Apr 2008 Financial News

GraceKennedy looks for value overseas

Apr 04, 2008

With limited room for growth at home and its two most recent foreign acquisitions adding 16 per cent to the group's revenue last year, GraceKennedy bosses say they are increasingly looking to overseas markets to expand their operations and, ultimately, enhance profits.

"Our international business is the area we are looking for the greater portion of the growth going forward," Grace's chairman and CEO, Douglas Orane, told the Financial Gleaner in an interview this week.

"We are pretty strong in Jamaica and we are looking at other countries," Orane said. "The UK and Europe are our areas of focus."

GraceKennedy seeks opportunities in its two major business segments, food and financial services, Orane said.

In the financial year that ended last December, the conglomerate reported group revenue of $48.74 billion, a 35 per cent increase on the turn-over for 2006, while its next profit jumped approximately 89 per cent to $3.53 billion.

But driving Orane's vision for expansion overseas is the fact that about 70 per cent of GraceKennedy's sales come from its home base Jamaica, whose potential notwithstanding, has over a long stretch delivered only anaemic growth - an average of 1.5 per cent per year.

In that context, Orane and his managers, while not writing off Jamaica, are pushing through with their initiative, first outlined in the mid-1990s, to position GraceKennedy as a global company, looking first at markets where Jamaican and other Caribbean people reside.

Looking to India

Focus now is on the Caribbean and its Europe/Central and North American market segments.

But, GraceKennedy is looking as far as India where last year it began distributing its beverage line Tropical Rhythms.

According to the group's accounts, in 2007, $2.26 billion, or 4.6 per cent of GraceKennedy's earnings were earned in the Caribbean, where the Jamaican firms have several operations in mainly Caricom member states.

Another $12.55 billion, or approximately 26 per cent of sales were from the Europe/Central and North America segment. Orane wants to improve on these numbers.

While the breakout for the Europe and the Americas were not immediately available, the bulk of the turnover on the international business would have come from Britain where GraceKennedy in February 2007 bought WT Foods, a manufacturer, marketer and distributor of Caribbean and other ethnic foods.

At the time of the acquisition WT Foods had sales of £60 million, a figure that would have, on the face it, added approximately J$7.8 billion to group turnover at prevailing exchange rates.

In its recently released financials, Grace said that WT Foods and One1 Financial Limited, a financial services firm it bought in Trinidad last July, added a combined $7.88 billion to revenue and $41.24 million to profit.

Those figures Orane said related to 10 months of sales at WT Foods, and five months at One1 Financial.

Annualised, the WT figures alone would have been in the order of $9.4 billion.

Strongest growth

Had the acquisitions happened at the start of the year, GraceKennedy suggested, its revenue might have been around one-and-half billion dollars higher and its net profit would have increased by around $63 million.

But it is Europe, and specifically WT Foods, where GraceKennedy apparently sees the strongest growth in the short-term.

Under its restructuring strategy Grace has marked food as its core business - the one that it will always be in - although financial services (banking and investment, insurance, money services), accounted for $2.39 billion or half or pre-tax profit.

Orane has in the past indicated that while Grace will always be in food trading - which accounts for 58 per cent of turnover but only 12.4 per cent pre-tax profit - it sees its GK Investments, the arm that holds its financial services entity,as precisely what the name implies - an operation that invests for value without necessarily feeling itself locked in for good to any business it may acquire or start.

Against that backdrop, WT Foods and the UK are particularly attractive.

Michael Ranglin, group deputy CEO of GK Foods, pointed out that the UK food market was worth about £120 billion of which the ethnic portion currently accounting for around £100 million.

"It is getting bigger; it can only grow," Ranglin said. He feels that the market for ethnic foods needs more nourishment and that WT Foods and its subsidiaries are on a growth path in Europe.

Arguments like these clearly excite Orane, who suggests that the £23 million invested for the acquisition of WT Foods was money well spent.

"Our investments have worked out very well for us," he said. "The company continues to be profitable and it has a very good management in place."

Not only has sales increased since the acquisition the GraceKennedy boss said, but the group has gained by the fact that Sterling, the currency in which WT conducts its business, has gained against the depreciating US and Jamaican dollars. The bottom line: more money on GraceKennedy's bottom line.


Source:
Susan Gordon, Business Reporter
susan.gordon@gleanerjm.com
Jamaica Gleaner
Friday April 4, 2008

http://www.jamaica-gleaner.com/gleaner/20080404/business/business1.html