By Al Edwards, Business Co-ordinatorTHE HARDWARE & Lumber Group had an eventful year in 2003 with increased profitability, according to a joint statement issued by Hardware & Lumber Chairman Douglas Orane and Chief Executive Officer John Mahfood.
The Group achieved profits before tax of $137.8 million for the year before redundancy costs, compared to $61.4 million for 2002. The profits were generated on sales in 2003 of $2.6 billion, compared to $1.6 billion for 2002. Although the Group posted improved before tax profits, its financial results were affected by the foreign exchange losses due to the devaluation of the Jamaican dollar that took place last year and also merger related expenses.
The profit after tax was $44.6 million for 2003 compared to $48.9 million for 2002.
In keeping with the adoption of the International Financial Reporting Standards (IFRS), the Group's accounting reporting standards changed in 2003. All financial statements for the comparative year 2002 have been restated to reflect this change in compliance with IFRS.
MERGER
Last year saw the merger of Hardware & Lumber Limited with Rapid & Sheffield Limited and Agro Grace Limited which produced an enlarged group, with 15 hardware stores and five farm and garden stores. This expanded H&L Group is now the largest retailer and wholesaler of hardware, home improvement and agricultural products in Jamaica.
The merger was completed in September 2003. This involved the transfer of Grace's 100 per cent holding of shares in Rapid & Sheffield Company Limited and Agro Grace Limited to Hardware & Lumber in exchange for 27,368,421 shares in Hardware & Lumber and Grace's purchase of 18,142,732 shares in Hardware & Lumber from Pan Jam.
Grace, Kennedy therefore now has controlling interest with slightly below 70 per cent of the issued shares, while Pan Jam has retained 25 per cent. Less than three per cent of minority shareholders offered shares for sale in response to Grace, Kennedy's mandatory take-over offer.
The new Hardware and Lumber Board of Directors comprise Douglas Orane (Chairman),with Steven Facey replacing Richard Byles, Professor Gordon Shirley, Don Wehby, Erwin Burton, Bryan Ewen and John Mahfood.
John Mahfood was appointed chief executive officer in January 2004 with Anthony Holness coming in as the Group's chief operating officer.
John Mahfood pointed out that the retail division continues to be the main driver in the hardware and home improvement area with continued growth in sales and gross profit margins. In response to the increasingly consumer demand the Group, has upgraded its Mandeville and Montego Bay stores in 2003 by relocating both to new and large retail stores.
The wholesale sector also recorded a substantial sales increase over 2002 while maintaining the gross profit margins.
SIGNIFICANT GROWTH
Mr. Mahfood reported that the expanded agriculture division, now positioned as the primary supplier to the agricultural sector, achieved significant growth in sales and gross profit for 2003 compared to 2002. He attributed the improved sales performance to the acquisition of the Mandeville branch of Agro-Grace in October 2002. This resulted in an 18 per cent increase in gross profits. ``Plans for 2004
The group will be expanding its retail division with the acquisition of a new store in Ocho Rios as well as upgrading its 697 Spanish Town Road facility in order to accommodate the expanded hardware business. "We will also be making significant capital investment in a new information technology system in 2004 which is intended to greatly enhance our service to customers as well as to improve the management of our information systems," Mr. Mahfood said.
Speaking with Wednesday Business yesterday, Mr. Mahfood said: "I am relatively satisfied with our results but we still have to put the final touches to the complete merger of the two companies which means we will incur further expenses. We began the process in March and I expect it will be completed by the end of this month."
The merger invoked redundancy costs of $72 million. The Group has now closed its Rapid & Sheffield distribution centre and will be relocating it to Spanish Town Road.
The merger has in effect come at a cost of $130 million. Mr. Mahfood said, "We will now be putting in place strategies to make us more effective. We will be placing greater emphasis on securing better terms from suppliers and looking at better ways to brand our stores. We will focus on the high end of the consumer market, meaning kitchens, bathrooms and tiling."
FINANCIAL PERFORMANCE
The chief executive said they were expecting an even better performance in the second half of the year a with the implementation of a new $40 million computer system, and the financial performance next year should be even better.
"We are building a new store in Ocho Rios which should come in at a cost of $45 million," Mr. Mahfood said. "Although growth through mergers has yet to catch on in corporate Jamaica we have shown that it does make sense."
