Jun 2010 Financial News

Grace sees profits fall but keeps the faith with new distribution centre

Jun 04, 2010

The Grace Kennedy (GK) Group has taken major strides to improving its competitiveness both locally and internationally and to become a world class company.

Among the moves is a five year strategic map using the Balanced Scorecard management technique that emphasis financial performance, customer centricity, efficiency of internal processes and fostering learning and growth for employees. The plan, which has so far seen a $6.1 billion capital expenditure by the Group over 5 years was outlined by Chief Operating Officer, Don Wehby at the company's Annual General Meeting held on Wednesday.

The new distribution centre in Spanish Town came in at a cost $2.8 billion. Of that amount $0.8 billion was spent on computer software and $0.6 billion over 5 years was spent on plant and machinery. Wehby said most of the expenditure was done to drive efficiency. In banking and investment, there was a refocus of First Global Financial Services on portfolio management and investment advisory services.

Grace Kennedy, disclosed Wehby, would also be spending an additional US$5.4 million ($475.9 million) on leading banking solution software, Oracle, which he said would transform the First Global banking segments into more customer focused, world class entities, without adding much more overhead costs. The system will facilitate expansion of the Bank's customer base as well.

"The implementation process has started and we are expecting to take it to the public in about 18 months," said Wehby of the software system.

He said the shareholders were "very, very positive" in response to the additional investments, despite the spend.

Another boon for shareholders was the dividend policy which will see dividends paid three times a year on 15 per cent of after tax profit. The Group is also aiming to increase returns to shareholders to at least 20 per cent of investment, up over the 11.8 per cent return on equity recorded in 2009.

Fall in profits

However, a first quarter decline in profits of 11 per cent for GK is overshadowing the 2010 growth efforts undertaken by the company. Whereas net profit increased from J$1.6 billion in 2008 to J$2.5 billion in 2009, first quarter fell from J$884 million to J@754 million year on year.

The GK Group which includes food, retail and financial services reported a significant decline as at March 2010, but noted that this was attributable to the combined occurrences of the Jamaica Debt Exchange (JDX), which saw the government swap its local bonds for new instruments with lower interest rates and longer maturities, and the impact of the recession on consumer demand for its foods both locally and regionally.

However Erwin Burton, CEO of GK Foods, said that the newly opened distribution centre should improve service levels by 95 per cent by the end of the year and hence profitability. Already, Burton says, service improved 93 per cent up to April as a result of improved inventory management, increased bonded space and the ability to make consolidated shipments to customers. The warehouse is projected to also reduce operating expenses, while increasing profit from service improvements. Both the Group's 'World Brands' and 'Grace Foods International' now operate from the facility.

"Going forward we expect to see major improvements in operational efficiencies and the opportunities to take on additional business," said Wehby in the Group's quarterly report. Grace Foods also launched 36 new products in 2009, among them were Nurishment, quick cook porridges, Grace Blends and Earth Chef Veggie Meals, which generated J$630 million in new sales and revenues of over J$34 billion. This compares favourably with the the $32 billion recorded in 2008.

The aim going forward is to grow profits by focusing on new businesses in foods and financial services, on existing businesses, improved productivity, liquidity management and asset utilisation.


Source:
By Alicia Roache roachea@jamaicaobserver.com
Jamaica Observer
Friday June 04, 2010

http://www.jamaicaobserver.com/business/Grace-sees-profits-fall-but_7674902