Camilo Thame, Business Reporter
More than three-quarters of the 22 listed firms that have already filed financial statements for this year's June quarter, reported either a decline in profits or a loss for the quarter, when compared with the same period last year, a Financial Gleaner survey shows.
Indeed, for all the 17 firms surveyed expenses either grew at a faster rate than revenue or declined at a slower pace than revenue fell.
No single factor, it appears, contributed to the squeezing of earnings during the quarter, but one issue continued to hover over the economy: the cement crisis.
Although not as badly as the previous quarter - when production problems at Carib Cement led to scarcity of the product - firms continued the residual effect of the crisis.
Additionally, the bearish local stock market and constraints in overseas capital markets impeded growth among financial institutions, which, in recent years, had led the way with robust profit growth.
But given the recent events, what happened at Carib Cement in the June quarter was always going to command attention.
What happened is that it racked up a loss for the fourth consecutive quarter - $44 million. This translated into an overall loss for the 12 months to June of $360 million.
The company started experiencing difficulties when energy prices skyrocketed in the July to September quarter last year, sending it into a loss position of $50 million.
For the review period, Carib Cement's revenue grew by 12.3 per cent, to $1.75 billion when compared to the $1.56 billion for corresponding period last year.
However, expenses shot up 32.7 per cent, from $1.38 billion to $1.83 billion, sending the company into the $44 million deficit for the quarter.
Carib Cement, however, has since July 15 implemented an average price increase of 15 per cent on its products, which it expects to help turn things around.
"This price increase is expected to result in an improved performance for the remainder of 2006," it said in a note to shareholders. "However, it is not anticipated that the yearÕs results will be satisfactory."
The difficulties faced by Carib Cement casused a general slowdown in the construction industry, which has been facing a sever shortage of cement since the beginning of the year.
As a result, publicly traded firms which are directly involved in the construction industry, such as Berger Paints and Hardware and Lumber (H&L), saw their profit position for the comparative quarter last year turn to a dripping of red ink this year.
Berger actually saw its revenue increase during the quarter by 15.5 per cent to $274 million. Its expenses, however, grew at a faster pace (18.4%), moving from $232 million to $274 million.
The firm reported a $267,000 loss, against the $3.6 million profit it returned in the June 2005 quarter.
The paint manufacturer attributed its negative outturn to "the effects of the cement shortage throughout the first six months of operations 2006".
"Not only could projects not be completed, thus directly affecting our sales, but the cash flows of our over 500 Retailers were severely affected, which in turn negatively affected our performance," said Berger in its financial statement for the three months to June 30, 2006,
H&L had similar woes. Its total income declined by 6.2 per cent, from $1.36 billion to $1.28 billion. Its expenses, however, did not prove to be as flexible in the softer market, dropping by only four per cent Ñ from $1.35 billion to $1.3 billion.
Consequently, the hardware firm reported net loss of $12.4 million, a reversal of its profit of $11.4 million for the comparative quarter last year.
H&L's poor results impacted negatively on the its parent, GraceKennedy, which saw its total income across all divisions increase marginally (2.3%) from $8.55 billion during the three months to June 30 ,2006, to $8.75 billion during the quarter under review.
The conglomerate saw a larger increase ( 2.7%) in expenses, which moved from $7.92 billion to $8.14 billion, resulting in a flattening of profit to $425 million, down 1.8 per cent against last year's June quarter.
Indeed, Grace, in its financial statements for the June 2006 quarter, stressed that its retail and trading division, under which H&L falls, had faced a difficult time because of the squeeze in the construction sector, "caused by the significant shortage of cement". "This had a negative impact on the performance of Hardware and Lumber," it told shareholders. "However, we expect to see an improvement in the company's performance for the third quarter as we began to receive increased cement supplies during the June."
The situation for GraceKennedy would have been worse had its supermarket chain, Hi-Lo Food Stores, which operates in an industry with razor thin margins, not improved sales performance when compared to the prior year. Hi-Lo also achieved a reduction in expenses, according to Grace, "as a result of its various cost containment efforts".
As a result, the overall retail division avoided making a loss during the June quarter despite the red ink spilled by H&L. The division's pre-tax profit of $13.8 million during the quarter was lower than the $31 million pre-tax profit made during the three months to June 30, 2006.
Elsewhere in the conglomerate, GraceKennedy saw its food trading division experience a decline in profit before tax as well, which fell from $126 million during the June quarter of 2005 to $107 million during the quarter under review.
The lower outturn was due, Grace said, "primarily to a softening in overall consumer demand in the market place and consequential pressure on margins".
The group's information division, the umbrella arm under which Western Union and Bill Express operates, saw an improvement in its pre-tax profit from $147 million to $158 million.
However, Grace's financial division, which includes the First Global brand and Jamaica International Insurance Company (JIIC) saw a decline in pre-tax profit from $262 million to $214 million.
In response to what Grace called a "challenging economic environment," the company's division is undertaking a number of initiatives to reduce costs.
Financial sector firms generally experienced a bad June quarter.
Of the seven financial institutions that posted results for the quarter, April to June, only one - National Commercial Bank (NCB) - saw its profits increase. Its net profit grew by 79.7 per cent, from $863 million during the June quarter of 2005 to $1.55 billion, during the three months to June 30, 2006.
NCB increased its interest spread by $300 million, to $2.82 billion, largely through growth of its loan portfolio. The commercial bank also increased its non-proprietary income streams by $570 million.
"The overall revenue growth was fuelled by the continued focus on our core banking business which has resulted in higher loan income as well as fee and commission income," said the bank of its June quarter performance.
Near-banks, Dehring Bunting and Golding (DB&G), PanCaribbean Financial Services (PCFS), Jamaica Money Market Brokers (JMMB), Capital and Credit Merchant Bank (CCMB), and Mayberry Investments Limited (MIL), did not fare as well. These institutions profits fell 2.9-70.5 per cent when compared to the comparative quarter in 2005.
PCFS and CCMB, like NCB also managed to increase their income spread, although marginally, through rebalancing their balance sheet to improve earnings from growth in high-margin loans.
PCFS net interest income increased by $22 million during the quarter, to $380 million, as a result of its 25 per cent increase in loan portfolio over period ending June 30, 2005. At CCMB, its interest spread grew marginally, from $250 million for the corresponding quarter last year to$253 million to the quarter under review.
However, both companies experienced a drop in their non-proprietary income streams.
Ultimately PCFS saw a 9.3 per cent reduction in net profit to $285 million. CCMB's net profit, on the other hand, fell by 67 per cent, from $394 million during the quarter ending June 30, 2005 to $132 million during the current period under review period.
Meanwhile, Mayberry Investments, which experienced a decline in net profit, from $78 million in comparative period last year, to $23 million in the three months to June 30 this year, saw its net interest income fall by $50 million or nearly half Ñ from $104 million to $54 million.
Mayberry told shareholders that "the reduction in net interest income was primarily due to reduced spreads on our international portfolio".
The bearish mood of the stock market also affected other operating revenue, which fell from $102 million to $76 million.
"We continue to experience a reduction in our fees and commission income which is due to the overall decline in equity trading activities on the Jamaica Stock Exchange," added the company in its statement to shareholders.
JMMB saw its net profit drop by 26.8 per cent, to $323 million. Its experience was different than the Mayberry. While JMMB saw its interest spread fall from $357 million to $54 million, it had the comfort of watching income from securities trading moving from $87 million to $275 million. The outcome was a flat operating return.
Its share of profits from its Eastern Caribbean venture fell from $152 million to $64 million, dragging down its group earnings relative to the previous year.
"This was a result of changes in market conditions in Trinidad and Tobago where domestic interest rates have been increased to counter inflationary pressures," said JMMB. "This has squeezed operating margins during the quarter."
JMMB's experience in Trinidad was unlike that of Carreras which fully shifted manufacturing of cigarettes to the twin island republic in the last quarter of 2005.
The company which exited the hospitality industry last year with the sale of Sans Souci to Couples Resort, to focus strictly on the marketing and distribution of cigarettes in Jamaica, managed to increase its operating margin by $166 million, to $977 million during the quarter, despite a marginal falloff in revenue Ñ from $1.64 to $1.59 billion.
That, coupled with a $72 million reduction in administrative and marketing costs, translated into net profit of $647 million during the three months to June 30, this year, up from $504 million between April and June last year.
Despite the downturn in experienced in some areas of the economy resulting primarily from the current cement shortage, companies, such as Kingston Wharves, remain "optimistic about the groupÕs performance for the future."
KW is undertaking a $2 billion expansion of two of its berths - eight and nine - to accommodate larger vessels. This project is expected to be completed in June next year.
For the quarter, the container handling firm saw an increase in tonnage crossing its wharves Ñ from 424,481 tonnes last year, to 467,266 tonnes in this June's quarter, an increase of 10 per cent.
That, coupled with "increased revenues from equipment rental and cold storage operations", translated into a 24 per cent increase in revenue and a 28 per cent in crease in net profit.
For the three months to June 30, 2006, KW made net profit of $91 million from total income of $579 million.
