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Financial News

Jun 2010 Financial News

Facey critical of H&L management

Jun 16, 2010

Maurice Facey, chairman of Pan-Jamaican Investment Trust Limited, last week openly expressed his dissatisfaction over the management of listed Hardware and Lumber Limited by parent company - GraceKennedy.

But the family-run Pan-Jam will retain its 20.8 per cent shareholding in the company, partly out of sentiment.

"Their management have made a mess of the situation," Facey told shareholders at Pan-Jam annual general meeting last Thursday, responding to concerns by shareholders on the performance of the investment.

"It is way badly managed," he said.

The criticism comes as majority owner GraceKennedy Limited is tidying up a new plan to transform H&L operated Rapid TrueValue into a chain of large stores, utilising the expertise of American partner True Value.

It's also in the process of outsourcing its distribution function.

Simon Roberts who was appointed chief executive late last year, on Monday, told shareholders at H&L's annual general meeting that he was shooting for 20 per cent return on equity this year and a return to profitability.

Facey told shareholders that he had made several suggestions to GraceKennedy in reviewing strategic alternatives to turn around the underperforming company.

Pan-Jam took a $110 million hit over two years from the H&L investment.

But when pressed by shareholders on why not sell the shares Facey responded: "We have not taken that step yet"; with his son Stephen adding that that there was an attachment to the company, which made it difficult to sever the investment.

Dissatisfaction

The losses have not dented Pan Jam's profits, which grew 22 per cent last year to $1.4 billion from $1.14 billion in 2008.

Don Wehby, GraceKennedy Limited's group chief operating officer who now has direct oversight of H&L, said Facey had expressed his dissatisfaction at the board level and personally to him about the operations of H&L.

Wehby who has been in charge of H&L since January 1, has initiated changes in the management structure, which he said should see the company returning to profitability.

"We are on a very focussed programme to bring up the service level and improve the company ," he said.

He told Wednesday Business that GraceKennedy, which controls 58.1 per cent of the company, was as concerned as Facey about its performance.

"We have been discussing as a board the running of H&L," he said.

"The management changes we have made will return the company to profitability."

The company reported a small operating profit of $7 million in March, a turnaround from an operating loss of $28 million in the 2009 period, which Wehby cautiously touted as a positive indicator.

"I am cautiously optimistic that we will return to profitability," he said.

Stephen Facey, who is the president and chief executive officer, also reported to shareholders that H&L cost Pan jam impairment charges of $27 million in 2009, atop the $58 million written off in 2008.

Pan Jam's new investment in Walkerswood brought in J$15 million, representing its 25 per cent share of $60 million of profit booked by the spice company that more than a year ago was a failing business acquired under a rescue plan by Associated Manufacturers Limited and Pan Jam.

"The company now has two legs to stand on," said Stephen.

"We have committed partners in terms of management; those factors make it a strong investment."

In 2009, Pan Jam invested $180 million for a 25 per cent share of the Walkerswood Group in partnership with Associated Manufacturers, producers of Busha Browne and Jamaica Joe products, as well as producers of household and personal-care products and distributors of cosmetics and kitchen items.

Pan Jam's assets increased by 16 per cent amounting to $12.9 billion at the end of December 2009. Total income increased by 9.4 per cent well ahead of operating expenses which grew marginally by 2.4 per cent.

Return on average equity of 17. 1 per cent was an improvement over the prior year's 15.7 per cent while average yield on investments was flat at 16.7 per cent for both years.


Source:
dionne.rose@gleanerjm.com
Jamaica Gleaner
Wednesday June 16, 2010

http://jamaica-gleaner.com/gleaner/20100616/business/business2.html