Page 1


EDITORIAL A

THINGS ARE NOT ALWAYS WHAT THEY SEEM TO BE

what him ask me for well seasoned collateral and is less Entrepreneur than a million me operating in the looking for, and for just SME sector was recently four days, but anyway, overheard lamenting the on his desk was a large other day at a popular file containing drinking spot in New computer print outs. So Kingston how he could not I ask him out of understand how he runs a curiosity what kind of legitimate business, pays file that was. He said his taxes, late most times these were people who but he pays them, does borrow money from everything by the book the bank and behind in and still has a hard time them payments. So I making money and said a so much people running a profitable in that problem. And business. Yet when he R. Allan Stanford this is the kicker now. looks around him he sees business people in similar businesses “making He said if I take you out on to Knutsford money” or at least appears to be based on their Boulevard and we check the first 10 “brand lifestyle and outward show of success. He could name” cars that pass; chances are them either in my file or the file in another bank. A lot of people not understand it. In response to his query a fellow driving around in bank car now him say.” Entrepreneur in the group said to him “Listen The men all laughed out loud except one in man, you don’t watch that, a lot of people look particular who did not find the whole discussion like them have money and making a lot of funny and quite frankly was very uncomfortable money, the business look healthy, but let me tell with the subject matter. He picked his blackberry you, and this is from experience, things are not curve off the table and said he was leaving, always what they seem to be, you look at the something just came up and he had to deal with recent fall of some “brand name” business it now. The other men watched in silence as he people. They all exhibited the traits you just walked over to his brand new brand-name SUV mentioned, but look what happen to them and and drove out of the watering hole heading towards upper St. Andrew. look what they were doing to make money.” As he drove out the Men who had been Another Entrepreneur in the group entered the discussion “I have a better story to tell you. I drinking together as a group for many years was with my bank manger the other day trying looked at each other in silence. Only one person to negotiate a small overdraft, and boy if a tell spoke he said “rahtid” BM

4 Businessuite Magazine - February 2009

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CONTENTS

MANAGEMENT

Unleashing the Greatness Within Continued from page

27

organization, routinely assessing and retooling as necessary systematically and strategically, not haphazardly in response to the actions of competitors, or without conducting data driven organizational assessments which pinpoint process or productivity gaps. Organizations that are unfocused, unaligned relative to processes and functions; with unengaged workers who are just merely showing up can not fare well at a time when consumers expect actually more than their money’s worth; at a time with organizational endurance is intricately linked to ongoing managerial enlightenment. So, with that said, 2009 appears to be a year when, • Small Business Innovation Will Be Driven By Recession:  Small businesses will focus on cash flow, cost containment, customer retention and survival, as well as innovation. Focused on a need to improve productivity and increase customer value, small businesses will reevaluate, re-design and refine their products, processes and business models. Despite the adverse economic climate, innovation will create new opportunities for those small businesses who answer the call to change. • Government Expands Role in the Economy: Globally, economic turmoil, corporate malfeasance, regulatory failure, and unscrupulous investment schemes will lead to increased governmental intervention in the economy. Businesses will need to heed more astutely governmental policy shifts as governments will take a more active role in managing and regulating their economies in an attempt to minimize fallout from businesses gone awry. • Small businesses will increase in 2009. With job losses high and traditional employment options limited, more people will turn to self-employment and small business in 2009. With it easier and more economical to start a business, people may find themselves forced to consider a business, whether to provide another stream of income, or to merely replace income lost at the hand of a disappearing job. With technology readily available to support a small business, and retirement not a option because of corporate mismanagement or financial crisis sapping away

28 Businessuite Magazine - February 2009

retirement funds, small business development is anticipated to soar among those considered to be at retirement age, and for youth who find their employment prospects, with or without university training somewhat limited. 2009 has been pegged as the year of the “solopreneur” as businesses created and run by individuals are predicted to be plentiful across the Caribbean and the United States. • Technology will continue to expand and impact the way business is conducted. Smart phones, computer notebooks, netbooks and navigation systems are certain to support the continued growth of mobile computing and its impact on the way businesses operate during 2009. Online marketing is poised to increase as it is cheaper and oftentimes more effective than traditional approaches, and with businesses squarely focused on customer acquisition, the retention of market share, and redefining business models and methods in the face of change and cash flow, while online marketing can be complex, expanding reach to tap into the global marketplace has become necessary. For those organizations willing to take a close look at their products, processes, performance management and productivity, even in this time of uncertainty, opportunities will be boundless, even if recognizing them requires a bit more mining; but for those companies striving to simply maintain, unwilling to actively pursue the art of continuous improvement, these entities may just find themselves unable to complete, because this year will continue to reveal the interconnectedness of our global economy, and this interconnectivity must begin within every organization or these entities might find themselves left behind. BM ______________________________________________ (Business Thought, Management and Leadership Consultant)


MANAGEMENT

NEWS

Corporate Movements MARcIA FLETcHER

is heading off to London, UK in March on a reported three year assignment to head up the Victoria Mutual (VMBS) operations. Fletcher who was previously a Vice President at NCB Insurance will oversee the three offices – London, Manchester and Birmingham, as Head of UK Operations operating from the London office. The UK, widely regarded as the strong hold of Jamaica National (JN) will have the 130 year old Victoria Mutual securing its base among the first generation of Jamaicans who went to the UK in the 50’s and 60’s, while building new relationships with their second and third generation off springs in a bold attempt to wrestle market share from JN.

officer of GK Holdings Limited, established by Grace-Kennedy to hold its assets in First Global, was appointed to the committee by group CEO and Chairman Douglas Orane.

Courtney Campbell

GERALd ANTHONY REId WIGHT

has joined First-Caribbean Jamaica as director of corporate banking, a slot that became vacant after Clovis Metcalfe was named head of the bank. Wight has worked in finance for 15 years, the last three of which were with National Commercial Bank. His appointment was effective January 23.

dAvE MYRIE, who joined the GraceKennedy group in 2007, has been promoted to chief operating officer/deputy CEO of Hardware and Lumber Limited. The appointment, which took effect January 1, makes Myrie second in charge behind H&L head, Anthony Holness and a possible successor.

PAuL HANWORTH

was appointed director of the Jamaica Property Company Limited effective January 29. JPC is a subsidiary of First Jamaica Investments Limited, which is controlled by the Facey family.

cOuRTNEY cAMPBELL is to take on a bigger role inside the GraceKennedy group as chief executive officer of GK Investment. The appointment becomes effective February 1. Campbell, recruited last year from National Commercial Bank, joined the most senior company officials in Grace-Kennedy Limited as a member of the GK Executive Committee. Campbell, the new chief executive

6 Businessuite Magazine - February 2009

Guardian Holdings Limited, an insurance conglomerate headquartered in Trinidad, has appointed a new chief executive officer, Jeffrey Mack, who took up office January 1.

STEvEN GOOdEN, general manager of Pan Caribbean Asset Management Limited, has resigned after more than two years in the position. According to sources Gooden will be joining NCB Capital Markets, which has been recruiting talent having lost a number of its senior staff in the past year or two. The Chris Williams led NCB Capital Markets, which is the wealth management arm of NCB, is strengthening its investment management functions. Williams admitted that the company was a bit thin at senior management level, which caught the attention of ratings agencies, which in NCBCM's last credit review, pointed to it as a weakness in the operation. Steven Gooden is presumed to be the new vice-president of investment and training who will take up his position in April. Williams at the same time will be restructuring the office of chief operating officer and shifting the functions to other areas within the group. The new VP recruit is replacement for Karlene Bailey who resigned as VP-investments last October. Gooden is the second member of Pan Caribbean executive management team to exit the company since last year. In October 2008, Henry Pratt, managing director of the newly-formed Pan Caribbean Bank Limited, resigned leaving the threemonth-old operation that he helped transition from a merchant bank to a commercial bank. BM

Unleashing the Greatness Within

2009… certainly to be the year of redefining, rebranding, retooling, realigning

W

ith the painful acknowledgement that a global recession is afoot, coupled with economic chaos, 2009 promises to be a year when organizations in all sectors, whether for-profit, a non-governmental organization (NGO) or even faith-based, that the name of the game, and most definitely taking center stage, will be redefining, rebranding, retooling and realigning. For those organizations who intend to greet 2010 with some level of vigor, and not merely crippling across the finish line into that year, proactively responding to change is now an organizational imperative. Organizations that find themselves unable to navigate the seas of change with finesse; find it difficult to engage their workforces to improve productivity; and do not conduct serious organizational assessments to identify process and performance gaps, unfortunately may very well find their doors slamming shut; closing not to signal the end of a workday, but closed as a result of going out of

business due to an inability to complete, survive and more importantly thrive in today’s fierce globalized, technologically-driven knowledge age. As far as we management and organizational development researchers and consultants are concerned, we knew this day would come, saw it with the precision of an eagle’s eye, with or without throwing economic turmoil into the mix. You see, organizations are just like a humming car engine, that favorite fish tea recipe; if one part is out of alignment, the engine does not purr very well; or if too much of one ingredient is put into the mix and another is neglected, the flavor is lost; simplistic examples, but certainly you get my drift. Organizations are systems, systems that to run effectively require a delicate state of balance on all fronts. Leaders who understand this pay close attention to all aspects of the Continues on page

28


ENTREPRENEURSHIP

NEWS

Five Lessons Learned from my Startup —

And Why I’d Do It Again

I

have learned a lot of things through starting my own business. Here are five lessons I have learned through experience: * Write a comprehensive business plan. We started with an idea which we set out in a business plan competition named Venture Cup, but we didn’t complete the competition since we started the company. Our idea was developed by some kind of iterative and incremental process. We should have paused and reconsidered the plan and then continued to develop the business concept. Imagine if we had had Tim Berry’s book, The Plan as You Go Business Plan, at hand! We should have included an “if, so” scenario in the plan, and tried to understand when you should bail and when you should continue and stay the course. * Marketing takes time and costs much money. We should have done more research when we picked the place for our establishment and activities. It took a long time before people came to our place. But after some time, the good word was spread through word of mouth marketing. But by then, we had already invested a great deal of time and money and had not so many resources left. Imagine if we have had John Jantsch’s book, Duct Tape Marketing, at hand! * You should be able to sell your business proposition and get paid. It took a long time to find potential customers, and then it was hard to give arguments for why they should pay for this or that. We met Ulla-Lisa Thorden, sales coach, speaker and small business owner, a couple of times. Imagine if we have had her book, How to Sell Yourself and Make Them Pay, at hand!

* There are many external barriers. For example, we faced bureaucracy, rules, the jante law and fraudsters who seek to cheat you. I have been a bit naive, but personally I think that in the long run it is still a good idea to give people the “benefit of the doubt.” * It takes time to set up a team of employees and be coherent. We should have studied more in-depth business theories by Belbin, Adizes and William Schutz.

Taken from the Headlines New SEc complaint Says Stanford Ran Ponzi Scheme

T

he Securities and Exchange Commission filed an amended civil complaint late Friday (February 27th 2009) alleging that Texas financier R. Allen Stanford and his company's Chief Financial Officer James M. Davis operated a massive Ponzi scheme. In carrying out this scheme, the SEC claims, Messrs. Stanford and Davis misappropriated billions of investors' money and falsified the Stanford International Bank's records to hide their fraud. "Stanford International Bank's financial statements, including its investment income, are fictional," the SEC said. The SEC's amended complaint comes one day after the Department of Justice arrested Laura PendergestHolt, the chief investment officer for the Houstonbased Company. The Wall Street Journal

So, why would I like to do my own startup again after all that has happened? I have got a taste of the free enterprise conditions. To be able to be your own boss. Avoid the so-called “treadmill” with fixed working hours between 9 AM – 5 PM. We will continue with the business idea of creating “the third place” for people to work at. During these two years we have established plenty of good relationships for the future. We are looking into the possibility to set up a virtual community online so we could keep in touch with our old customers and business contacts and create a new type of network. When I read about other businesspeople and their exploits, I get inspired to continue. The most recent example is Jonathan Fields and the stories in his book, Career Renegade. I want to conclude with Thomas Edison’s quote: “I have not failed. I’ve just found 10,000 ways that won’t work.” BM _______________________________________________ About the Author: Martin Lindeskog is a “trader in matter & spirit” and a small business entrepreneur in Gothenburg, Sweden. He is a board member of the Swedish National Association of Purchasing and Logistics (Silf, Western Region). Martin also writes a long-standing blog called Ego and will soon start a new series of interviews for his podcasting show on the Solid Vox network.

Courtney Campbell listens attentively to Deputy CEO of GK Investments, Joe Taffe during a press briefing in which First Global Bank announced an investment of US$20 million by the IFC in First Global Bank.

_______________________________________________

The caribbean needed to increase its enforcement to discourage rogue investors

"I

ndividuals and corporations ... come to our debtridden, small-island nations desperate for foreign investment and in simple terms, rob them. The reality is that hardly any investor is properly vetted." R Allen Stanford November 2007 Caribbean International Leadership Summit,

"The bank's deposits have grown from $624 million in 1999 to over $8.4 billion at year-end 2008. That's an average compound growth rate of 34%! Now, that [emphasis his] is unusual. Very aggressive deposit growth is usually a 'red flag' for banks. It's difficult to invest such a deluge of money efficiently. It also indicates that something may be 'too attractive.'" Independent analyst Alex Dalmady questioned Stanford's returns in a piece he penned for a Venezuelan economic publication and first floated the idea of fraud.

_______________________________________________

company’s high interest rate spreads

“H

ylton stated that the last year’s performance would not have been possible without the support of the Company’s customers, diverse revenue

26 Businessuite Magazine - February 2009

streams and unyielding attention to cost management. He noted that people may take notice of the Company’s high interest rate spreads (when compared with US banks, for example), but said that the reality was that it is simply more expensive to operate in Jamaica as borrowers are more likely to default on loans. The Group Managing Director said that it is integral that banks keep a dialogue with their clients regarding interest rate spreads.” Mr. Patrick Hylton, Group Managing Director National Commercial Bank of Jamaica Ltd (NCBJ) hosted its Annual General Meeting at the Hilton Kingston Hotel, Thursday February 26th 2009

As reported by Shari Da Costa (sdacosta@sslinvest.com) Research Analysts Stocks & Securities Ltd (SSL) _______________________________________________

Everybody wants waivers

"E

verybody wants waivers, waivers for vegetables, waivers for peppers to put in the processing, waiver for every conceivable thing, waiver for meats of all kinds. I am sick and tired of signing waivers for imported goods that we together as a people can produce right here in Jamaica. Mark my word; I'm going to do something about it," Finance Minister Audley Shaw addressing PC bank officials at the organisation's annual general meeting held at the Kendal Conference Centre Continues on page

10

Businessuite Magazine - February 2009 7


BRAND MANGEMENT

T

for

2008 A Year

Rebranding

he Jamaican landscape has been hit with a series of rebranding initiatives following acquisitions of leading Jamaican companies by multinationals. These have include National Gas Stations, with Total, Life of Jamaica, rebranded Sagicor life Jamaica, Dehring Bunting and Golding – DBG, rebranded Scotia DBG Investments Limited, and United General Insurance to Advantage Insurance to name a few.

Why do companies rebrand? In the book Why Johnny Can't Brand (Portfolio 2005), authors Bill Schley and Carl Nichols explore when and why companies should rebrand. They argue that many companies rebrand prematurely or unnecessarily, shooting good brands in the foot instead of strengthening them. The three most common catalysts for misguided rebranding are: 1. New executives trying to make their mark 2. The need for instant gratification trumping long term commitment 3. Organizational malaise/boredom. According to Michael Teeling, an enterprise technology marketing consultant in Silicon Valley, Rebranding doesn't always have to mean a complete overhaul. Rebranding can in fact have nothing to do with redesigning visual assets (logo, tagline) and instead focus entirely on operational or internal mindset changes. Rebranding is essentially an exercise in realignment. It is rediscovering the single unifying principle that aligns the organization with its customers. It means listening as those who bought tell you why you are special, why your offer resonates, and why your product is relevant. It is evolution more than revolution, but holds great power to reenergize a company.

Let’s take a look at some recent Jamaican rebranding On the horizon is the RBTT and RBC merger. There is no official word yet on the final brand choice, but it is expected that the Royal Bank of Canada, RBC brand name will be retained as a prefix and the country name used to specify the operating country. This could for example see RBC Jamaica replacing RBTT Jamaica. The brand Life of Jamaica (LOJ), the most visible name

8 Businessuite Magazine - February 2009

in the local life and health insurance industry is gone after more than 38 years in operation. LOJ rebranded Sagicor Life Jamaica gave effect to plans put in train years ago when the insurance giant was acquired by Barbadian financial conglomerate Sagicor. The rebranding was set to take place initially in 2004, but was delayed due to reasons that were not disclosed by the company, but was said to be linked to resistance by shareholders at losing a name that was seen then as distinctly Jamaican. In this case it was very clear on acquisition that the Sagicor brand was much stronger with more international appeal and recognition than Life of Jamaica. Sagicor is an international company with a long history in the region, boasting financial stability, performance, and management for over 160 years. Initial it was felt that after some 52 years Blue Cross operations would be acquired and rebranded under the Sagicor brand. However it was eventually disclosed that it was the operations that were acquired and merged into the existing Sagicor Life Jamaica Limited business. Sagicor was given 60 days by Blue Cross/Blue Shield, international owners of the brand, to finalise the transfer of the Jamaican business. Rebranding is a costly undertaking, but the long term benefits more often than not outweigh these costs. Rebranding following acquisition by non-Jamaican companies with much stronger international branding allows for the local brand adopting the international brand to get to the next level. This move to international branding status, is one of the main objectives of rebranding, however in the case of Red Stripe acquired by Diageo and Appleton acquired by Angostura, these were strong international brands and thus adopted and not changed out on acquisition. There are also obvious benefits to changing a brand name; chief among them is the economies of scale to be enjoyed. In the area of mobile phone purchase for example companies such as Claro, rebranded from MiPhone, with a subscriber base of over 125 million is able to negotiate rates at much lower prices than its rivals offering strategic competitive advantages. These economies of scale feed into lower mobile handsets, call rates and other costs. Miphone which was confined to Jamaica with a subscriber base of just under 300,000 was rebranded to Claro controlled by America Movil, one of the largest mobile Continues on page

10


COVER STORY

SUPERPLUS Continued from page

23

their ability to fund consumption in the way they once did. The SuperPlus boss says his stores have felt the impact of these factors."Most stores in the chain are flat in Jamaican dollar terms, and some stores are down," he told the Business Observer. "Some of the new ones continue to grow but at the expense at the older stores." But according to Chen, SuperPlus has been taking steps to improve its cash flow and financial position in light of the soft market. "In some instances we are cutting back on wholesaling because of the margins," he said. "We are looking at all of our resources that are not being utilized with a view to liquidating them to cut our bank finance cost. We are seeking to share the cost of running the business over a wider revenue base."

A vIcTIM OF ITS OWN SuccESS Wayne Chen is obviously doing everything he can to diversify income streams and squeeze more margins out of the operation; these include building more money transfer facilities, ATMs, cambios, and pharmacies in its stores of which it now had five. "The main push is to look at fixed cost. We have no control over rent so we need to offer more within the stores to defray them." It’s clear that the aggressive investment in new locations has not produced the desired results. SuperPlus' success at growing into the largest retailer in Jamaica - in 2003,

surpassing furniture retailer Courts less than 10 years after the chain, which was started by Gloria Chen in the 1960s, and had been anchored in southern Jamaica, morphed into the well-organised corporate structure is today a victim of its own success. Wayne Chen had declared his intention to aggressively grow the firm's store count and roll out up to 400 additional items under the SuperPlus brand - moving the range to about 700 and, importantly, giving SuperPlus greater control over stocks and the ability to squeeze more profit in a business famous for its thin margins. In recently published press reports Wayne Chen said he would not refuse a good offer for the islandwide family-owned supermarket chain, but says he has not put the company up for sale. Asked outright whether that meant SuperPlus was hunting a buyer, Chen dismissed it, but did not discount it as a future possibility. "Not at all," he told the Financial Gleaner. "Not in the short term. We are right-sizing the company now," he added. Rumours however persist that Wayne is actively looking for a buyer for the reportedly money losing supermarket chain. But denials are in order until the ink has dried on the contract and the cheque handed over. Plans for an IPO must now be off the table given the current state of affairs and from all indications 2009 is going to be a very challenging one. Margins will be put under far more pressure and more red ink will flow throughout the sector. And so we are back to Michael Lee Chin. Why? Well if we know for certain Michael’s views and investments in SuperPlus then we will know where it’s going. BM Additional sources: Jamaica Observer Financial Gleaner

Chen cited several factors which he said accounted for the sluggishness in consumer spend at the island's supermarkets. Among them: the tens of billions being spent each year on cellular phone usage. "The source of the money is not finite and it has to come from somewhere," he said.

24 Businessuite Magazine - February 2009


COVER STORY

BRAND MANGEMENT

2008 A year for rebranding Continued from page

SUPERPLUS

8

Continued from page

telephony groups in the world, with approximately 125 million clients in 15 countries, including, Argentina, Chile, Colombia, El Salvador, Ecuador, United States, Guatemala, Honduras, Mexico, Nicaragua, Paraguay, Peru, Dominican Republic, Uruguay and Brazil. Other benefits of rebranding from Miphone to Claro include access to technology. For example on 1 May 2008, Claro introduced the Video Call service thru its 3G GSM network into its Latin American markets. Customers are able to make calls using the video camera on their cell phone, to any other Video Call user. The service could place a new standard of calling in the island - being first introduced by Claroenabling the users to make dual-sided video calls.

draw backs to rebranding Local nuances and customs are important considerations when introducing a new brand or rebranding. There are some very strong views that these factors were not taken in consideration in the recent mobile rebranding and that the name changes were ill advised and mismatched for the Jamaican market. Claro (formerly Miphone) is Spanish for clear but Jamaicans speak English; whilst LIME (formerly Cable & Wireless) refers to a sour fruit and not relaxation in Trinidad & Tobago. The strength of the brand. Another option to rebranding is co-branding and the recent

example is of Wisynco co-branding WATA with Ocean Spray. The Wisynco Group, whose aggressive marketing and distribution strategy helped make Jamaica, per capita, the market leader for Ocean Spray's cranberry juices, added the Ocean Spray brand to its own line of purified water. The product, Ocean Spray WATA, was soft launched last year. Sometimes early into a products or business life cycle there is a strategic need to rebrand to take advantage of prevailing market opportunities or to reposition the company to better attract more lucrative business. In the case of Carlton Savannah REIT that sought a new identity less than six month after it launched is a case in point. Jamaica’s first and only realestate investment trust, Carlton Savannah REIT Jamaica Limited opted for a name change to Kingston Properties Limited. Director Fayval Williams said the name change reflected plans for the company to build out a more diversified portfolio of real estate investments. If you are considering Rebranding, make sure it's not for one of the reasons Schey and Nichols cite above. A quick brand audit is a great way to get a read on if your brand is truly misaligned, not just fatigued. A reinvigorated brand can deliver more qualified sales leads & stronger customer loyalty, but brand equity needs time, dedication and maintenance to grow. Rebranding should not be undertaken lightly, and management support is a critical success factor. BM

20

Like the other supermarkets, a major challenge at MegaMart was coping with the high electricity costs. For example, at MegaMart's Waterloo Road, Kingston location, electricity cost had jumped from $1.1 million per month last year, to $1.7 million per month that year. At the other MegaMart store in Portmore, St Catherine, electricity cost had moved from $1.1 million per month to $1.8 million. "Do you know how much more goods you have to sell to pay for the increase in light bill?" asked Azan. The two MegaMart stores had combined sales of $3.5 billion, but so far that year, sales have been flat, said Azan. Moreover, according to Azan, the profit was generated mainly from the non-supermarket items which earned a much higher gross margin, and primarily at the Kingston store. "As a strategy, to achieve profitability what we have been doing is to push our non-food items," he explained. Chen cited several factors which he said accounted for the sluggishness in consumer spend at the island's supermarkets. Among them: the tens of billions being spent each year on cellular phone usage. "The source of the

Wayne chen is obviously doing everything he can to diversify income streams and squeeze more margins out of the operation; these include building more money transfer facilities, ATMs, cambios, and pharmacies in its stores of which it now had five.

money is not finite and it has to come from somewhere," he said. He also cited the increase in consumer electricity and fuel costs which divert consumer spending away from supermarket items, the slow-down in construction and its impact on purchasing power among working class Jamaicans. Chen also noted that the anti-crime measure 'Operation King Fish' had also curtailed criminal activities and

From the Headlines Continued from page

7

Keep us from injuring ourselves

“I

t would make me feel very uncomfortable if the SEC were to relax its oversight. The S.E.C. must, as they have always been, sort of been the overseer of everything that we do to keep us from injuring ourselves, as well as injuring the public." December 2000, Bernie Madoff speaking to the SEC advisory committee meeting,

_______________________________________________

'I'm greedy in crisis'

"Y

ou get the best deals in a recession when prices are depressed. In Jamaica institutional investors like pension funds should be fully invested in stocks, which are downgraded. The Caribbean is a wonderful place to invest at this time. You can buy great businesses inexpensively." Michael Lee Chin, NCB Chairman

10 Businessuite Magazine - February 2009

Golding cautions against speculation - Says Jamaican economy will decline 2.2% this year

"I

f earners of foreign exchange withhold it with the hope that the rate will go up, the rate will go up. If those who needed $100 demanded $200 in anticipation of a rate increase the rate will go up and if foreign conglomerates purchased foreign exchange in the local market to meet demands in other markets, the rate will go up." BM Prime Minister Bruce Golding speaking to members of Montego Bay Chamber of Commerce gathered aboard the cruise ship Liberty of the Seas

All cheques to be made payable to BLACKSLATE MEDIA GROUP LIMITED Suite 6, The Domes, 85 Hagley Park Road, Kingston 10, Tel: (876) 960-6788, 754-2293 businessuitemagazine@gmail.com

Continues on page

24


BUSINESS INTELLIGENCE

CAPITAL & CREDIT...

FOR SALE OR NOT FOR SALE? Why the rumours persist

F

or the better part of 2008 and some would say going back to 2007 there were persistent rumours that two companies were quietly seeking and in negotiation with potential buyers. The two companies were the now reorganised Capital and Credit Financial Group (CCFG) headed by Ryland Campbell and the Wayne Chen controlled SuperPlus retail chain. In the case of Capital & Credit the company was again forced to publicly deny in July last year that it's up for sale. Capital and Credit was not only denying what it says are 'persistent rumours' Ryland Campbell, Group Chairman, Capital & Credit that the company is being “In the case of Capital & Credit the company was again forced to publicly deny in July last year that it's up offered up for sale, but says it for sale. Capital and Credit was not only denying what it says are 'persistent rumours' that the company is is not even in talks with any being offered up for sale, but says it is not even in talks with any suitor�. suitor. The denial, filed via a stock market notice, follows persistent reports over several years that the Ryland said: "Apart from the real issue of reduced returns on Campbell controlled company was on the market and government paper, when the bank looked at its client profile looking for buyers. "Such information is incorrect and not and realised it comprised mainly elderly folks with pass true," said the company in a statement issued through the book accounts and did not include sufficient young, upwardly mobile investment-savvy individuals, it realised it Jamaica Stock Exchange. The genesis of the rumour according to one financial had to do something." Also weighing on the matter was Keith Duncan, analyst goes as far back as 2006, heightened by the Scotia acquisition of DBG and comments made by then Finance president and CEO of Jamaica Money Market Brokers Minister Omar Davis. What was slowly emerging at the time (JMMB), starting from the position of the narrowing on the was the big question. Is the stand alone merchant bank spreads on investments - a point he underscored at his company's Annual General Meeting, said, "Financial entities model sustainable and relevant? Back in 2006 then Finance Minister Dr Omar Davies will definitely have to push revenue growth and emphasise was of the firm view that the financial sector would witness new product development". According to Duncan, the time more consolidation initiatives similar to the Bank of Nova was now right for the private sector to bring new corporate Scotia/Dehring Bunting and Golding (BNS/DB&G) issues to the market. In this regard, he expressed concern acquisition offer, as the rates on government paper that the money market remained dominated by government continued to fall. Since then interest rates on Treasury bills issues. Christopher Berry, Chairman and CEO of Mayberry have fallen further. Investmentsa company that had already taken advantage of Commenting on what was driving the BNS/DB&G deal that was representative of the present Continues on page 14 reorganisation/consolidation initiatives of the sector, Davies

12 Businessuite Magazine - February 2009


COVER STORY SUPERPLUS Continued from page

19

year over the next five years, bringing the total number to about 40. This has not materialised. Not to be undone, Super Plus, with 27 stores at the time, also announced plans to open three more in Kingston. Come 2006 Supermarket operators were crying out “We’re not making any money”. The tide had turned and the future looked dim.

SO WHAT WENT WRONG? Operating within an oligopolistic market - dominated "Right now it is by four major groups - Jamaica's murder," was supermarkets were now bleeding how Wayne red ink. This, the owners said, was the result of skyrocketing chen utility and other operating costs, characterised interest burden on the debt the business associated with expansion, weak environment. demand, and their inability to "We are making pass on costs to the increasingly a small profit, price-sensitive consumer. "Right now it is murder," was but we now how Wayne Chen characterised have to be the business environment. "We looking at are making a small profit, but we liquidating nonnow have to be looking at core assets to liquidating non-core assets to cut cut our finance our finance charges." In 2005/06 SuperPlus is charges." reported to have recorded gross sales of $11 billion - making the group by far Jamaica's largest retailer. Such critical mass was part of the business plan - to better spread overhead, give the group procurement clout, and improve its gross profit margin - all of which have been reportedly achieved. However, according to Chen, the steep increases in fixed and semi-fixed costs over the last two years have eaten away at the group's net profit. For example, there has been about a seventy per cent increase in the cost of electricity across the group over the past year. "Light bill at our Trafalgar Road location has moved from 800,000 to $1.4 million per month," Chen told the Business Observer. In a business where red ink is all

20 Businessuite Magazine - February 2009

around, SuperPlus with its very small profit was, relatively speaking, holding its own. GraceKennedy's supermarket subsidiary, Hi-Lo, was reported to have lost $80 million that year. Hi-Lo's electricity bill soared to $10 million per month, a 66 per cent increase on the $6 million previously. Security costs jumped by 20 per cent to $60 million. "Increase in costs, lower level in disposable income, compounded with a more competitive market make it challenging for companies," noted Mahfood. Hi-Lo by this time closed down two of its Kingston supermarkets - its branch at Tropical Plaza in 2004, and its Hagley Park Road store in 2005 reducing the Kingston branches to four, and the total number of stores islandwide to 13. Ken Loshusan, operator of John R Wong Supermarket in New Kingston and Loshusan Supermarket Barbican Circle in Kingston, said his supermarkets were also not making any money. "How can you make money when light bill, rent etc. are all over a million dollars? We’re barely breaking even right now. We’re just creating employment, that's it," said Loshusan. According to published reports, on average, the pretaxation margin of supermarkets in the Progressive Group was about 20 per cent. However, increasing operational costs had eaten away at their margins, thus forcing most of the members into at best, break-even performance. "By the time we pay expenses, pay taxes we are left with nothing," he complains. "If we raise (margins) half per cent, people will raise hell. All the expenses have skyrocketed. By the time we pay (expenses) we are left with nothing." In 2007 Progressive Grocers 28-member consortium comprised the second largest grouping of local supermarkets. Chen commenting on the situation said that given the constraints faced by the industry in passing on costs to customers, there will be fallout within the industry."We are gonna see some shakeout in the industry," he declared. "Sooner or later, some companies will have to drop out. By the end of the year, I expect some players to drop out." Commented one operator. Gassan Azan, the operator of MegaMart store and supermarket, said he too was experiencing sluggishness in the supermarket business, but that other non-supermarket items sold by his chain were helping to counter the fallout. Continues on page

23


COVER STORY

BUSINESS INTELLIGENCE

CAPITAL & CREDIT, FOR SALE OR NOT FOR SALE?

SUPERPLUS

Continued from page

Continued from page

12

"We contemplated whether to build or buy a brokerage house. We do not have a particular expertise in this area, and we are so far behind, it was the logical thing to buy, and if it ain't broke, don't fix it”. Former ScotiaBank President & CEO, William ‘Bill’ Clark

the relatively stable microenvironment at the time to reposition itself and acquired 49 per cent interest in a microcredit lending agency - views the then microenvironment of reduced interest rates and controlled inflation as positive developments for investors who play the stock market. A point to note is that while Dr Davies believed that reduced rates will trigger more consolidation, he was more cautious about how soon the reduced rates would filter through the commercial banking system and impact on the real economy. In October 2006, Peter Bunting former CEO of DBG had said in published reports that, "One of the reasons we are selling is that the profit growth exhibited by the securities dealers subsector in the last 12 months has topped out". "The market value of DB&G is US$100 million. That value transaction can only be done by very few players. Plus the market has been very illiquid over the past year, so an opportunity for long-term shareholders to cash out is a rare one," explained Bunting. Another reason why the executive management team has taken the decision to sell is, "The previous high rate of profit growth is unsustainable in the securities dealer sub sector." Capital and Credit is one of the last of the independent merchant banks and is now the largest player in the sector. The trend now is for merchant banks to convert to commercial banks allowing then to access cheaper funds by way of customer deposits. In April last year it was announced that Jamaica Money Markets Brokers Limited had applied to the central bank for a commercial banking licence, which, if approved, will grow the sector to eight licensees. In November Pan Caribbean Financial Services (PCFS) officially launched its commercial banking arm with five branches nationwide, targeting an existing 15,000-strong customer base. The GraceKennedy controlled First Global Bank was

14 Businessuite Magazine - February 2009

converted from the former merchant bank George and Brandy and DBG Merchant Bank was acquired by ScotiaBank Group, merged with its own investment unit to form Scotia DBG. First Caribbean International Bank Jamaica is the only major commercial bank operating in Jamaica without a stock brokerage unit and is strongly viewed as the possible and potential purchasers of the now restructured Capital and Credit Financial Group. RBTT is affiliated to Guardian Asset Management and so technically has a brokerage unit in the mix already and National Commercial Bank owns NCB Capital Markets. BNS back in 2006 saw an opportunity to grow shareholder wealth with the DBG acquisition. "We contemplated whether to build or buy a brokerage house. We do not have a particular expertise in this area, and we are so far behind, it was the logical thing to buy," said Clark. And if it ain't broke, don't fix it. "DB&G will continue to operate as an independent subsidiary of BNSJ. DB&G has a complementary culture and more aligned with what we do at Scotiabank. The business model of DB&G will not change," said Clark. Financial analyst and former head of mutual funds at First Global Financial Services, Oliver Chen commented at the time on the Scotia acquisition of DBG that "Interest rates spreads have narrowed and will narrow further, which constrains DB&G profits.” "Based on the movement of the share price (DBG), a lot of players could emerge," Chen said. "It will be interesting times ahead."

The GraceKennedy controlled First Global Bank was converted from the former merchant bank George and Brandy Douglas Orane, Chairman & CEO, Grace Kynnedy

Some of the obvious candidates, according to Chen, are "the Trinidadian financial companies such as RBTT, Republic Bank, and Clico who are big stakeholders in JMMB. Also, FirstCaribbean International Bank could throw their hat in the ring". Well we now know that FirstCaribbean did not throw in their hat, maybe they were waiting for something else maybe they were waiting for Capital and Credit. Ryland Campbell once commented that if the right price was presented to him he would give it serious consideration. BM

18

SuperPlus Food Stores - Cross Roads

hold for the long term? Or better still does Lee Chin view the supermarket business as a good investment and is putting his money where his mouth is. If you were a billionaire and a savvy successful investor with brothers and other family members in the supermarket business and they were having a hard time making money would you bail them out? Would you put your own money in? but then you don’t use your own money, you use other people’s money. What would you do? There are cynics who would suggest that Michael and companies under his control are already major investors or backers of the supermarket group. But would Michael really throw good money after bad or is it that he sees it as a good investment. These are all relevant questions, as the answer will give a clearer picture on the way forward for Wayne Chen and the SuperPlus Chain of supermarkets. If you don’t already know Wayne Chen is the younger brother of billionaire Michael Lee-Chin and while heading and running the Super Plus chain, overseas a number of his bigger brother business. He is the Chairman of NCB Insurance Company Limited, West Indies Trust Company Limited and CVM Communications Group, a Director of National Commercial Bank Jamaica, NCB (Cayman) Limited, AIC (Barbados) Limited and the Christiana Town Centre Limited.

cHEN STRIPPING THE GROuP Wayne Chen announced in October last year that He was contracting the supermarket chain and would close a fifth store in Montego Bay but would expand others. Chen has been stripping the group of its loss-making stores indicating that the business was attempting to grow revenues by

concentrating more on services like its cambio operations. Chen said that grocery had become the "loss leader" for the supermarket chain, but gave no specifics on the other business segments that were underperforming. Five stores have been culled from the group, and of the remaining 25, the majority, 22, are controlled by brothers Wayne and Richard Chen, while the others are held by other family members. More than a decade ago, supermarket owners, hurting from market fragmentation and weak consumer spending, began a process of conglomeration with the hope of restoring profitability to their operations.

PROGRESSIvE GROcERS LEAdS THE cHARGE Back in 2003 there was a merging and acquisition frenzy going on in the supermarket sector with the consortium, Progressive Grocers acquiring four supermarkets in rural Jamaica, bringing to 18 the number in the chain, and helping to reinforce the oligopolistic market that has been developing within this industry. The five-member grouping acquired a number of Jamaica's independent supermarkets to become the second largest chain after SuperPlus Foods Stores, which operated at the time 27 outlets. GraceKennedy's Hi-Lo had 15 shops. Together the three groupings controlled the lion's share of the Jamaican market. The acquisitions would give the Progressive Grocers even greater critical mass in procurement, to go up against SuperPlus, the industry's behemoth that had also been on an expansion binge. The concept of the Progressive Grocers is to create an alliance that could jointly purchase goods to spread administrative cost in the management of this process, as well as marketing, and to create bargaining clout in procurement. Sources say, for example, that the group was also seeking to set up a central warehouse, a move that would allow it to further spread overhead cost. At the time Hi-Lo had acquired six groceries and wholesales to control a total of 15 stores with plans to open another five stores later that year - one in Mandeville and Spanish Town, with the other three were supposed to be under construction. John Mahfood, former GraceKennedy chief operating officer in charge of retailing and projects at the time said that Hi-Lo would be adding between 5 and 6 stores per Continues on page

20

Businessuite Magazine - February 2009 19


COVER STORY

What does

Michael Lee Chin have to do with it’s FUTURE? unconfirmed reports that the privately held and controlled Wayne Chen led Superplus chain is having problems making payments to suppliers who have now apparently cut off supplies hence the scanty shelves. But how this could be, with reported annual sales of over JA$11B, Superplus should be awash in cash. “That’s how it appears on the surface, the supermarket business is a very thin margin business, ranging from 2-3% and so they may be generating a lot of cash, but very little profit” was how one financial analyst summed up the situation. This begged the question. Is the

ment

nvest I s ’ n i h Lee C phy Philoso

w

ey e's mon l p o e p ther l • Use o le mode sinesses you o r a d n u • Fi a few b n i t s e nt • Inv d vestme n n i a t r s u r o e und d to y mmitte o c y a t •S phy philoso

hat does Michael Lee Chin have to do with the future of the Supermarket Chain controlled by this brother Wayne Chen? “Are you closing down or what, how the shelves dem so empty?” remarked an irate shopper in the Superplus Liguanea branch, confronting one of the store attendants walking through the supermarket. “Is the same way the one down half way tree look” remarked another shopper passing by. A casual stroll through the Kingston located Superplus stores by this writer, revealed much truth in the comments and observations by the two shoppers. According to one industry watcher, there are

18 Businessuite Magazine - February 2009

supermarket business a good business to be in at this time or quite frankly at anytime? Which led us to ask a very obvious question? Would Michael Lee-Chin invest in the supermarket business? Given his publicly stated investment views and posture the answer would and should be a resounding NO. Michael Lee-Chin established investment philosophy is “buying few excellent businesses in long-term growth sectors and holding these businesses for the long term in order to help investors prosper by preserving and growing their capital and minimizing taxes.” Given this posture would he have advised his siblings to invest in the supermarket business. More questions. To what extent if he is, is Michael advising his brother Wayne on the merits of investing in the supermarket business? Is he telling Wayne to cut and run or Continues on page

19


Businessuite February 2009 issue  

SME Business, news and features from jamaican and around the world

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