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Integration of US food business drags down GraceKennedy bottom line in Q2

Published:Tuesday | August 4, 2015 | 11:06 AMCamilo Thame
Don Wehby, Group Chief Executive Officer, GraceKennedy Limited

Costs related to the integration of recently acquired US-based La Fe into GraceKennedy's food business dragged down the conglomerate's profit for its

second quarter ending June

2015.

Lower foreign exchange gains also contributed to the decline at the bottom line. The group posted $811 million in earnings for

the three months under review compared with $954 million

in the corresponding period in 2014.

The profit for Hardware & Lumber was set aside as discontinued operations due to its pending sale, but the increase in net income from $45 million in the second quarter of 2014 to $56 million in the comparative three months this year wouldn't have offset the decline in the food business.

"The cost of Grace products transferred from the previous distributor in the US would have been higher, and it would have affected margins in the second quarter," GraceKennedy group CEO Don Wehby told Wednesday Business.

GraceKennedy's food division recorded a $136-million, or 54 per cent, decline in pre-tax profit from year-earlier levels during the second quarter of 2015.

Wehby said that the higher inventory cost associated with the transition has now passed through the system, thus, financial performance of the business segment should improve significantly in the second half of the year.

He also said that Grace Foods has been experiencing its best year ever in the domestic market, from sales of its core products, such as Vienna sausages and corned beef, resulting in a positive impact on local manufacturing.

Indeed, the conglomerate's food business generated $2.5 billion, or 19 per cent higher revenue during the second quarter of 2015, when compared with the corresponding three months in 2014.

$80m revenue

However, a large part of that growth reflects the addition of La Fe's business, which was bought after the second quarter last year. For 2014, the US-based frozen food supplier which caters to the Hispanic market generated US$80 million in revenue.

Plus, GraceKennedy is targeting US$130 million in sales this year.

"La Fe is on track," said Wehby.

First Global Bank recorded increased profits from higher net interest and non-interest income, supported by growth in the financial institution's loan and deposit portfolios, according to its parent, GraceKennedy.

The group's banking and investment business segment earned $126 million before taxes in the review quarter, compared with year-earlier levels of $82 million. The money services segment, under which Western Union and Bill Express operates, reported higher revenues from increased remittance transactions in Jamaica, while the division's pretax profit climbed by four per cent to $600 million.

"The segment also received regulatory approval for a pilot of Mobile Wallet, an electronic payment service that will allow for payment transactions to be conducted via cellular phones, to be launched in September 2015," said a release from GraceKennedy.

The conglomerate's insurance segment, which operates GK General Insurance - formerly Jamaican International Insurance Company - saw a $16 million or 11 per cent decline in profit before tax during the quarter under review.

GraceKennedy reported that the general-insurance business was delivering higher underwriting results for the first half of 2015 due to an improvement in claims. However, the segment was impacted by lower foreign-exchange gains.

camilo.thame@gleanerjm.com