Salada Foods is employing a slew of counter measures to suppress the negative impact of the government cess, which is hitting the company’s bottom line very hard.
The Jamaican food company told shareholders at its Annual General Meeting (AGM) on Thursday, February 20, of two strategies being employed that of greater exports and diversification to counter the negative effects of the cess, which is levied on imported green coffee beans at a cost of US$1.41 per kilogramme. Imported green coffee beans, is a raw material used to manufacture instant coffee, which is Salada’s primary manufactured product.
Salada, which is one of the island’s premier coffee processor and food manufacturer got a $81 million hit on the cost of sales from the cess, which adversely impacted operating profit that resulted in a declined by 37 per cent. Last year Salada paid $90 million in cess.
“Increased manufacturing costs attributed to the use of Jamaica Blue Mountain green beans coupled with increased factory maintenance charges in the quarter drove cost of sales upwards, reducing profitability.”– Chairman Patrick Williams and Director Michael Bernard
Addressing the AGM held at the Jamaica Pegasus Hotel, Salada’s General Manager, Dianna Blake-Bennett disclosed that already Salada has been prospecting for new markets and has employed diversification strategies. She emphasized that these initiatives are already reaping some success.
However, the Salada boss readily admitted to shareholders that the company’s business model, as it now stands is under imminent threat from the imposition of the cess.
Penetrating new markets
Blake-Bennett told agitated shareholders that Salada is looking at penetrating the markets of the United States, United Kingdom, European Union and China. She highlighted some of the challenges, which the company has encountered such as getting its products in these territories, where there are large pockets of Jamaican Diaspora.
This is in addition to identifying a reliable distributor, who will carry the products in these diaspora communities. Blake-Bennett outlined other strategies to build and grow the business, thus negating the negative effects of the cell.
These include focusing on new channels and introduction of series of new products to engage different kinds of consumers and of course we must continue to engage our young people, as they represent what the brand would look like in the future.
While growing the export business she said the domestic market, which is the company’s primary source of business, will not be left behind as there will be a greater push to be engaged in growing contract business, where manufactured products are produced and sold in bulk. This will be an added feature of the diversification push to mitigate added cost occasioned by the cess.
Shareholders vent about cess
Some shareholders openly vented their views about the cess killing the company financially and questioned management about its lobbying effort to get a relaxation of abolition of the cess. In fact, two shareholders stopped short of criticising the management of not doing enough to convince the government to abolish or relax the cess.
The management and the board of directors in attendance made out a case to the shareholders that everything possible was done to convince the government to do away with the cess but their pleas fell on deaf ears. In spite of this, the management and board say they will continue to lobby the government on this matter in hopes that a rollback is possible.
Improved quarterly financials
Salada Foods reported a 219 per cent improvement in operating profit for the first quarter September-December 2019, relative to the corresponding period in 2018. After reporting a loss of JM$15.7 million for the period September – December 2018, the company returned to profitability with JM$18.7 million posting for September-December 2019.
The company credited this improvement in its operational performance to an increase in local and export sales, as well as cost-saving measures. Revenue for the three-month period ending December 31, 2019 was 288.46M or 67 per cent above the 172.34 posted for the comparable period last year.
Revenue improvement was attributed to increases sales in both domestic and export markets, an interim report to shareholders stated. In terms of expenditure, Salada reported that it curtailed both administrative and promotional expenses, which were $31.4 million less than in the same period last year.
Salada also saw an improvement in its gross profit for the period, which increased 92 per cent, moving from JM$34 million as of December 31, 2019, to $65.3 million in the period under review. That notwithstanding, manufacturing and maintenance costs impeded the company’s ability to realise greater profit.
“Increased manufacturing costs attributed to the use of Jamaica Blue Mountain green beans coupled with increased factory maintenance charges in the quarter drove cost of sales upwards, reducing profitability,” Chairman Patrick Williams and Director Michael Bernard reported in their Director’s report.