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Financial News

Nov 2010 Financial News

GraceKennedy net profit up 27% in 3Q

Nov 24, 2010

GRACEKENNEDY Limited posted a 27 per cent increase in net profit during the three months to September 30, 2010, even while revenue declined by 3.4 per cent from year-earlier levels.

All business segments for the conglomerate, except its insurance business, experienced a drop in revenue during the quarter when compared to the corresponding period in 2009, but pre-tax profit was mixed across the group.

GK's group CEO, Douglas Orane

The retail and trading segment and the banking and investment segment both saw improvement in pre-tax profit. Retail and trading posted $3.8 million in pre-tax profit for the review quarter compared to a $6.8 million loss posted in the comparative period in 2009.

Banking and investment posted $109.8 million in pre-tax profit compared to the $645 million loss incurred in the comparative period in 2009 due to trading irregularities at the First Global.

The food trading segment incurred a $92-million loss during the quarter — down from $189 million pre-tax profit a year prior — but GK's group CEO, Douglas Orane believes the division will bounce back in the December quarter.

"The new distribution centre has been fully commissioned and there were one-off expenses associated with moving our operations from Kingston to St Catherine, but we expect to bounce back fourth quarter," he told the Business Observer in a telephone interview yesterday.

By Orane's reckoning the recessionary climate has brought on the need for businesses to engage in game changing activities, which for GraceKennedy meant bringing new products to the market that would help consumers "stretch their money".

Hardware and Lumber, which helped the group post profit for the retail and trading segment, benefited from a major overall involving the stores being completely refited with a different range of products and layout, but importantly the stable exchange rate climate that prevailed after the Government swapped its domestic debt with lower interest-bearing instruments helped put the retailer back in the black.

"The dollar revalued -- Hardware and Lumber, which sells mostly imported items, has been able to benefit from the stable exchange rate. When exchange rate is declining it is a hostile environment for retailers. The root is in the JDX. We are encouraged," said Orane.

The JDX also meant that interest rates would decline and some companies, such as H&L, have been able to benefit from lower cost financing.

On the other hand, the JDX meant that GK's insurance segment, under which Jamaica International Insurance Company and Allied Insurance Brokers operate, would take a dramatic hit to the bottom line.

Even though the insurance segment made a 30 per cent increase in revenue, but pre-tax profit fell from $164 million to $50 million.

"General insurance underwriting business was the most affected in a negative way," said Orane. "General insurers have to have large investment portfolios to be prepared for natural disasters. JIIC has a strong balance sheet — a large part of which invested in interest bearing instruments. It is not possible to pass on that to insurers who are paying annual premiums, so that a dramatic drop in investment income inevitably will pass straight to the bottom line."


Source:
Jamaica Observer
Wednesday November 24, 2010

http://www.jamaicaobserver.com/business/GraceKennedy-net-profit-up-27--in-3Q_8183249