Aug 2010 Financial News

GraceKennedy's profit plunges

Aug 04, 2010

GRACEKENNEDY (GK) Group's net profit plunged 33 per cent during the three months ended June 2010 when compared to the corresponding quarter in 2009, as all its divisions except retail and trade, under which Harware and Lumber operates, saw a decline in profit.

The conglomerate reported net profit of $540 million in the review quarter compared to $801 million in the comparative period in 2009.

The biggest decliner was the insurance arm, under which Jamaica International Insurance Company (JIIC) and Allied Insurance Brokers (AIB) operate, with a 71 per cent decline in pre-tax profit from $120 million in the June quarter of 2009 to just under $35 million during the review quarter.

Group chairman and CEO Douglas Orane said in a statement to shareholders that GK's "insurance segment continued to be affected by reduced investment income", which likely resulted from lower interest rates following the Jamaica Debt Exchange (JDX).

The JDX saw the Government of Jamaica exchange its high interest bearing instruments for those with lower yields and longer maturities. Financial institutions, including GK subsidiaries participated fully in the exchange which saw their net interest income reduced. The JDX was completed in February this year.

"The performance of the GraceKennedy Financial Group was impacted by continued weak consumer demand, lower interest rates following the Jamaica Debt Exchange (JDX) and the rapid appreciation of the Jamaican dollar," said Orane.

GK's banking and investment segment also saw a 13 per cent reduction in pre-tax profit from $357 million in the June 2009 quarter to $312 million in the review quarter, while rapid appreciation of the Jamaica dollar resulted in the group's money services operations, under which Western Union operates, seeing an 18 per cent drop in profit before tax to $272 million.

"GK Foods saw a decline in business in the second quarter in the face of reduced sales in most markets due to continuing worldwide recessionary conditions," added Orane. "The Jamaican and Belizean markets were the most seriously impacted by the economic downturn while our North American markets experienced good growth in revenues and profits. Grace Foods UK Limited continues to reflect signs of recovery due primarily to its efforts at cost reduction and revenue growth in a very sluggish UK food market."

GK's food and trading segment's revenue fell four per cent in the review period when compared to year-earlier levels, while pre-tax profit declined by five per cent.

Looking forward, the launch of new products, such as FX Trader's loyalty card, the acquisition of a major pension fund client by FGFS, the opening of a new distribution centre to stock inventories and the implementation of a new banking and investment management system are expected to contribute to improved performance and efficiency gains. Orane noted that the information system by Oracle will provide a platform for business growth while meeting customers' requirements for fast and efficient service.


Source:
Jamaica Observer
Wednesday August 4, 2010

http://www.jamaicaobserver.com/business/GraceKennedy-s-profit-plunges_7849112