Dec 2009 Financial News

Lok Jack outlines - Guardian's recovery plan

Dec 11, 2009

Guardian Holdings Limited (GHL) has targeted TT$100 million of cuts to operating expenses, while growing revenues, to recover lost ground from the write-off of its loss-making British motor insurance subsidiary, Zenith.

But, Chairman Arthur Lok Jack says the insurance group is about to tie down new deals to rebuild its portfolio of assets and create new sources of income, but refused to be drawn on whether the assets of failed rival CL Financial was among those in line of sight.

"What we are doing at the current moment is synergising a lot of our companies," Lok Jack told the Financial Gleaner.

"We are doing some internal restructuring in respect of not having, maybe, three of four head offices across the place and, probably, having just one. What we are trying to do is to bring some cost-reduction to the operation, and that will be done over 2010."

The company's expenses were running at $1.1 billion for the first nine months of 2009, but this is an eight per cent containment of expenditure relative to the 2008 period.

In its latest nine months financial statement, Guardian Holdings accumulated expenses totalling TT$1.1 billion, which consumed a third of its TT$3.2 billion of revenues, but represented a marginal decline of approximately 8.0 per cent, when compared to the same period last year.

Into the red

Zenith Plc represented a TT$896 million write-off for Guardian, which, in turn, eviscerated more than half billion dollars of nine-month profit in 2008 and sent Guardian TT$655 million into the red.

But Lok Jack said Guardian had no regrets.

"It is a big relief, and now our profits in the future are not going to be dragged down by the losses of that major subsidiary in the UK," he told the Financial Gleaner shortly after wrapping up a speech at the Private Sector Organisation of Jamaica Christmas luncheon, dubbed 'A conversation with Arthur Lok Jack'.

GHL Chief Executive Officer Jeffrey Mack, who is leading the restructuring, said Thursday that nothing in the plan was fully tied down, but also indicated few things were sacred.

"We definitely want to avoid staff reduction but that will have to be a very last resort if necessary," said Mack.

"We are really not leaving any stone unturned," he said from his offices in Trinidad.

The review also includes the types of vehicles and car allowances given to staff, travel and entertainment allowances, and efficiency of the company's IT platform.

In Jamaica, where subsidiaries Guardian Life Limited, Guardian Asset Management and West Indies Alliance are in two locations in New Kingston, "we are reviewing whether we need two separate buildings to house these companies," Mack said.

Guardian has had a rocky three years - losing big in 2006 by TT$216 million, but was back on the path to recovery when the Lehman Brothers collapse happened in 2008.

The company haemorrhaged TT$359 million in the December 2008 quarter, but its performance in the previous three periods was solid enough to put Guardian TT$204 million in the black for the full year, while forcing a restruc-turing of its investment portfolio to limit future exposure.

Now, the focus is to rebuild profit by growing revenue through acquisitions and sales of insurance products, and teasing bigger margins from each dollar by cutting costs. The TT$100 million target disclosed by Lok Jack appears doable, given that, so far, this year, Chief Executive Officer Jeffrey Mack has already carved out savings of more than TT$60 million, relative to the 2008 period.

Jamaica contributes about 10-12 per cent of group revenue.

"Growth in sales will come from organic growth across the business lines, including property and casualty, life insurance and our asset management business, as well as possible acquisitions. We have quite a number of deals that we are working on at the moment."

Flush with cash

With TT$2.4 billion (US$381 million) in cash at its disposal, Guardian is well positioned to snag new assets. The more immediate prospects under consideration are in Central America, Lok Jack said.

"Guardian has a lot of cash so we are looking at new opportunities and we actually have quite a number of opportunities in front of us in Central and Latin America - a couple not too far away from concluding. We can't divulge names, but we are in negotiation with a couple," he said.

While not going into details, the Trinidadian businessman noted that Guardian has learnt from the experience with Zenith and would be changing the metrics or criteria that guide its selection of targets, including sticking to core business.

"We are looking at companies either that are number one or number two within their market space, whereas in the UK, Zenith was ranked number 50 in the industry," said Lok Jack.

Guardian Holdings, from its base in Port-of-Spain, oversees a network of assets spread across the English and Dutch Caribbean, Central America, the United Kingdom and Gibraltar. Core companies in the group are Guardian Life, Guardian General, Guardian Asset Management and Fatum, which are registered in the Dutch-speaking Caribbean of the Netherlands Antilles and Aruba to transact life and non-life insurance business

The company has also restruc-tured its investment portfolio to reduce its exposure to equities while taking on less risky fixed-income securities and bonds.

"We have repositioned our financial investment activities towards a portfolio heavily weighted towards government securities, high quality corporate debt, and short-term deposits," the company said in a stock market filing.

"We did this in order to generate a steady stream of cash investment income and eliminate some of the volatility associated with fair value movements."


Source:
Sabrina Gordon, Business Reporter
sabrina.gordon@gleanerjm.com
Jamaica Gleaner
Friday December 11, 2009

http://www.jamaica-gleaner.com/gleaner/20091211/business/business1.html