May 2006 Financial News

GraceKennedy to boost efficiency - Orane

May 03, 2006

WITH 2006 expected to be a flat year, Grace-Kennedy chairman and chief executive officer, Douglas Orane, says the company will turn around its fortunes through innovation and increased efficiency.

Speaking at an investor briefing held last Friday at the company's Harbour Street headquarters, Mr. Orane said that 2006 profits are forecast to be -5 per cent to +5 per cent of 2005 figures. Based on the proposed changes, by the third quarter the chairman expects to be in a better position to provide a more accurate performance estimate.

Outlining the current conditions in the economy, Mr. Orane pointed to a number of factors including rising oil prices and its effect on consumer disposable income. GraceKennedy's response to these challenges is to focus on increasing efficiency and emphasising innovation. Important actions for success include maximising human resource capacity, pursuing business opportunities in the Caribbean market and through Caribbean channels worldwide, and improving the corporate structure.

Joseph Taffe, chief operating officer (COO) of the financial services division, said, "We will be implementing the Electronic Data Interchange (EDI) system that will eliminate the need to rekey data. And this is especially important in our insurance segment. We know that transaction expenses absorb 30 cents out of every dollar of pre-mium. EDI will minimise errors and speed up the transfer of information between brokers and Jamaica International Insurance Company."

Erwin Burton, COO of the food trading division, said they had introduced new systems that would save the company US$1 million in working capital for his division. "In our drive for improved efficiencies we will implement a system where we will have a direct relationship with key overseas suppliers. This will eliminate commissions paid to intermediaries."

One example of this was with corned beef, "a huge product for GraceKennedy," he said. "Our suppliers were giving one price to GK in Jamaica, a different price in Canada, in Belize and so on. They were playing one location against the other. We sent a team down to Brazil and Uruguay to determine how to stop this practice. The result was that we found a new supplier who cut out the middle man and reduced our costs."

OPPORTUNITY TO IMPROVE

Brian Goldson, COO of the information services division, said last year his division lost US$600,000. "While margins have shrunk in our Western Union franchise, we saw an opportunity to improve revenues with Bill Express. We implemented a new fee of $35 per utility bill; and as such, we have already tripled our revenues from that end. The fact was that the pricing in that service was warped. And we did have some attrition from Bill Express because of the new fee, but it was at an expected level."

John Mahfood, COO of the retail and trading division, noted that innovation from his division would come from offering packages. "Although the shortage in cement has impacted our sales of related construction items, we have shifted our focus to selling the complete package to buyers. We will be looking at the major projects such as hotels, property developers, the airport, highways and bauxite and saying to them that we can offer direct site shipment, support from suppliers and a wide retail store network."

CHALLENGING 2006

That said, GK executives did admit that many challenges lie in front of the conglomerate. Don Wehby, chief financial officer, said, "We expect 2006 to be a very challenging year." Indeed, the chairman pointed to the cement crisis as being one of those challenges. "The cement crisis has had a spillover effect in disposable income. Over 100,000 people have been affected in the construction industry."

The focus this year will be on providing building materials to some of the large local construction projects in a full service package that will see the H&L Group handling all the logistics of sourcing and delivery.

Another challenge is raising energy costs. Mr. Orane shared this example. "Last year, Hi Lo spent $800,000 per month on electricity. That was 50 per cent higher than in 2004. But this year, because of continued increases in oil we expect to spend $1 million per month."

However, the chairman noted that the company has recently implemented an energy taskforce to search for ways to be efficient in that arena.

And to power the company ahead, chief financial officer Don Wehby reported that in 2005, the company spent J$758 million, the largest capital investment in its history, and had budgeted to spend J$562 million in 2006.

Achieving optimal growth, Mr. Orane said, "is not something that can be done overnight with the stroke of a pen, but we are vigorously working towards solutions and we believe that we are on the right track."

Dennise WIlliams
The Jamaica Gleaner
Wednesday, 3rd May, 2006.
http://www.jamaica-gleaner.com/gleaner/20060503/index.html