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Marketing costs cut Wisynco’s Q2 net profit by 25%

Despite a 25 per cent increase in revenue, manufacturing powerhouse Wisynco Group recorded erosion of its net profits for second-quarter 2020 due to marketing-related costs.

“Revenues for the quarter from continuing operations of [JM]$8.5 billion represented an increase of 25 per cent over the [JM]$6.8 billion achieved in the corresponding quarter of the previous year. We had growth in all major product categories notwithstanding tempered demand for some products at the start of the second quarter due to rains which continued into early October,” Chairman William Mahfood and Andrew Mahfood wrote in a report to stockholders.

The directors noted, however, that gross profit rose to JM$3.1 billion, or by 14.1 per cent, when compared with JM$2.7 billion reported in the corresponding quarter in the previous year.

The gains in gross profit were, nevertheless, eroded by expenditure relating to selling, distribution and administrative activities.

“Selling, distribution and administrative expenses for the quarter totalled [JM]$2.2 billion or 25.3 per cent more than the [JM]$1.75 billion for the corresponding quarter of the prior year,” the directors wrote.

“We incurred additional one-off marketing costs to support new product development and introduction during the quarter and additional Christmas-related marketing expenditures. Approximately ten per cent of the increased expenditure was as a result of the increased revenues,” the report continued.

“We had growth in all major product categories notwithstanding tempered demand for some products at the start of the second quarter due to rains which continued into early October.”

— Wisynco Chairman William Mahfood and CEO Andrew Mahfood

In particular, selling and distribution expenses jumped by 25.6 per cent to JM$1.84 in the period under review, moving from JM$1.47 billion in second-quarter 2019. Similarly, administrative costs climbed by 23 per cent or almost JM$68 million to JM$352 million in the period.

As a result, net profit for the October – December 2019 period fell by 25 per cent, or JM$193.2 million, to JM$582.4 million.

Styrofoam ban fallout

Wisynco noted further the reason for the increase in administrative expenses.

“Due to the closure of the Styrofoam plant with effect December 31, 2019, in accordance with the Government of Jamaica’s ban on production and sale of Styrofoam in Jamaica effective January 1, 2020, there was a one-off loss accounted for and reported in this interim report as discontinued operations which impacted our net profit by [JM]$262 million.”

Wisynco Group’s alternative to Styrofoam, Ecofoam. (Photo: Wisynco)

Still, the company said it expects to recoup funds stemming from the ban on Styrofoam, and eventual closure of its Styrofoam operation. The Government had committed to compensating companies that experienced a fallout as a result of the Styrofoam ban.

New business, cost savings

In addition to the Government’s payback, Wisynco is looking forward to “securing new business lines” as it continues to grow its beverage portfolio as it expects to increase shareholder value.

Moreover, the manufacturer will begin to realise “cost savings and efficiencies” when it commissions into operation a cogeneration plant in the current quarter.

Last December the company announced that its parent company, Wisynco Group (Caribbean) Limited, acquired a 30 per cent stake in Worthy Park Estate Limited. With this acquisition, the company negotiated, and secured, a five-year exclusive distribution agreement with Worthy Park.

Last December Wisynco announced that its parent company acquired a 30 per cent stake in Worthy Park Estates Limited and negotiated for a five-year distributorship of the sugar and spirits portfolio. (Photo: Wisynco Group)

“We expect an annual revenue increase of approximately two billion dollars once we take over the distribution of both the sugar and spirits portfolios. Additionally, in 2019 Worthy Park will introduce new retail packaging for sugar. We [Wisynco] will be handling distribution, sales, trade marketing, and advising on product innovation while Worthy Park will handle manufacturing and consumer marketing,” Chairman William Mahfood disclosed then.

“We are confident in their products, as they are producers of the highest-quality sugar and we are aiming to get their [Worthy Park] brands to every shop in the island. This partnership will present no risks to current profits and can only add benefit to our investors.”