In a Caribbean Business Report follow-up, Salada Foods’ consideration of another stock split is being questioned by at least two minority stockholders.
The company announced earlier this month that it is considering a stock split, 12 years after the last one in November 2008. The two shareholders made their position known when they questioned the directors and management at the company’s Annual General Meeting (AGM) on Thursday, February 20.
They were particularly interested in knowing the necessity of the stock split at this time given that there is no direct benefit to shareholders. The board of Salada is to meet on Thursday, March 19, at its 20 Bell Road, Kingston 11 headquarters at which time a decision would be made on the stock split.
A stock split is usually engineered to ensure that there is no dilution of the stock’s value to investors. However, there is no dividend increase even though shareholders will get a greater volume of shares held in the company.
At the AGM minority shareholder, Orette Staple quizzed Salada’s Chairman, Patrick Williams regarding what is to be gained by the stock split. Williams in response was unable to say much about the matter at this time, citing Jamaica Stock Exchange (JSE) rules, which prevents the disclosure of matters that are under active consideration prior to any determination being made.
Salada is traded on the JSE and is therefore bound by JSE rules. However, Williams referred Staples and any other shareholders interested in knowing the benefits of a stock split to undertake a Google search and obtained the information through their independent research.
Salada is in the business of food manufacturing and coffee processing.
In November 2018 Salada considered and implemented a 10 to one stock split due to the fact that the near doubling of its market price in the past few months back in 2008 would take the stock out of the reach of mainstream investors.
Salada, with less than 10.4 million shares in issue then was already one of the JSE’s most illiquid stocks, which trades in tiny volumes. At J$70 per share then Salada was the seventh most expensive stock and was the seventh lowest in market capitalisation of more than 40 stocks, at $727 million.
Salada Foods’ business model, as it now stands, is under imminent threat from the imposition of a government cess imposed by the Jamaica Agricultural Commodities Regulatory Authority. Last year Salada paid $90 million in cess, which is levied on imported green coffee beans at a cost of USD$1.41 per kilogramme.
Imported green coffee beans are a raw material used to manufacture instant coffee, which is Salada’s primary manufactured product. Arising from this, the company got an $81 million hit on the cost of sales, which adversely impacted operating profit, which declined by 37 per cent as a result.