Sep 2006 Financial News

GraceKennedy merges Food Trading operations

Sep 13, 2006

GraceKennedy Limited yesterday announced a merger of several of the businesses within its Food Trading operations into one entity known as Hi-Lo Food Stores (Jamaica) Limited, which will be subsequently renamed.

Sources say that this latest move is the first of a series of changes that will see GraceKennedy shift to two main business lines - Food and Finance. The new business model would see the Food Trading Division incorporate the Retail and Trading Division while the Financial Services Division would absorb the Information Services Division.

"That side [financial services] is not settled yet, so I cannot comment on any details," James Moss Solomon, chief corporate affairs officer, told the Business Observer when contacted yesterday.

However, he said that the merger of the Food Trading Division was a less complicated move as there were no regulators to contend with.
This is not the case with the Financial Services Division.

"The merger, if one occurs, of the Financial Services Division may not follow the format of the Food Trading merger," said Moss Solomon. "Some of our companies in insurance, banking and stockbroking cannot be merged due to regulatory issues."

Under the financial services umbrella, GraceKennedy has subsidiaries such as the First Global brand of companies, Jamaica International Insurance Company and Allied Insurance Brokers. The Information Services Division currently houses the GraceKennedy Remittance Services, which manages the Western Union franchise.

Yesterday, when he was asked what effect the Food Trading Division absorbing the Retail and Trading Division would have on GraceKennedy subsidiary Hardware & Lumber (H&L), which is listed on the Jamaica Stock Exchange, Moss Solomon said, "There has been no decision on how H&L fits into the two trains of business."

Moss Solomon said the objective of merging the Food Trading Division was "to improve the profitability of the company through the reduction of costs".
GraceKennedy Chairman and CEO Douglas Orane said in a press release that the decision was part of GraceKennedy's overall thrust to increase efficiencies and productivity across the Group. The companies involved in the merger are World Brands Limited, Grace Food Processors (Canning) Ltd, National Processors Ltd and Hi-Lo Food Stores (Jamaica) Limited.

Orane also noted that all four companies involved in the merger would continue to operate under the new merged entity, through their individual brands. They will continue to operate from their current locations, each with its own general manager being responsible for the performance of the respective operations. He added that employees and customers of these companies would see very little, if any change, in the day-to-day operations.

Moss Solomon said, "the point of all of this is greater efficiency. In these four companies there were functions that were being duplicated. It is a more 21st century structure to focus on forward integration, which saves money. We will have the manufacturing, distribution and retail entities under one umbrella".

According to the press release, "The merger will be achieved by the transfer of all assets and liabilities of the other named companies to Hi-Lo Food Stores (Ja) Ltd, which will be appropriately renamed when the merger is complete. The scheduled date for completion of the merger is October 31, 2006".

Although the merger should bring forth a new entity out of the Hi-Lo brand, Moss Solomon noted that Irwin Burton will remain head of both the Food Trading and Retail & Trading divisions. "There has been no title change announced and until such time, Burton will remain in his current post."

Joe Taffe is the head of the Financial Services and Information Divisions.
For the first quarter of 2006, GraceKennedy earned J$476.8 million (a 13.7 per cent decline), J$75.8 million below the $552.6 million earned during the same period last year. Unaudited results recently published for the quarter ended June 30, 2006, show the net profit attributable to the company's equity holders at J$898.6 million, a seven per cent decrease on last year's profit figure for the corresponding quarter of J$967.3 million.

This quarter's profits were derived from revenues of J$17.1 billion. This represents a five per cent increase on the J$16.3 billion posted for the corresponding period in 2005.


Source:
Dennise Williams
The Jamaica Business Observer
Wednesday 13th September, 2006

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