Jul 2011 Financial News

Lacklustre H&L performance breaches loan agreement

Jul 20, 2011

Continued lacklustre performance at Hardware and Lumber (H&L) has caused the company to breach a loan agreement for at least the second time in as many quarters.

For the six months ended June 30, 2011, revenue were $3 billion and net loss was $1 million compared to $2.8 billion in revenue and net loss of $6 million for the comparative period in 2010.

In a note to shareholders accompanying its financial statements, the company said that "operating cost savings have been adversely affected by post retirement pension costs, transportation and utilities.

"In addition, there was the absence of significant exchange gains in 2011 versus 2010".

The company's profit centre — its agricultural segment — recorded a 9.6 per cent increase in revenue for the six months ended Jun 30, 2011, when compared to 2010, while it posted pre-tax profit of $71 million, dow from $82.3 million a year earlier.

"During the period a change in product mix adversely affected our gross margins," said H&L of its top performer. "During the quarter we completed the refinancing of debt at significantly lower interest rates and with longer tenure."

The company's balance sheet did show that it received $250 million loan in long-term financing during the quarter ended June 30, but the current portion of long-term debt near doubled from year-earlier levels — from $96.5 million to $187.2 million — partly as a result of the loan agreement breach.

"One of the company's loan agreements contains a covenant which states that at the end of each quarter the company's debt service coverage should be two times or greater," said notes to financial statements. "The modest performance last year along with losses experienced in previous years has caused the company to fall below the minimum leverage threshold. As a result of the breach, $9,787,500 of principal due for prepayment beyond 12 months has been reclassified to the current portion. This change in presentation has been made as the lender has the option to demand full repayment of the loan."

$19.6 million was reclassified in the previous quarter.

Revenues for H&L's retail segment increased by 6.2 per cent for the six months, compared to 2010, but losses shrank from $77.9 million to $43.4 million.

"While this has translated into reduced losses in the segment, we must continue to focus on improving supply chain management and product mix variation," said H&L of its retail division.

On the other hand, revenues in the wholesale segment increased by 2.3 per cent for the six months, compared to 2010, but losses increased from $13.7 million to $29.9 million, due to "competitive pricing pressure and rising transportation costs".

The report added: "Revamping of our Rapid True Value (RTV) and AgroGrace outlets continues, with our Montego Bay and Ocho Rios RTV stores expected to be completed early in the third quarter.

"Training of our team members in product knowledge and customer service continues. These improvements are geared toward enhancing our customer experience and improving performance. Inventories increased due to arrivals of large shipments late in the period, which will be reduced in the coming months.

"We expect the remainder of 2011 to show improvement, as we continue to make changes to attract and retain our customers, while ensuring improved cost management and margins."


Source:
Jamaica Observer
Wednesday July 20, 2011

http://www.jamaicaobserver.com/business/Lacklustre-HnL-performance-breaches-loan-agreement_9255869#ixzz1SeXXysSF