GraceKennedy says its major concerns are the impact of rapidly increasing prices from suppliers in Jamaica and downturn in the United Kingdom food service business, due to recession. "We have seen a whole range of increases," said Erwin Burton, chief executive officer of GK Foods. And there has been pass through to prices. Vienna sausage increased by 15 per cent for the year, corn beef produced in Brazil went up by 70 per cent, mackerel by 26 per cent and dairy products an average of 50 per cent, said Burton, who says it has taken a toll on sales. "There has been a small reduction in overall volume in terms of the number of cases - a 5 per cent reduction in volumes," he told the Financial Gleaner.

Downward price adjustment
Burton, however, would not disclose the number of cases, but said a downward adjustment in prices was likely early next year, depending on the performance of the dollar. "We have had unprecedented increases in the UK in the last 12 months," he said. "In some cases, we have been able to pass on the increases to pubs and restaurants, but in supermarket chains, for example, they have not been accepting the price increase," said the GK Foods boss. "To that extent, we have had to cut cost as much as possible," he added. Expenses for the quarter amounted to $12.2 billion, a 4.2 percentage increase over the $11.7 billion recorded last year.

UK food service business
The company further reported that the food service business in the UK saw a downturn particularly in the pubs and restaurants. "People are not eating out anymore, they are drinking and buying pre-package food to take home," said Burton. For FunnyBones, one of the three food companies in the UK, there has been a 12 per cent reduction in sales. FunnyBones contributes approximately 38 per cent to GK Food business in the United Kingdom.The entire UK food business, which comprises Enco Products, Chadha Oriental Foods Ltd as well as FunnyBones, contributes approximately 23 per cent to total revenue from the food trading segment. Food trading earned the company $24 billion in the nine months to September, representing 60 per cent of revenue. To counteract the decline in business, Gk said that the company has launched several new products in Jamaica and for the export market.


Source:
Sabrina N Gordon, Business Reporter
Jamaica Gleaner
Friday November 21, 2008
http://www.jamaica-gleaner.com/gleaner/20081121/business/business8.html