H&L turns a profit

ALICIA ROACHE Business reporter roachea@jamaicaobserver.com

Wednesday, July 28, 2010

HARDWARE and Lumber Limited (H&L) has realised a turnaround to a profit position of $3.4 million as a consequence of improved margin management, a reduction in interest costs and exchange gains resulting from the revaluation of the Jamaican dollar, according to CEO Simon Roberts.

The hardware giant was also buoyed by performance of its agricultural segment, which experienced a 5.1 per cent increase in revenues for the quarter ended June 2010 over the corresponding quarter of 2009. The $3.4-million profit for the period reflected a 112.8 per cent turnaround from the loss position of the $26.7 million in the similar quarter of 2009.

H&L is a subsidiary of the GraceKennedy Group, which owns 58.1 per cent. Some have also attributed the turnaround to the impact of Group chief operating officer Don Wehby’s input into the management of the fledgling enterprise. Wehby has invested in improving efficiencies of the company, including pumping $80 million into the implementation of a new management information system to integrate all the stores in the H&L chain.

While revenues in the quarter just ended declined by 4.96 per cent or $69.8 million compared to the same quarter of 2009, a larger eight per cent reduction in the cost of sales turned out an overall increase in gross profit for the three months ended June 2010. The revaluation of the Jamaican dollar relative to the US dollar in the month reduced the finance losses of $47.2 million in the June 2009 quarter to just over $1 million in the quarter just ended.

H&L held 15 per cent more inventory in the June 2010 quarter than it did in the corresponding quarter of 2009. It has 10.3 per cent or $41.8 million more receivables outstanding, and $146.5 million or 21 per cent more due in trade payables.

The company’s cash position deteriorated over the corresponding quarters, with just $62.2 million in cash and cash equivalents at the end of the June 2010 quarter, 84.9 per cent less than the $412.8 million at the June 2009 quarter.

CEO Simon Roberts in his note to shareholders acknowledged the need for greater focus on managing debt and generating increased cash flow.

“Critical to our success will be increasing store traffic and product availability, improving customer service and reducing costs and debt, while maintaining an appropriate level of risk management and controls,” said Roberts.

H&L operations are located entirely in Jamaica and the performance of its segments, wholesale hardware, retail of household and hardware and agricultural products and equipment, reflect the ebb and flow of business and other activities affecting the local economy. Despite losses in its other segments, agricultural products and equipment continues to perform well quarter on quarter. It was the only segment which recorded a profit from operations in the June 2009 quarter, that time at $75.8 million, and again at the 2010 quarter, at $89.12 million.

Roberts outlined that this 5.1 per cent increase was as a result of the general growth in the agricultural sector. “The segment continues to perform well, and the easing of the recent drought has also resulted in increased demand for our products,” Roberts said.

On the other hand, the contraction in the economy and in consumer spending and the reduction in large projects is being blamed for the 5.9 per cent decline in the retail segment and the 16.5 per cent decline in revenues for the wholesale hardware segment respectively. Roberts said H&L will be focused on monitoring profitability and developing plans for profit growth in 2011.

Upgrading work on the Lane Plaza location of H&L during the quarter was done with the intention of improving customer experience and a model for other store renovations. The work is to be completed in August this year. The company is also undertaking enhanced customer service training for team members of H&L.

“Overall, however, we expect the remainder of 2010 to be challenging,” said Roberts. “Consumer confidence remains low, but it is anticipated that the several infrastructural and housing projects announced will lead to increased demand for our products,” he added.

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